a group of people walking on a sidewalk: Pedestrians pass residential property advertised in the window of an estate agent in Stockholm, Sweden, on Thursday, April 4, 2013.© Bloomberg
Pedestrians pass residential property advertised in the window of an estate agent in Stockholm, Sweden, on Thursday, April 4, 2013.

(Bloomberg) — The Nordic real estate market attracted more investor cash than ever before last year, and it’s now getting even hotter.

Linus Ericsson, chief executive of the Swedish unit of Fortune 500 real estate adviser Jones Lang LaSalle Inc., says much of the demand comes from outside the region, where buyers are looking for scale.

“They have massive amounts of money, and the bigger the better,” he said in a phone interview.

To keep up, Jones Lang LaSalle expanded its Nordic business this month, bringing in three new senior advisers. “If you looked at the global appetite for real estate, it’s still a massive wall of money and that means that pension institutions everywhere are looking for real estate investments,” he said.

After years of negative interest rates across most of the Nordic region, real estate has emerged as the ultimate target for institutional investors desperately chasing returns. Last year saw a record for transactions — 44 billion euros ($49 billion) — across Sweden, Norway, Denmark and Finland, according to Pangea Property Partners. Shares in Nordic property firms are outperforming their European peers, and even their riskiest debt is coveted among investors.

Alexander Stiris runs Citigroup Inc.’s Nordic corporate banking operations as head of the regional cluster. He says the industry’s offerings of so-called hybrid bonds, which can be converted into equity, almost quadrupled in 2019. He also says investors are drawn to Scandinavia’s transparency and the relative ease with which assets can be traded.

Danske Bank estimates that Sweden’s weak krona means even record-high valuations still leave room for transactions by offshore buyers. The Swedish financial regulator estimates that foreign investors were behind almost a third of the country’s transactions, by value, last year.

The intense influx of foreign cash has some local regulators worried. The region has a history of property booms suddenly turning into busts, and financial watchdogs are eager to avoid a repeat. Sweden’s Financial Supervisory Authority has told banks to build more capital against potential losses. In Denmark, the regulator is telling lenders not to ease credit standards.

Stiris at Citi says investors have taken note of those concerns. The main metrics they’re looking at to gauge risk are indebtedness and occupancy rates, compared with European peers. But so far, nothing they’ve seen has “stopped them from coming in,” he said. In fact, even as the supply of debt issued by Nordic property firms has grown, yields have dropped.

Back in 2018, only one real estate company issued a hybrid bond of benchmark size — Akelius Residential Property AB — offering 500 million euros, according to data compiled by Citi. Last year, there were three, but the cost of the debt kept falling.

Nordic property companies issued 1.5 billion euros in hybrid debt last year. The instruments help them meet rating company requirements for capital, but at a lower cost than equity.

“In some cases corporates have raised hybrids to buy back preferred shares,” Stiris said. It just goes to show “how cheap hybrid is.”

To contact the reporters on this story: Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net;Hanna Hoikkala in Stockholm at hhoikkala@bloomberg.net

To contact the editor responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net

For more articles like this, please visit us at bloomberg.com

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