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During the period of zero interest rates, residential properties’ share of real estate investments increased. Attractive returns led professional investors to build and buy new rental properties. During H1, the growth in supply continued at a rapid pace as the projects started previously were completed. At the same time, due to the slump in the housing market, unsold new owner-occupied residential properties entered the rental market. Due to increased supply, during 24Q2, 9.5% of the 110,000 non-subsidised rental properties included in KTI’s statistics were vacant in the country as a whole. The share of empty rental properties remained highest in the Helsinki metropolitan area, with vacancy rate slightly increasing to 10.4% in Q2.
The real estate investment market has undergone significant changes in recent years. However, according to the Bank of Finland, the anticipated development of the operating environment will gradually promote the growth of real estate investments and the market. Although the supply of rental housing is currently ample, the growth of this supply is slowing down, creating attractive long-term potential in combination with the continuing urbanisation trend.
At the beginning of the year, the supply of rental housing continued to grow at a rapid pace as the projects started earlier were completed. Similarly to the started housing projects, a strong downward trend in building permits emerged in early 2022, which is now starting to be manifested as fewer completed residential properties. In addition, because of the challenging market situation, the housing construction projects that have been started have mainly been subsidised production. The volume of market-based housing to be completed in the next few years is low.
The increased supply is reflected in the numbers of rental listings, which have even grown manyfold, as in the Helsinki metropolitan area, for example, compared to the pre-Covid period, based on Vuokraovi.com’s listings data. In turn, this has slowed down the development of non-subsidised rents in the Helsinki metropolitan area since 2020.
In the short term, rents fluctuate for a variety of reasons. In the longer term, higher occupancy rates are reflected in the emergence of upward pressure on rents. For example, in Oulu and Tampere, lower vacancy rates have promoted better rental development than in the Helsinki metropolitan area. Before rents can come under upward pressure, the excess capacity in the Helsinki metropolitan area must be used up.
For several years, both government-subsidised and non-subsidised rents developed at almost the same steady average pace. In the prevailing market situation, non-subsidised rents are developing at a significantly more moderate rate than government-subsidised rents. The rental gap between government-subsidised dwellings and non-subsidised dwellings has narrowed slightly over the past year.
However, this development is expected to be temporary. For example, the Finnish Affordable Housing Companies’ Federation (KOVA) estimates that non-subsidised rents are likely to rise again significantly in the future, as the current extremely low housing production volumes lead to scarcity of rental properties, especially in growth centres.
In Q3, the rental market will be at its hottest. People moving to larger cities will play a significant role in the use of the available supply. In the Helsinki metropolitan area, the rental market situation for one-room flats in particular has come under pressure in recent quarters, as vacancy rates have decreased, reflecting increased supply.
“In particular, the arrival of students plays a major role in increasing the net migration to university towns during the summer months. In light of the statistics, occupancy rates have typically improved in Q3 compared to the early part of the year in large cities. At the same time, relocations due to changes in housing allowances have begun, while at the same time an increasing number of students are looking for more affordable rental flats. In theory, the equation is expected to increase demand for both the older housing stock and smaller flats,” says Retta’s real estate analyst Anton Takkavuori.
The changes in housing allowances are reflected in demand for student flats in particular, which are occupied all over Finland, according to MTV’s report Dozens of applications for each student flat – MTVuutiset.fi. The popularity of shared flats, which are cheaper than one-bedroom flats, fell radically for a long time, but they have also recently been in historically high demand, the MTV report reveals.
The development of returns has been under pressure, which has increased the number of redemptions of open-end real estate funds. The reductions in the funds’ balance sheets are explained by both net redemptions and the decreased values of the properties owned by the funds.
The liquidity risk caused by the increase in redemptions has been materialised in parts. As a result, the need for the funds to manage liquidity risk has increased. In July, capital was redeemed especially from real estate funds. However, it should be noted that the majority of open-end real estate funds were not open for redemptions in July. A broader view of the situation in the fund market can therefore only be created after the autumn’s fund reports. Fund report archive (sijoitustutkimus.fi)
“In H1 in 2024, residential real estate was the most traded real estate sector, accounting for 38% of the total volume. Foreign investors accounted for about 50% of the total volume. It is positive that foreign investors are expanding the ownership base among Finnish real estate investors while increasing the liquidity of the market. As a by-product of the increased foreign investments, the property cycle in our domestic market becomes linked to the Nordic and global property cycles. Overall, the end of the zero-interest period will improve the investment environment and reduce the pressure on investors to engage in excessive risk-taking and profit-seeking,” concludes Takkavuori.
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Anton TakkavuoriKiinteistöanalyytikkoRetta Managementanton.takkavuori@retta.fiPuh. 0400 853 528
* Figures are based on data and statistics from KTI, Statistics Finland, Investment Research, MTV, KOVA and the Bank of Finland
