The Swedish economy has improved at a slower pace than most forecasters expected at the beginning of the year, but our consensus forecast indicates a growth of 2.7% in 2015, up from 2.4% in 2014, which are strong figures compared to most mature economies in Europe. The Bank of Sweden is however still concerned about the development of the economy, inflation and the euro zone, which led to a 10bps cut in the repo rate to -0.35% and a further expansion of the QE programme by SEK 45bn. Many other macro-economic indicators do, however, indicate an improvement to the Swedish economy.

^{Source: Savills European Research}

The interest for property investments is extremely strong and competition for assets on the market is fierce. 2014 was a record year in terms of transaction volume and the market has performed strong in the first half of 2015 and the commercial property investment volume amounted to SEK 45bn (€5.3bn), which is in line with the same period in 2014. If residential assets are included, as they represent an established investment segment, the total investment volume for the first half of 2015 amounts to SEK 65bn (€7.6bn) which is also in line with 2014 figures. The low interest rate climate is expected to keep investor interest strong and 2015 is most likely to be in line with investment volumes close to last year’s figures. Portfolio transactions have reached a record high where 37% of the transactions were property portfolios.

Source: Savills European Research

The lack of seller interest has led to increasing competition for prime assets in the larger cities (Stockholm, Gothenburg & Malmö) resulting in yield compression on these markets. The lack of prime assets has forced investors to widen their investment criteria to secondary assets or other sub-segments or geographic markets. It is expected that this trend will lead to yield compression on most assets, unless they are burdened by significant problems, such as very high vacancies or risk for obsolescence.

International investors struggle to compete against domestic institutions and pension funds, especially for prime office assets, residential and public properties. International investors have however been successful in acquiring retail and logistics assets, where there is less competition from domestic institutions.