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In recent years, the rental market in Finland, and especially in the capital region, has been exceptional compared to many other European markets. This is largely explained by the Ministry of Finance statistics indicating that in the early 2020s, a higher number of residential properties per capita were built in Finland than anywhere else in Europe. Overall, the number of residential properties built in Finland in 2015–2022, partly because of zero interest rates, greatly exceeded the demand for them. Declining demand in the real estate investment market affects construction, as large real estate investors have had a significant impact on housing construction.
Rents in the Helsinki Metropolitan Area have stagnated for several years, despite rising inflation. At the same time, the construction of new rental housing has slowed down dramatically since the end of 2022. The slowing growth of supply is expected to improve the situation in the rental housing market in the short term, especially in the Helsinki Metropolitan Area. As expected, the supply of rental housing decreased in large cities in Q3 as a whole. However, this is partly explained by strong seasonal variation. In addition, in recent years, Q4 occupancy rates have typically weakened slightly, and supply has increased.
“The rental market was supported by a seasonal spike in demand in Q3, as well as slower growth in supply due to sluggish construction. Rental housing occupancy rates increased during the summer in all cities outside the metropolitan area with more than 100,000 inhabitants, and the number of rental ads decreased. However, in the Helsinki Metropolitan Area, a clear change in the rental supply is emerging more slowly. Outside the metropolitan area, the numbers of rental housing listings have decreased more than in the metropolitan area, which is reflected in more favourable developments in occupancy rates and rents,” explains Retta Management’s real estate analyst Anton Takkavuori.
Rental housing occupancy rates in the Helsinki Metropolitan Area, which fell sharply from the beginning of 2020, showed a tentative increase in Q3. However, underutilisation is still common among all apartment types in the Helsinki Metropolitan Area. The stock of more than 100,000 non-subsidised rental properties owned by professional residential property investors, monitored by KTI, shows that in Q3, the overall rental housing occupancy rate in the Helsinki Metropolitan Area increased to slightly over 91%, compared with 89.8% in Q2 this year.
In large cities outside the metropolitan area with more than 100,000 inhabitants, utilisation rates as a whole went up from Q2, climbing slightly above 95%. In Q3, the highest utilisation rate for a large city, 97.5%, was seen in Oulu. In contrast, the development of the utilisation rates in Q3 was disappointing in Vantaa, where the rates did not increase, despite the typical demand spike during the quarter.
At an annual level, rents in the Helsinki Metropolitan Area have still lagged behind other large cities. KTI’s statistics show that for new leases in Helsinki and Espoo, rents increased by 0.4%. In Vantaa, rents decreased by 0.1% year-on-year.
Due to high occupancy rates, rents for new leases in large cities increased most in Oulu and Tampere. The year-on-year change in rents reached 3.8% in Oulu and 3% in Tampere. In large cities outside the Helsinki Metropolitan Area, rents increased by an average of 2.5% in Q3 this year compared to the corresponding period last year, which is significantly more than in the Helsinki Metropolitan Area (0.3%).
In investments, uncertainty is a constant nuisance. For example, the general economic situation currently raises questions about the rental market. Due to the knock-on effects, the deterioration of the economic situation may affect residents’ ability to pay rent, for example.
In the last year, uncertainty has still been evident in the rental market in the form of increasing numbers of evictions, for example. The number of evictions in January–August increased by an average of 15% compared to last year, according to the statistics of the Enforcement Authority. In many large cities, including the metropolitan area, where the role of housing allowance is significant in the rental market, the eviction percentage has increased even more. It is possible that the number of evictions will grow further towards the end of the year.
The turmoil in the Finnish housing market due to high interest rates has been reflected in real estate funds. Redemptions from real estate funds were still growing during 24H1. While new fund purchases have increased slightly during 2024 compared to the second half of 2023, they are still at a significantly lower level than in previous years. Redemptions, along with inflation, declining interest rates and increases in consumers’ purchasing power, can be expected to stabilise in the near future. Investor confidence is likely to pick up on the back of a more positive interest rate outlook.
In recent months, fund investors have shifted their focus slightly to equities. However, as interest rates fall, property yield requirements are also expected to decrease, raising the value of properties. The market situation is reflected in the values of real estate funds with a delay due to factors such as slow transaction processes.
OP and Hypo banks estimate that the prices of old residential properties will begin to grow, with significant increases seen next year. Yet the journey to new peak prices will take time. OP estimates that the prices of old residential properties will rise to the record level of 2021 at the earliest in 2027, and perhaps only in 2028.
The rental housing market will be put to the test at the end of the year, especially in the Helsinki Metropolitan Area. In Q3, the rental market was still supported by favourable seasonal fluctuations. The rental housing market in the Helsinki Metropolitan Area has been characterised by a strong increase in supply, which has been manifested as significant underutilisation and a modest development of rents. In the Helsinki Metropolitan Area, the number of rental announcements has not yet begun to decrease as significantly as in large cities outside the capital region. At the end of the year, we will see whether the market has really turned the corner, or whether it remains sluggish.
“Occupancy rates exhibited an upward trend in Q3 in most major cities compared to Q2. Admittedly, the rental market was lifted not only by the summer spike in demand but also by the slower growth of supply. It is this slowdown in the growth of supply that gives the rental market a better starting pointing for the remainder of the year than was the case last year. Q4 will pose the real test,” says Takkavuori in summary.
Additional information:
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Anton TakkavuoriKiinteistöanalyytikkoRetta Managementanton.takkavuori@retta.fiTel. 0400 853 528
*Figures based on KTI, Statistics Finland, Ministry of Finance, OP, Hypo, Inderes and Enforcement Authority publications and statistics
