Around 80% of Finland’s total real estate exposure is in domestic direct core investments. Only 12% of all Finnish real estate investments are made abroad, it shows.
‘Finnish real estate has proven to be relatively stable during the financial crisis. It is hardly surprising that many investors see no need to go outside their country,’ said Lonneke Löwik, INREV’s director of research and market information.
Interestingly, though the Finnish real estate market is small by comparison to the other key markets in Europe, institutional investors in Finland hold the largest allocations with real estate accounting for around 10.8% of their total investments. This is marginally greater than the Netherlands where real estate accounts for 10.5% of the total institutional investment universe.
Pension insurance companies dominate the sector accounting for more than half of the total real estate universe. They are also the largest investor group in the non-listed real estate sector, though here their share of the market slides to 36%. Pension schemes and life insurance companies make up 33% and 22% of the non-listed real estate sector, respectively.
‘Real estate as an asset class in Finland is particularly attractive to pension insurance companies. It seems to suit their long term perspectives, their long term liabilities, and the greater resources required to manage labour intensive assets,’ said Ilkka Tomperi, partner at Capman Real Estate.
Despite investor preferences for the domestic market, non-listed real estate investments remain the preferred method for investing abroad.
Pension schemes hold the highest exposure to non-domestic, non-listed real estate funds, with 25% of their real estate investments held outside Finland.
‘The majority of non-domestic investments are primarily targeted at other European countries. It is typically the first and, for some, the only non-domestic market that Finnish investors enter. But we’re also seeing some interesting moves beyond European borders. About one third of those surveyed have investments in Asian countries,’ explained Tomperi.
‘Some investors also talked about the potential for future opportunities in the US and Brazil, though there were reservations about the feasibility of a truly global exposure owing to the size of portfolios,’ added Tomperi.
Respondents to the survey highlighted the lack of control and the overall fee burden over the life of a fund as the main disadvantages of investing in non-listed real estate. For many Finnish investors, securing a seat on the advisory board or the investment committee is a pre-requisite for investment in a non-listed real estate fund.
‘Finnish investors have a clear, low risk strategy focused on a familiar market with control over their investments,’ said Löwik.
Nonetheless, the survey shows that investors expect to increase their allocations to non-listed real estate by 27% over the next three years; and the general real estate universe of Finnish investors is expected to grow by around 21% over the same period.
The non-listed sector is seen as an attractive option by those investors looking for international diversification, access to new markets, and access to leveraged capital and higher returns.
‘The recent economic uncertainty has actually shed a positive light on real estate investments in general for Finnish investors. Although they still have a strong preference for direct investments, some have expressed an interest in greater diversification, which will mainly come from non-listed investments,’ concluded Löwik.
