NEWSEC PROPERTY OUTLOOK FINLAND

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1 NEWSEC PROPERTY OUTLOOK AUTUMN NEWSEC PROPERTY OUTLOOK FINLAND AUTUMN 2018 HIGH DEMAND ON THE REAL ESTATE MARKET ANALYSIS OF THE FINNISH HOUSING MARKET SUMMER IS FAR FROM OVER FOR THE ECONOMY THE FULL SERVICE PROPERTY HOUSE

2 NEWSEC PROPERTY OUTLOOK AUTUMN CONTENTS 4 5 EXECUTIVE SUMMARY 6 9 SUMMER IS FAR FROM OVER FOR THE ECONOMY REAL ESTATE MARKET THE EUROPEAN REAL ESTATE MARKET REAL ESTATE MARKETS IN FINLAND HELSINKI METROPOLITAN AREA HELSINKI CITY CENTER TAMPERE TURKU OULU OTHER REGIONS ONGOING CONSTRUCTION PROJECTS HOUSING MARKET INFORMATION ABOUT NEWSEC 48 NEWSEC IN FINLAND Copyright Newsec 2018 This report is intended for general information and is based upon material in our possession or supplied to us that we believe to be reliable. Whilst every effort has been made to ensure its accuracy and completeness, we cannot offer any warranty that factual errors may not have occurred. Newsec takes no responsibility for any damage or loss suffered by reason of the inaccuracy of this report. You may use the information in the Newsec Property Update but acknowledgement must be made for all quotations and use of data/graphics.

3 EXECUTIVE SUMMARY NEWSEC PROPERTY OUTLOOK AUTUMN PROPERTY MARKET LIQUIDITY REMAINS GOOD; HIGH PRICES HAVE ALSO INTRODUCED MORE SUPPLY. HIGH DEMAND ON THE PROPERTY MARKET HAS ALSO BOOSTED SUPPLY YIELDS OF CORE AND CORE PLUS PROPERTIES HAVE REDUCED FURTHER INCLUD- ING IN GROWTH CENTRES OUTSIDE THE METROPOLITAN AREA. OFFICE PROPERTY RENTS IN HELSINKI CITY CENTRE HAVE INCREASED WHILE THE VACANCY RATE HAS DECREASED. TRANSACTION VOLUME BASED ON RISK PROFILE 2018 H1 1% 16% 19% 64% core core plus opportunistic value added Although last year s record numbers are unlikely, the property market volume is set to remain relatively high. Demand on Finland s property market also remains high, which has led to an increase in supply. The economic upswing is seen as a good setting in which to sell, as the retrieved price is likely to be good. At the same time there is a lot of uncertainty surrounding interests no one really knows when the European Central Bank will make significant changes to its reviving monetary policy. The uncertainty on the market is translating to cautiousness with regard to investment in new properties to be completed in a couple of years time. During the first half of 2018 the transaction volume amounted to approx. EUR 3.9 billion. Nearly two-thirds of the volume was made from core properties. Altogether more than 30% of the total volume were made from the core plus and value added properties. This is explained by a few major portfolios in the spring. Investors have also turned their attention more and more to higher-risk investments over the past few years. Yields in Helsinki city centre s core properties have decreased further. In fact, the yields of Helsinki s prime offices are now on the same level as those of Stockholm s prime offices. Simultaneously yields for higher risk core plus properties have also decreased. Market liquidity has also increased in other growth centres, which are beginning to show up more on some of the international investors radars. An increase in core property prices in Helsinki city centre has meant that rents have increased too. Gross rents for prime office properties now exceed EUR 40/m 2 /month, and rents in new prime property leases have also gone up in the last few months. The decreased vacancy rate has had an effect on rising rents. The vacancy rate in the metropolitan area s office properties continues to vary significantly between submarkets and even individual properties. An old property may have a very high vacancy rate in one area, for example, while a modern property next door could be fully occupied. Therefore, a property s age and condition should be considered in addition to location when assessing the market. On the retail property market, space supply will increase significantly this year and next as several shopping centres are completed. The centres, which have good accessibility from a consumer point of view, will thrive, whereas old properties with limited services and weak location may lose their market standing, especially considering the expected increase in online trade. The strong growth in online trade is also reflected in the logistics market, where there is demand for new properties. Certain people believe that the logistics market is seen globally as the new retail property market. Consumers and service providers expectations are clearly directed towards the efficient distribution of products. Vast amounts of money are still flowing into global property markets. Consequently, investment capital continues to flow into fringe market areas like Finland. Urbanisation is now considered a permanent trend too. The market situation in Finland will remain very favourable for the following year. The volume depicting property market liquidity in relation to the size of the market has settled permanently to the expected 8 10 per cent as new international investors arrive on the market. This suggests that the Finnish property market has reached the same level as European markets with larger economies. Olli-Pekka Mustonen Head of Research Newsec olli-pekka.mustonen@newsec.fi

4 SUMMER IS FAR FROM OVER FOR THE ECONOMY NEWSEC PROPERTY OUTLOOK AUTUMN SUMMER IS FAR FROM OVER FOR THE ECONOMY The early summer business cycle is behind us and we are now living in a midsummer mood. Some yellow foliage can already be spotted but summer is far from being over. Best not think about the odd thunder storm that might soak you through. INTERESTS ON A SLOW RISE Towards the end of last year, all global economic indicators pointed to an improvement. In the first half of the current year, development was a bit scattered, and some economic surveys revealed a downward trend. Despite this, all signs point to positive developments. The world economy is expected to grow further next year, albeit more slowly than this year. The eurozone economy lagged slightly behind expectations early this year, but decent two-per-cent economic growth is still on the horizon, which will be enough to boost inflation steadily towards the European Central Bank s goal of just under two per cent. ECB is phasing down its exceptional recovery measures. It will keep its interest rates unchanged for another year, however, if the economic growth meets its expectations. Signs of a heating economy related to a boom will not be seen until 2020 at the earliest. GROWTH INCREASING STEADILY The Finnish economy was achieving three-per-cent growth earlier this year, which is about double the estimated rate possible in the long run. The domestic market and exports are doing well on a

5 SUMMER IS FAR FROM OVER FOR THE ECONOMY NEWSEC PROPERTY OUTLOOK AUTUMN variety of fronts, and the outlook for next year is positive. The rate will most likely be lower than this year but is still set to exceed long-term expectations with a clear margin. Economic development will be more uneven than before, with some sectors at their full capacity. Housing construction, for example, may already begin to decrease, but the activity will remain high. The positive trend has also had a strong impact on employment. Unemployment has decreased, and employment has improved better than expected. It is no wonder that households confidence in their own finances was stronger this summer than at any time since the financial crisis. With the improving economic situation for households, consumer demand will pick up, whereas investments and exports may experience weaker growth than before. BALANCED DEVELOPMENT Economic growth in Finland has been fairly balanced and will continue on that course next year. There are no signs of wide-range overheating for the economy. Improved price competitiveness, extended capacity and strong demand have boosted exports resulting in a balanced economy. housing loans. The rise in household indebtedness follows the long-term trend, however, and is significantly lower than in other Nordic countries. SOME UNPREDICTABILITY WITH RISKS Finland s economic outlook is positive in many ways. The economy is slowed down in the short term mostly by its potential lack of capacity or bottlenecks in the labour market. Signs of a heating economy related to a boom will not be seen until 2020 at the earliest. The most essential risks are related to international development. The threat of a trade war looms, its significance for prospects changing on a nearly daily basis. So far the effect of actual measures remains minor but the threat should not be taken lightly. Naturally the world economy is starting to reach its peak and it is likely to start slowing down at the beginning of the coming decade. That is still in the future, though, and the prospect for the next 12 months or so is very likely to be extremely favourable. Unemployment rate / trend % 9,50 9,25 9,00 8,75 8,50 8,25 8,00 7,75 7,50 7,25 7,00 EMPLOYMENT- AND UNEMPLOYMENT RATE % 72,0 71,5 71,0 70,5 70,0 69,5 69,0 68,5 68,0 67,5 67, Unemployment rate Employment rate Sources: OP and Macrobond CHANGE IN FINNISH GDP Employment rate / trend Cost pressures have also remained moderate. Inflation will remain below the ECB s target level of slightly under two per cent. Wage developments have also been relatively moderate so far. Government finance has improved too. Debt ratio went down below the 60-percent benchmark early this year and structural deficit will now be below the target limit of 0.5 per cent. Private debt to gross national product has also decreased, meaning that the development of private indebtedness has remained moderate, and surprisingly slow, in fact, in relation to the business cycle. Annual change, % The role of housing coop loans is up for debate. The overall picture remains a bit hazy, however, because there is no clear understanding of the connection and correlation between growing housing coop loans and household s private Reijo Heiskanen Chief Economist Sources: OP and Macrobond

6 THE EUROPEAN REAL ESTATE MARKET NEWSEC PROPERTY OUTLOOK AUTUMN STRONG PERFORMANCE SEEN IN THE EUROPEAN REAL ESTATE MARKET sqm 900, , , , , , , , ,000 OFFICE DELIVERABLES IN 2018 selected European cities The European real estate market is performing well. Improving economic growth and the relative attractiveness of the asset class will drive increased demand for commercial real estate. The current real estate cycle is seeing limited development activity. As a result, this is leading to vacancy rates across most markets falling and rental growth increasing. Vacancy rates have reached all-time lows across many markets and rising rents make development a more financially attractive proposition. We are beginning to witness signs of higher construction activity emerge. The development activity focus is now clearly switching to the office sector, which is starting to experience increased activity. A notable example is Copenhagen. Copenhagen offers several new large urban development areas, many of them near the city centre, where industrial areas are being transformed into residential and modern offices. THIS YEAR WILL BE A GOOD YEAR FOR RENTAL GROWTH This year, we anticipate vacancy rates to edge lower or remain stable in most major cities, with the exception of some late-cycle markets. The high vacancy rates are a challenge for office investors with several options being explored to respond to this issue. In the case of Helsinki for example, tenants are being attracted by rent-free periods, flexible agreements or with the offer of new kinds of space and service concepts being developed. Although redevelopment opportunities are actively being explored these however take time, therefore adding to the delay in the development pipeline. As a result, we will still experience muted development across Europe, which will make 2018 another good year for rental growth particularly for prime assets. We forecast increases in prime rents in most markets in 2018, with Berlin (9.0%), Frankfurt (7.3%), Helsinki (5.6%) and Munich (5.4%) among the strongest. Central London will be the exception. Prime headline rents have fallen along with a rise in use of incentives. For this year we anticipate a further fall in rents across London as typically incentives approximately at 24 months rent free are as far out as they go. European real estate has delivered positive total returns as expected. However, countries are in different phases of their cycle with momentum increasing in some and decelerating in others. Following an extended period of above-average performance, total returns are almost certain to moderate this year. The drivers will shift from yield compression to income growth, while capital values will be driven primarily by a steady increase in rents. Three underlying assumptions drive the outlook for real estate in Europe: the economic recovery; accommodative monetary policy; and the need for sustainable income. Sukhdeep Dhillon Senior Economist % Brussels Brussels Prague Prague Copenhagen Copenhagen- Helsinki Helsinki Paris CBD Paris CBD Lyon Berlin Berlin Budapest Münich Rome Budapest Amsterdam Rome Warsaw Amsterdam OFFICE VACANCY RATES selected European cities Lisbon Warsaw Lisbon Madrid Madrid Stockhom Stockholm London London

7 NEWSEC PROPERTY OUTLOOK AUTUMN REAL ESTATE MARKETS IN FINLAND ROVANIEMI Newsec wants to offer information about the largest markets for various operators. The following city-specific chapters contain tables detailing gross rent, vacancy and yield levels for office, retail and logistic properties in the most important market areas in these cities. These tables present Newsec s view of market parameters. Doing so enables us to better depict the heterogeneous nature of the market, as differences in quality between areas can be considerable. It is worth noting that there are also findings both below and above the dispersion. The market parameters of our outlook are based on findings in our database as well as our strong market expertise which, in turn, is based on several projects with our clients. We are more than happy to discuss the Finnish real estate market and our views on market parameters. MARKET PARAMETERS: GROSS RENT EUR/M 2 /MONTH Gross rent is the total rent paid by the tenant for the use of the property, including compensation for the capital (capital cost and taxes and insurance costs) invested in the property as well as maintenance costs. Gross rent may also include usage and user service costs. VACANCY (%) Statistic that reveals the share of vacant premises out of the entire stock. The vacancy rate is calculated by dividing the sum of vacant properties areas by the size of the stock. YIELD (%) General term used for yield to describe the ratio between annual net rent profit based on market rents in the period in question and property prices. OULU KUOPIO VAASA SEINÄJOKI JYVÄSKYLÄ PORI TAMPERE LAPPEENRANTA HÄMEENLINNA LAHTI Kauri Melakari Head of Data Science Newsec kauri.melakari@newsec.fi TURKU HELSINKI SATELLITE MUNICIPALITIES HELSINKI METROPOLITAN AREA

8 NEWSEC PROPERTY OUTLOOK AUTUMN THE HELSINKI METROPOLITAN AREA Low interest rates are helping with property investments, which has kept investment property yield in steady decline. Foreign operators interest in property investments has remained particularly strong, bringing new players to the market. The majority of Finland s property transactions total value is still focused on the metropolitan area. As initial yields are now coming close to European cities levels, particularly in core properties, foreign investors are now the most active buyers. Uncertainty in interest development has put the brakes on speculative project launches, but at the same time the supply of completed properties has increased and kept the market busy. HELSINKI METROPOLITAN AREA The heated pricing of core investment properties has led to a broader scope in investment criteria and led to growing competition for properties in need of development. However, investment decisions are still primarily made after a thorough process preventing reckless rises in prices. So far, traditional core investors have focused on strong micro locations, but properties in challenging micro locations have also been sold in the value-added segment. In the metropolitan area, the interest generated by value-added portfolios is evident in the transaction which saw Swedish company Areim buy eight office properties from a fund managed by Tristan Capital Partners, Varma and Avant Capital, and another which saw American company Goldman Sachs and Australian Cromwell Property buy a total of 24 office properties from IVG Polar. construction projects are tending to locate close to rail connections such as those in Jätkäsaari, Kalasatama, Niittykumpu and Kivistö. Office tenants prefer locations that are accessible by rail as well as modern facilities. The vacancy rate of older stock is therefore high compared to other Nordic cities. Demand in the vicinity of metro stations in Espoo in particular has increased since the Länsimetro rail line was completed. New construction is tending to be near the rail lines, and properties are usually fully leased even before construction begins. New office space will be completed in Tripla, Pasila in , in Kesko s K-kampus in Kalasatama in spring 2019 and in the urban environment house in Kalasatama in early In Espoo, Ramboll s head office in Leppävaara will be completed in 2019, while in the Aviapolis area in Vantaa, several ongoing projects are set to be completed in the next 12 months. Concept changes and modernisations have been popular measures in an effort to boost visitor numbers and occupancy rates in shopping centres in the metropolitan area. Shopping centres will no longer be merely for shopping: they will be developed into centres for new experiences and entertainment as their range of services becomes more versatile and the supply of restaurants and cafés increases. The competition between shopping centres will intensify even further when REDi in Kalasatama opens in autumn 2018 and Tripla in Pasila is completed in autumn Furthermore, Ainoa in Tapiola, Lippulaiva in Espoonlahti and Hertsi in Herttoniemi are still under construction. Investment demand directed at retail properties comes mainly from abroad, examples of which include the sale of shopping centre Kluuvi from CBRE Global Investors to French company AXA and the transaction which saw The competition between shopping centres will intensify even further when REDi in Kalasatama opens in autumn 2018 and Tripla in Pasila is completed in autumn Apartment investments have offered comparatively stable and higher profits than office properties in recent years. In residential property transactions, Finnish operators are still the most active buyers but in portfolio transactions in particular foreign operators interest has grown. Increasing apartment production is bringing relief to the great demand and is curbing rent rises. Accessibility by public transport is now considered more important than personal car access in rental apartments, so larger residential The latest foreign investors to land in Finland include Swedish listed company Castellum, which bought its first property in Finland from another Swedish investor Skandia. The fully leased office property is located at Salmisaarenaukio 1. German Corpus Sireo acquired Swiss Life Asset Managers fund s first property in Finland by buying the office and retail property at Kaisaniemenkatu 13 from Clarlyle. Swedish NIAM buy the shopping centres in Suurpelto and Laajasalo from NCC. Also, Norwegian company Fortus is building the Helsinki Outlet village opposite Ikea in Vantaa. Investment demand for logistics and warehouse properties has remained strong, focusing on modern facilities on the Kehä III ring road. Compared to elsewhere in Europe, profits and rents in lo-

9 NEWSEC PROPERTY OUTLOOK AUTUMN A favourable financing market, slightly higher profits compared to elsewhere in Europe and vibrant leasing kept property investment activity high in the metropolitan area. Core property pricing is set to intensify even further, which will lead to Finnish players dropping out of contention. LEPPÄVAARA AVIAPOLIS RING III PITÄJÄNMÄKI NORTHERN DOWNTOWN PASILA JUMBO AND TAMMISTO PORTTIPUISTO VUOSAARI TAPIOLA KEILANIEMI EASTERN DOWNTOWN WESTERN HIGHWAY GROSS RENT EUR/M 2 /MONTH VACANCY (%) YIELD (%) Office Retail Logistics Office Retail Logistics Office Retail Logistics NORTHERN DOWNTOWN EASTERN DOWNTOWN PITÄJÄNMÄKI KEILANIEMI TAPIOLA gistics properties are high, which attracts international investors, such as the fund managed by Deutsche Bank that bought a logistics property by the airport leased to DHL from ELO Mutual Pension Fund and LähiTapiola Group. There are no vacant new logistics properties as they are made to order for a specific tenant, like in the forward purchase type deal in which Savills IM bought a property to be leased to DSV for a club consisting of Korean investors. There have been few individual care property transactions in the metropolitan area this year. Veritas Pension Insurance bought the Töölö Hospital complex from the Hospital District of Helsinki and Uusimaa (HUS), who currently occupies the complex. Plans are in place to develop the block into apartments and retail space as HUS moves to the new Siltasairaala hospital in Swedish Hemsö increased its public use property portfolio in Finland by buying a portfolio comprising three properties leased to University of the Arts Helsinki from Helsingin Yliopistokiinteistöt. Amos Larinkoski Partner, Capital Markets Newsec amos.larinkoski@newsec.fi PASILA WESTERN HIGHWAY LEPPÄVAARA AVIAPOLIS VUOSAARI RING III JUMBO AND TAMMISTO PORTTIPUISTO Explanation for the market parameters are presented on page

10 NEWSEC PROPERTY OUTLOOK AUTUMN HELSINKI CITY CENTRE HELSINKI Helsinki city centre properties remain extremely attractive investments. In the past year, foreign investors have purchased several office and retail properties in central Helsinki for record prices. Yields from top properties have dropped to about 3.5 per cent, bringing prices closer to those of major European cities. Yields from top properties in Helsinki city centre are now comparable to those of Stockholm. The most significant transaction was the sale of the office property at Töölönlahdenkatu 3, next to Helsinki Central railway station. The transaction price here Another high-profile transaction involved the retail and office property Kirjatalo on Pohjoisesplanadi. The main tenants at the property are Akateeminen Kirjakauppa and HOK-Elanto s Stockmann Herkku. This property also houses a significant amount of office space. The buyer was AEW Europe City Retail Fund, which purchased the property for EUR million (approx. EUR 12,200/m 2 ) from Stockmann. Other significant core property transactions included the sale of Kluuvi shopping centre to AXA Investment Managers and the sale of the property mainly leased to Nordic Investment Bank at Kaisaniemenkatu 13 to Corpus Sireo. There is also continued activity on the development property market. The most significant transaction here was the sale of the property at Kansakoulunkatu 3, owned by the City of Helsinki, to CapMan fund for EUR 19.5 million. City of Helsinki will stay at the property on a short lease before moving to a new property in Kalasatama, after which point the property will be renovated. In our view, development properties remain attractive, as yields from core properties have dropped to record low levels. The small number of transactions is mainly due to a lack of suitable properties. In our view, development properties remain attractive, as yields from core properties have dropped to record low levels. was approximately EUR 190 million, or EUR 12,000/m 2. The seller was Ilmarinen Mutual Pension Insurance Company and the new owner is Deka Immobilien from Germany. The main tenant at the property is KPMG. Considering the price, this was Finland s largest office property transaction of all time. The most significant construction and renovation projects currently ongoing include Helsinki Central Library in Töölönlahti bay, the conversion of the former Kesko head office for hospitality and residential use at Katajanokka, turning the former Teboil office property into a hotel on Bulevardi, and the

11 NEWSEC PROPERTY OUTLOOK AUTUMN The vacancy rate is expected to decrease due to companies willingness to move and increased space needs, in light of the fact that there is not much space to construct in central Helsinki. construction of the Amos Anderson art museum in Lasipalatsi. The most significant completed renovations include the renovation of the Parliament House and Hotel St. George on Yrjönkatu. KAMPPI CENTER TÖÖLÖNLAHTI MANNERHEIMINTIE CBD KAIVOKATU LÖNNROTINKATU BULEVARDI ALEKSANTERINKATU POHJOISESPLANADI ETELÄESPLANADI Office market rents have increased in Helsinki city centre in recent years, and they will keep rising, albeit at a slower rate. The Finnish economy experienced strong growth in 2017, a development which is improving tenant demand and increasing companies interest in moving. The office vacancy rate is at a historic high in the city centre, however, which is curbing rent increase potential. The vacancy rate is expected to decrease due to companies willingness to move and increased space needs, in light of the fact that there is not much space to construct in central Helsinki. Retail space vacancy rates have also increased slightly for certain properties but, on the whole, the retail space vacancy rate is very low. MANNERHEIMINTIE RUOHOLAHTI KAIVOKATU LÖNNROTINKATU BULEVARDI ALEKSANTERINKATU POHJOISESPLANADI ETELÄESPLANADI CBD GROSS RENT EUR/M 2 /MONTH VACANCY (%) YIELD (%) Pekko Horttana Analyst Newsec pekko.horttana@newsec.fi CBD CENTER KAMPPI TÖÖLÖNLAHTI RUOHOLAHTI Office Retail Logistics Office Retail Logistics Office Retail Logistics Explanation for the market parameters are presented on page 12.

12 NEWSEC PROPERTY OUTLOOK AUTUMN TAMPERE TAMPERE 2017 was busier than ever on the Tampere property market, with the transaction volume exceeding EUR 800 million for the first time. The sale of Sponda s portfolio had a significant impact on Tampere s transaction volume, which doubled from Despite the buoyancy of the market, it is unlikely that the current year s transaction volume will reach last year s level. The biggest reason for this is the low number of properties available, particularly those worth more than EUR 10 million. Demand from both domestic and foreign investors on the Tampere property market vastly exceeds supply. ownership in March, when Kekäle Oy sold the property to a private investor. The property has 3,750 m 2 of office and retail space. Additionally, OP-Palvelukiinteistöt special investment fund (OP Public Services Real Estate Fund) purchased a care home property from YIT. It will be completed in Niemenranta at the end of 2019 and the transaction price was EUR 15 million. The property will have a group home and sheltered housing as well as apartments for the elderly. A significant development project changed ownership when Varma Mutual Pension Insurance Company sold the former Pyynikin Trikoo industrial property to an investment company managed by Aberdeen Standard Investment. The new owner will continue developing the area and the whole property will be renovated piece by piece. During the first phase, the middle building in their new Asemakeskus Campus. This will increase the amount of modern office space in the city centre by 13,200 m 2. The property will be completed at the end of Furthermore, Sponda will build a 20,000-square-metre office building next to Ratina shopping centre. YIT also has plans for the Ratinan Virta and Ratinan Voltti office buildings in the Ratina area. Demand for office space in the Kauppi area has increased. New construction activity is mainly due to the development of Tampere University Hospital. The Pirkanmaa Hospital District is constructing two properties; the D building (37,000 m 2 ) will be completed early 2020 and the L building (19,000 m 2 ) in the autumn of Tampere Heart Hospital (14,000 m 2 ) was completed in the spring, along with the first part of the car park with spaces for 400 vehicles. Cost estimate for the D and L buildings is EUR 170 million, whereas Strong economic growth has boosted the rental market, especially in Hervanta, where the space needs for startup companies have increased during the last 12 months. The most significant transactions in 2018 so far have involved office properties. In May, Finnpark Oy purchased the rest of the office property at Rautatienkatu 27 from VR Group for EUR 12 million. The transaction involved an area of 1,800 m 2 price of approx. EUR 6,670/m 2. Finnpark Oy already owned the other office spaces and parking spaces at the property. The property is part of the travel and service centre development project. In April, Trevian Suomi Kiinteistöt I fund, managed by Trevian Asset Management, purchased the PMK-talo office and small industry property at Erkkilänkatu 11 from Renor Oy. The transaction price for the 15,000 m 2 was EUR 10.5 million or EUR 700/m 2. Furthermore, the Sandberg building at Kauppakatu 2 in the city centre changed section of the property will see about 70 apartments completed in 2020 in addition to expanding the services in the area. According to early estimates, the development costs for the property will exceed EUR 100 million. Strong economic growth has boosted the rental market, especially in Hervanta, where the space needs for startup companies have increased during the last 12 months. This is helping to fill the spaces vacated by Microsoft. The popularity of co-working spaces among tenants has also grown, with quality demands for spaces higher than before. Office space needs to be open plan or multipurpose space in order to attract tenants. In early 2018, Technopolis began construction on their first office the cost estimate for the completed Heart Hospital and the parking hall was over EUR 55 million. The hub of Tampere retail properties has moved further south after the completion of Ratina shopping centre (53,000 m 2 ) in April. Greatest demand is currently focused around Stockmann and Ratina and Koskikeskus shopping centres. The retail spaces on Hämeenkatu have suffered due to the tramway construction, which has complicated moving by car and by foot. These disruptions will continue for several more years, as the first phase of construction will last until spring Decisions regarding the second phase of construction and whether the tramway will be extended from Pyynikintori to Lentävän-

13 NEWSEC PROPERTY OUTLOOK AUTUMN Demand for logistics properties continues to be strong in the Linnakallio area of Pirkkala. niemi will be made at the end of Spring this year saw the completion of the extension at Ideapark shopping centre in Lempäälä (15,000 m 2 ). Competition for tenants has increased during the past year, increasing vacancy rates and prolonging vacancy periods between previous and new tenants. Demand for logistics properties continues to be strong in the Linnakallio area of Pirkkala, with the construction of new logistics properties concentrated there. The number of hotel rooms in Tampere will increase due to the 10,000 m 2 hotel included in the Tampere Arena project and Finland s first Marriott hotel, which is being constructed next to Tampere Hall. The building owned by Keva Pension Insurance Company will have 229 guest rooms and a corridor connecting it to Tampere Hall. Markku Turunen Regional Director, Partner Newsec markku.turunen@newsec.fi MYLLYPURO LIELAHTI SARANKULMA- PARTOLA CBD / CENTER NEKALA KAUPPI MESSUKYLÄ PIRKKALA HERVANTA LEMPÄÄLÄ GROSS RENT EUR/M 2 /MONTH VACANCY (%) YIELD (%) CBD CENTER NEKALA SARANKULMA-PARTOLA HERVANTA MYLLYPURO LIELAHTI KAUPPI MESSUKYLÄ PIRKKALA LEMPÄÄLÄ Office Retail Logistics Office Retail Logistics Office Retail Logistics Explanation for the market parameters are presented on page 12.

14 NEWSEC PROPERTY OUTLOOK AUTUMN TURKU Economic and employment prospects are strong in Turku, which is reflected in the property market is off TURKU to a busy start in all space types. Lease rates continue to increase, and the positive vibe has also brought yields down in places. The possibility to achieve higher returns compared to the metropolitan area has further increased the interest of both domestic and foreign investors in the Turku region. Property market outlook remains positive for the entire year. The busy property market has manifested itself in decreased yields and vacancy rates. The yield for an office property in good condition and in a good location in Turku centre has gone down to below 7 per cent, even to per cent in some places in the centre. Yields from city centre commercial properties have also decreased to per cent. There has been a decrease of approximately one per cent in both property types in the past year. Average yields have of course been slightly higher than prime levels. Outside the city centre the rate is approximately 2 percentage points higher, apart from the Kupittaa area, where office property yield is estimated to be per cent. For industrial and warehouse properties in good condition the yield is approximately 8 10 per cent, and over 10 per cent in places, depending on tenants, length of lease and location of the property. Few office properties have been constructed so the vacancy rate has declined to approximately 7.5 per cent. There is actually a shortage of vacant office properties in the Kupittaa area and of modern office premises in the centre. In retail properties, the vacancy rate is around 4 per cent, and in production, warehouse and logistics properties, even lower. The rental market is expected to remain buoyant throughout the year. Rents are on the rise in all property types, as is new construction. The city centre is set to experience upheaval as the construction of the Toriparkki parking garage, financed by Taaleri Oy, is set to go ahead. The archaeological excavations are already under way in the market square. The modernisation of the Hansa shopping centre has progressed to Hansatori and will mean changes in passageways inside the shopping centre. Turun Seudun Osuuskauppa s hotel in Hamburger Börs will close in 2019, but the cooperative has already launched an extension to Hotel City Börs in the Wiklund building, with an aim to nearly double the number of guest rooms. The building s restaurant operations will also undergo a facelift, with at least four new restaurants and a rooftop bar with views across the city. Skanska and Suomen Ylioppilaskiinteistöt Oy have signed a deal to build a new 23,000 m 2 multi-user building replacing the Juslenia building in Yliopistonmäki. The Parkin kenttä football pitch and the surrounding area are being developed as a sports venue as well as business and office district. A significant amount of housing construction is also in the pipeline. Ongoing projects in the Aninkainen and Puutori areas include the extension of Ukkokoti, construction of Yliopistonkatu 5, development of the Concert Hall and the University of Applied Sciences and the conversion of the Helsinginkatu industrial block for residential use. Turun Teknologiakiinteistöt has broken ground on two office/campus buildings in the Kupittaa area. The buildings, spanning a total of 30,000 m 2 are expected to be completed in 2020 and will bring all Turku Vocational Institute students under the same roof. Plans for a significant new residential area, Kirstinpuisto, in Iso-Heikkilä, are going forward. Another new area, Herttuankulma, will be erected nearby, combining the areas around Tukholmankatu and the new residential areas near Turku Castle. Once Medisiina building D is completed, the new 50,000 m 2 T3 hospital will be built next to it. Housing construction in the Skanssi area is also

15 NEWSEC PROPERTY OUTLOOK AUTUMN under way, and apartments have been selling well. In the first phase of the Kakolanmäki prison area, Länsiselli, nearly all apartments have been sold and in the next phase, Graniittilinna, the conversion to apartments has begun. The attraction of this project, unique in all of Finland, is enhanced by the construction of the funicular from Linnakatu to the top of the hill, a project that has finally been launched by the city. It has rage. Kansallis-yhtiöt intends to acquire the rest of the block. Pihlajalinna Liikuntakeskukset Oy bought all shares in Leaf Areena Oy from individual owners in an interesting and exceptional transaction. Leaf Areena, measuring more than 10,000 m 2 houses a gym, golf centre, several games arenas, children s adventure arena as well as conference and sauna fa- The housing construction is meeting the somewhat pent-up demand, and the market is doing well. Apartment rents, for example, are still increasing. Sähkö Oy. Retail properties that had stood empty in the Turku city centre now have new tenants, which suggests that the centre can be a vibrant commercial area even outside the Hansakortteli block. This year is looking busy in the Turku region property market and more significant property transactions are likely to take place during the autumn. Turku continues to attract both domestic and foreign investors, who are mostly interested in prime properties in the centre, but also in high-quality multi-user properties, including production, warehouse and logistics properties, outside the centre. Clear-cut cashflow properties with long leases are not the only ones attracting interest investors are also drawn to properties with potential for alterations in use or rise in occupancy: in other words, properties where additional measures can bring added value. PANSIO MYLLY PITKÄMÄKI LÄNSIKESKUS AIRPORT CBD / CENTER ORIKETO- METSÄMÄKI been a while since there were this many cranes on the city skyline. The housing construction is meeting the somewhat pent-up demand, and the market is doing well. Apartment rents, for example, are still increasing. It was thought that the property transaction volume of Turku and the surrounding areas was improving in 2018 compared to the volume of 2017, which was approximately EUR 260 million. Although several small transactions took place early in the year, involving purchases by both users and investors, the total volume has not quite met the expectations. It is worth mentioning, however, that transactions have taken place in many different property types. Rausanne Oy bought the Intelligate III project in the Kupittaa area from YIT, and the new building will house a Sokos hotel operated by Turun Seudun Osuuskauppa cooperative. A locally significant transaction took place in April, when Kansallis-yhtiöt bought a share of more than 90 per cent in the building known for the former restaurant Thrinax, on the corner of Yliopistonkatu and Humalistonkatu. Completed in 1988, the building spans more than 10,000 m 2 and has its own parking ga- cilities. Hemsö bought two nursing homes under construction in Turku and Kaarina from Hartela. The tenant will be Esperi Care. FinCap sold the residential building on Kanslerintie to Nordea Life Assurance Finland Ltd. In addition, local private investors sold the former prison mental hospital, which is located in Kakolanmäki and now in residential use, and a day care centre in Kaarina to OP Palvelukiinteistöt. The construction of production and logistics properties is well under way as predicted. DB Schenker is constructing a new 19,000 m 2 logistics property by Ohikulkutie in Avanti, Lieto, which has developed into a significant business area of 170 businesses and 1,600 people. A new Prisma department store will replace the old store in the Piispanristi area in Kaarina, and Plantegen will have a new store in the Krossi area. Verkkokauppa.com opened a large new store in the Mylly area in Raisio, Ikea is planning to expand its warehouse, and HopLop indoor activity park will house the new building constructed across from it. Furniture retailers Asko and Sotka moved into the property vacated by Kodin1 in Raisio, and the former Kotikeskus property is now housed by Vesa Eronen Regional Manager Newsec vesa.eronen@newsec.fi CBD CENTER AIRPORT ORIKETO-METSÄMÄKI KUPITTAA AND SKANSSI PANSIO HARBOUR MYLLY PITKÄMÄKI LÄNSIKESKUS HARBOUR KUPITTAA SKANSSI GROSS RENT EUR/M 2 /MONTH VACANCY (%) YIELD (%) Office Retail Logistics Office Retail Logistics Office Retail Logistics Explanation for the market parameters are presented on page 12.

16 NEWSEC PROPERTY OUTLOOK AUTUMN OULU OULU of the Technopolis campus in the centre. The second phase of the Sepänkatu campus has 8,400 m 2 of leasable area. The Technopolis investment is valued at approximately EUR 25 million, and will boost and support the development of the office market for the entire centre. The city structure in the centre has grown denser in the past few years; a trend that is likely to continue for several years. bring much needed life to the area of the centre by the sea. The construction of the Torihotelli hotel and Talvitori market area will commence in the autumn. The hotel that will be erected next to the market hall will offer 130 guest rooms and be connected to the Talvitori market area. Talvitori will be a semi-heated space protected from the wind, which will allow the market to operate throughout the year. The Oulu property market has not been able to keep up with similarsized cities such as Turku and Tampere. In our view, reasons for the lower transaction volume include a low number of domestic investors outside Oulu, lack of foreign investors as well as centralised ownership of properties. In 2017, the city s transaction volume was EUR 130 million, down from the previous year s EUR 180 million. Oulu University of Applied Sciences moving to Linnanmaa in autumn 2020 will increase the area s significance to the city s office market. Traffic is being rerouted in the area to serve the largescale campus. The roads between the centre and the Linnanmaa campus, for example, will have bus lanes running in both directions. Several projects to change the cityscape are ongoing and in the pipeline for the grid plan area of the centre. A striking 16-storey round residential building will be completed towards the end of the year. Skanska s Puistovahti building will house 94 apartments. The Asemantorni A large-scale development project, Oulun Ratapiha, is also in the pipeline in the centre. Development phase financing has been secured for this, but the final decision is pending. The project will develop a total area of 150,000 m 2 building apartments, exhibition facilities, a hotel, a restaurant and a bus terminal. A multi-purpose arena replacing the old Raksila ice hockey arena is also at the planning stages. For several years, the centre had suffered from a high vacancy rate in retail properties, but as the centre has been developed, properties have been occupied and vacancy rates have slowly de- This year s transactions have mainly involved rental apartment properties. In the spring and summer, several apartment portfolios with properties in Oulu exchanged ownership. Buyers included Kojamo, Avara, Kunta-asunnot and NREP, and sellers were special investment fund OP-Rental Yield, other funds of the OP Financial Group, construction company Lehto and Avara. In January, RT-Rakennusteho, RIPA Invest Oy and LähiTapiola Tontit II Ky bought an office and retail property located at Taka-Lyötynkatu 4 in Taka-Lyötty, for the purpose of developing it into apartments. The transaction price was EUR 6.8 million, or EUR 581/m 2. The adjacent plot, which is currently being used as a car park, is undergoing a city plan alteration to allow residential construction for a total floor area of 20,650 m 2. The most significant ongoing construction project in the city is the extension The most significant ongoing construction project in the city is the extension of the Technopolis campus in the centre. The second phase of the Sepänkatu campus has 8,400 m 2 of leasable area. project s first two 12-storey residential buildings are being constructed near the station. The first tower block will be completed before the new year and the third is set to be completed towards the end of The buildings will have a total of 337 apartments. A 12-storey retail and residential building is being constructed at Albertinkatu 9. Insurance company Pohjola s Käpälänkulma building, completed in the 1980s, has been demolished to make space for it. Oulu Allas Sea Pool sea spa is in the pipeline in Kiikeli. The sea spa would creased. The amount of retail space outside the centre will grow considerably in the next couple of years, as the construction of the Oulunportti commercial and employment area begins in More than 100,000 m 2 of new space is being created by Valtatie 8, near the Kaakkuri shopping centre. In addition, the preparations for the second phase of the retail and office property at Alasintie 10, completed last year, has begun in the Limingantulli area. The second phase will develop an area of 7,000 m 2, the leasing for which began this summer.

17 NEWSEC PROPERTY OUTLOOK AUTUMN Other ongoing construction projects in Oulu include the renovation of the Pohjankartanon lukio school building, set to be completed in 2019, and the first phase of the construction of Oulu University Hospital s children s and women s hospital and the core hospital in the Kontinkangas hospital area. This Northern Ostrobothnia hospital district s project, across an area of 46,000 m 2, is going to cost EUR 164 million in total, according to estimates. The buildings are expected to be ready for use at the end of LINNANMAA / RITAHARJU RUSKO Fish and seafood producer Hätälä Oy is buying 20,000 m 2 of park land from the city near its plant in Kaakkuri, with the intention of expanding the plant. This investment programme will run until 2025 and once completed will add 15,000 m 2 of space to the current plant. Building rights for the plant area will be increased in scope to facilitate the extension. Partnera Oy and Oulun Satama Oy made a preliminary agreement regarding the construction of a logistics centre measuring 15,000 m 2 in area in Oritkari in Oulu harbour. Construction has already started and the building will be complete during AIRPORT HARBOUR / NUOTTASAARI CBD / CENTER LIMINGANTULLI KONTINKANGAS GROSS RENT EUR/M 2 /MONTH VACANCY (%) YIELD (%) Office Retail Logistics Office Retail Logistics Office Retail Logistics CBD CENTER KONTINKANGAS LINNANMAA/RITAHARJU RUSKO Minna Marjeta Regional Manager Newsec minna.marjeta@newsec.fi LIMINGANTULLI HARBOUR/NUOTTASAARI AIRPORT Explanation for the market parameters are presented on page 12.

18 NEWSEC PROPERTY OUTLOOK AUTUMN OTHER REGIONS VAASA ROVANIEMI KUOPIO SEINÄJOKI JYVÄSKYLÄ mercial property for an operator requiring 18,000 m 2 is in the pipeline in the Seppälänportti area. The Seppälä area retail construction projects pose a challenge to retail properties in the city centre, and competition for tenants is fierce. The transaction market has cooled down slightly from last year when the volume amounted to approximately EUR 350 million. Residential properties were sold as part of bigger portfolios for Kojamo and the international Morgan Stanley Real Estate Investing. Several office property transactions also took place this year. Osuuskauppa Keskimaa sold a retail property portfolio consisting of seven consumer goods stores to Swedish Redito AB earlier this year. Nordea Life Assurance Finland Ltd bought the 10,000 m 2 retail property completed at the end of 2017 in the Seppälä area. In addition, Swedish AB Sagax bought Vähälä Yhtiöt s logistics centre in Ruokosaari in July. The transaction price was EUR 15.3 million, or EUR 951/m 2. PORI HÄMEENLINNA JYVÄSKYLÄ New construction centres around four main projects in Jyväskylä. The Kangas area is being developed into an urban residential area. The old paper mill area is set to have 250,000 m 2 of residential space and 85,000 m 2 of office space. In addition to completion of the first apartment buildings, the 15-storey Koas Tower for the Central Finland Student Housing Foundation will be completed this autumn. In the grid plan area, the Valtiontalo building is being renovated to be used as retail and office space. A 7-storey building, Reimari-talo, will also be constructed in the same block, housing 6,300 m 2 of retail and office space on floors 4 7. The Lyseonkulma complementary construction also continues. In addition, Rakennusliike Lapti has broken ground on a block called Aallonportti adjacent to the university. The block will LAHTI HELSINKI SATELLITE MUNICIPALITIES LAPPEENRANTA comprise seven new buildings housing more than 250 apartments. The construction of the new central hospital in the Sairaalanmäki or Kukkula area will continue to 2020 and the area development will be ongoing until In addition to the hospital, the plans include 50,000 m 2 of office construction and 60,000 m 2 of housing construction. Jyväskylä city council gave the Hippos2020 project the green light in May. This project will develop 160,000 m 2, and its total budget is EUR million. The construction is set to take until the end of Retail property construction is centred around the Seppälä area. At the end of 2017, the property spanning 10,000 m 2 and occupied by Gigantti was completed near the Seppä shopping centre. A com- LAHTI The residential construction projects ongoing in Lahti are focused on the areas of Radanvarsi, Hennala, Niemi and Sopenkorpi. Plans are in place to convert the Starkki area on the south side of the railroad into a residential area, the development of the Asko area is continuing, and the Hennala military area is being developed for residential use, services and shared use by companies. The location of Renkomäki area as a commercial area will improve when the southern ring road is competed. Several retail properties are in the pipeline or have already been completed in the area. In addition, the second phase of the central hospital renovation started last autumn and is on schedule. Investment demand in Lahti remains moderate. Property transactions earlier this year mainly involved apartments. Several portfolios sold included residential properties located in Lahti. The buyers were Kojamo, Kunta-asunnot and the international investor Morgan Stanley Real Estate Investing. The most significant individual property transaction involved the BW Tower, the 7,800 m 2 office building located next to

19 NEWSEC PROPERTY OUTLOOK AUTUMN HÄMEENLINNA The largest of the recently completed projects in the city is the Nummi service centre. The building, housing a library, a maternity and child health clinic, a school, a youth centre and an exercise facility, was completed in the summer after two years of constructhe travel centre and completed in The property was sold by Keskinäinen Vakuutusyhtiö Fennia, Aktia Henkivakuutus Oy and Teollisuusliitto ry to French Corum Asset Management. KUOPIO In Kuopio, construction is focused on the Maljalahti and Puijonlaakso areas, and the plans for residential construction in the Savilahti area and the area around Presidentinkatu are going forward. In the future, residential construction will focus on the centre and the adjacent areas as well as on the Saaristokaupunki and Savilahti areas. One significant development project will be Kuntolaakso in Niirala in The ice hockey arena known as Niiralan Monttu will be renovated and extended together with the indoor swimming pools and parking services. The project involves a site measuring 30,000 m 2 in area, and the total investment value is EUR 46.2 million. In addition, the inpatient ward and outpatient clinic premises of the Puijo hospital s old main building will be renovated between 2018 and The project comprising 60,000 m 2 has a cost estimate of approximately EUR 164 million. The construction of the new premises for Savonia University of Applied Sciences on Microkatu commenced earlier this year: the 4,500 m 2 property is set to be completed and in use at the beginning of next year. The Technopolis project was scheduled to begin last year but the launch has been postponed, pending the properties leasing status. The construction of Kuopion Portti, the area around the station that has been in the pipeline for a long time, finally started this summer. The area will be constructed in three phases, with project completion due in The area will feature more than 200 apartments, retail, care and office premises as well as a separate parking facility for approximately 470 cars. The transaction volume in Kuopio was approximately EUR 120 million in 2017, and there were transactions for all property types. This year the majority of transactions have involved rental apartment properties in larger portfolios. The buyers were Kojamo, Kuntaasunnot and the international investor Morgan Stanley Real Estate Investing. The most significant individual transaction involved the 10,300 m 2 retail property located in a visible place by the market square at Kauppakatu 41. The property was sold by Citycon Oyj to special investment fund Fennica Toimitilat I managed by Fennia. The transaction price was EUR 22 million, or EUR 2,100/m 2. The property s tenants include Kesko, Tokmanni, Danske Bank and Restel Ravintolat. LAPPEENRANTA Construction in Lappeenranta city centre has been unusually busy during the past couple of years, with a significant number of new properties completed or being constructed in the area. The IsoKristiina shopping centre expansion was completed in 2015, and the development of the block known as Citykortteli continues. In addition, the zoning plan change for the block known as Pormestarin kortteli is under way and would make complementary construction of the block possible. The timeline for the Ikea department store and an adjacent shopping centre has not yet been decided, however, so construction will not be starting any time soon. The city of Lappeenranta has dropped its plan to construct the South Karelia arena on the Ikea plot. The volume of transactions in Lappeenranta remains low. A few property transactions took place earlier this year, the largest of which involved the Galleria shopping centre, which was bought by Agore Kiinteistöt Oy, a joint venture of ELO Mutual Pension Insurance Company, Första AP-Fonden and Trevian Asset Management. The seller, Barings Real Estate Advisers, also sold the Revontuli shopping centre located in Rovaniemi. In addition, the portfolio comprising 1,600 apartments that was bought by Morgan Stanley Real Estate Investing from Kojamo included a residential property in Lappeenranta. VAASA The most significant projects planned and ongoing in Vaasa include Wasa Station, a 200-million-euro project led formerly by Lemminkäinen but currently, following a merger, by YIT, to replace the old coach station, and the Laajametsä employment area, the plans for which include the new gigafactory. Vaasa city council approved the Wasa Station development contract on 15 May 2017, with the goal of completing the station in The block will include a shopping centre, a music and conference centre, hotel with a restaurant, multi-purpose exercise facility as well as offices and apartments, across a total gross floor space of 85,000 m 2. Office complex Powergate II, partially under construction and partially completed, spanning 16,700 m 2 near the airport, was sold in June to Nordisk Renting Ab. The seller was Oy Vaasa Parks Ab, who was also the contractor. The complex, consisting of three buildings, is being leased to Wärtsilä Oyj, giving a total of 900 company employees the chance to work under the same roof upon its completion. The A building of Powergate II was completed in June, the B building will be completed in September or October and the C building in autumn The transaction market has had a boost from several large-scale portfolio transactions. Earlier this year Swedish Nordika Fastigheter AB sold a retail portfolio of 11 properties, three of which are located in Vaasa, seven in Sweden and one in Rovaniemi. All Vaasa properties are located in the Kivihaka area, the largest being shopping centre GW Galleria. Other properties are occupied by Vepsäläinen and Byggmax, among others. The portfolio was bought by Swiss company Partners Group, and the transaction price for the entire portfolio was approximately EUR 120 million. Another significant property transaction in Vaasa involved the Plantagen store in Kivihaka. The property changed ownership as a part of a portfolio comprising three Plantagen stores. The other two are located in Suomenoja, Espoo, and Kuninkaanportti, Porvoo. Both parties of the transaction were Norwegian investors: the seller Oslo Pensjonsforsikring and the buyer Radge Eiendom AS.

20 NEWSEC PROPERTY OUTLOOK AUTUMN tion. Final decisions are pending in the Hämeenlinna hospital project. The Engelinranta residential area for 2,600 people is being constructed by Lake Vanajavesi in the city centre. Construction has also started next to the railway station and the Asemanranta area by Lake Vanajavesi. The first apartment buildings in the area will be completed this year. A total of 60,000 m 2 of residential construction is in the pipeline for the area. In addition, NREP has broken ground on the new Huhtamäki production facility in the Käikälä industrial park. The building is set to be completed in spring 2019, and Huhtamäki will relocate its production in Hämeenlinna to the new facility. Residential properties located in Hämeenlinna were included in portfolio transactions earlier this year: properties bought by Kojamo from OP Financial Group s funds and properties bought by Morgan Stanley Real Estate Investing from Kojamo. In addition, a residential property still under construction in Hämeenlinna was bought by Avara Asuinkiinteistörahasto I Ky from construction company Lehto. The most significant office property transaction of the first half of the year took place in May, involving the 9,000 m 2 logistics property built in 2012 in the Moreeni area and leased by Posti Kiinteistöt Oy. The seller was the AKR Tuotto II fund managed by Auratum Kiinteistöt and the buyer a fund managed by NREP. The opening of the Goodman shopping centre in 2014 shifted the city s commercial centre towards the west, to the Helsinki Tampere motorway, decreasing the occupancy rate of retail properties in the city centre a development which is still visible in the cityscape. PORI Construction activity in Pori remains moderate. The new urban seaside area in Karjaranta was developed for the 2018 Housing Fair, and the new transport hub constructed near the recently completed Satakunta University of Applied Sciences. New stores were completed for household appliance and electronics retailer Gigantti and sporting goods retailer XXL opposite the Halpahalli store towards the end of the year. The transaction volume in Pori has remained low since The most significant transaction in the first half of the year took place in downtown Pori, where the Terveystalo property at Itsenäisyydenkatu 33 was sold to the special eq Hoivakiinteistöt investment fund. The transaction price in this case was EUR 16 million, and Terveystalo will stay on as a tenant with a 10-year fixedterm lease. Residential and retail properties sold in portfolios were located in Pori. Residential properties were included in a portfolio sold by Kojamo to Morgan Stanley Real Estate Investing and retail properties in Trevian Asset Management Oy s Forte portfolio, of which 12 properties were sold to Elite Kiinteistökehitysrahasto I Ky. SEINÄJOKI Construction remains buoyant in Seinäjoki. The Toriparkki parking garage was finally opened in March, and Lujatalo s and SSR Pohjanmaa s residential property projects in the centre were completed in the spring. Finn-Power is constructing a 20,000 m 2 factory building in the Roves industrial area and is expected to be completed by the end of this year. Expansion and renovation of the Seinäjoki hospital are also continuing. YIT withdrew from the Lakeuden Ankkuri project, which is to be replaced by a retail park: Toivo Sukari has signed a contract with construction company Lehto for the third Ideapark shopping centre, which will have an area of 66,000 m 2 to be completed by November The total value of the centre to be constructed in the Jouppi area is EUR 65 million. The most significant property transaction in the first half of the year took place between PEAB and a private person and involved the historic Kalevan navetta building in the Itikanmäki area. The property spanning across 5,000 m 2 was built in the 1890s and is protected. The new pedestrian bridge brings the property within walking distance from The transaction market has had a boost from several large-scale portfolio transactions. Earlier this year Swedish Nordika Fastigheter AB sold a retail portfolio of 11 properties, three of which are located in Vaasa, seven in Sweden and one in Rovaniemi. the centre, and the new owner will continue its development. In addition, one of twelve retail properties sold by Trevian Asset Management Oy from the Forte portfolio to Elite Kiinteistökehitysrahasto I Ky was located in Seinäjoki. SATELLITE MUNICIPALITIES Helsinki satellite municipalities include Hyvinkää, Järvenpää, Kerava, Kirkkonummi, Nurmijärvi, Sipoo, Tuusula, Vihti, Mäntsälä and Pornainen. Residential construction has been buoyant in the satellite municipalities for several years and is set to remain so. There are also several construction projects either ongoing or in the pipeline especially in logistics properties. Frode Laursen is about to have a new 27,000 m 2 logistics centre in the Kerca area in Kerava. Lidl s new logistics centre, with a floor space of approximately 60,000 m 2 will be completed towards the end of the year near the Ainola station. In Bastukärr, Sipoo, the construction of Freeway Logistics City is set to continue at least until the end of this year. Hetzner Online is constructing a data centre in the Jussla area in Tuusula, with the extension spanning an approximate area of 8,000 m 2 set to be completed towards the end of this year. Masku s logistics centre, measuring approximately 15,000 m 2 in area, is in the pipeline for the Kapuli area in Mäntsälä. In Kerava, five new apartment buildings will be completed in , and the new Karuselli shopping centre is set to open by the end of the year. In Järvenpää, construction of the city s Perhelä centre, comprising 10,000 m 2 of retail and office space and approximately 450 apartments, is now under way. In addition, YIT is planning a new 10,000 m 2 retail centre in Nummela, Pori, by Porintie and Citymarket department store. The transaction volume in the satellite municipalities has decreased slightly from last year. Earlier this year, a property transaction significant to the satellite municipalities took place when 123 consumer goods store properties exchanged ownership in a portfolio. Four of the properties were located in the satellite municipalities. Sirius Fund I Grocery and Sirius Fund II sold all of their properties to the newly-founded Cibus Nordic Real Estate AB, which was listed on Stockholm s First North. The transaction had a value of EUR 767 million, and the properties had an overall area of approximately 440,000 m 2. In Järvenpää, Lujabetoni bought a machine shop property of 35,000 m 2 on Wärtsilänkatu, including the land from Valmet Technologies, and is planning on developing it into Finland s largest concrete element factory. The property comprises 30,000 m 2 of high production facilities, 5,000 m 2 of office space and 25 hectares of land. The transaction price in this case was EUR 25 million. In addition, Cromwell Property Group sold a logistics and small-scale industry property of 8,000 m 2 located in Tuusula to private investors. One of five residential properties sold by construction company Lehto to Avara Asuinkiinteistörahasto I was located in Kirkkonummi. The total value of this transaction was EUR 53 million. Some of the properties are already under construction and will be completed in 2019 and ROVANIEMI The growth in tourism in Lapland has brought more tourists to Rovaniemi in the past few years. This has had an impact on construction, with several new projects now under way. Osuuskauppa Arina is expanding and renovating Prismakeskus, which is set to be completed by the end of the year. An extension measuring approximately 12,000 m 2 in area is in the pipeline for the Eteläkeskus shopping centre. Residential construction has been buoyant in the past few years, especially in the centre. YIT s Kiela project is coming to an end, with the construction of the last buildings in the block set to begin in the near future. In addition, a zoning plan change is under way for the regional state administrative agencies block area and would allow apartments and a hotel to be built in the block. The property owned by Senaatti is on sale at the moment. The transaction market in Rovaniemi has been relatively busy this year, especially for retail properties. Several retail properties have been sold as part of portfolios. The K-Rauta property in the Suosila area was bought by Swiss investor Partners Group from Swedish Nordika Fastigheter AB in an 11-property portfolio. This transaction included three retail properties in Vaasa and seven properties in Sweden. The most significant property transaction in the first half of the year involved the Revontuli shopping centre in the city centre, bought by Agore Kiinteistöt Oy, a joint venture of ELO Mutual Pension Insurance Compely, Första AP- Fonden and Trevian Asset Management. The seller, Barings Real Estate Advisers, also sold the Galleria shopping centre located in Lappeenranta. In addition, the portfolio comprising 1,600 apartments that was bought by Morgan Stanley Real Estate Investing from Kojamo for EUR 97 million included a residential property in Rovaniemi.

21 NEWSEC PROPERTY OUTLOOK AUTUMN ONGOING CONSTRUCTION PROJECTS OTHER CITIES HELSINKI-VANTAA AIRPORT HELSINKI METROPOLITAN AREA VANTAA KAJAANI 7 ESPOO HELSINKI 5 4 VAASA 8 3 SEINÄJOKI TAMPERE JYVÄSKYLÄ 2 KUOPIO 1 TURKU KOTKA 4 NAME PROPERTY TYPE RENTABLE AREA ESTIMATED COMPLETION NAME PROPERTY TYPE RENTABLE AREA ESTIMATED COMPLETION 1. SHOPPING CENTRE LIPPULAIVA (RECONSTRUCTION) retail 41, / Q2 12. AVIABULEVARDI II office 8, / Q4 2. SHOPPING CENTRE REDI retail 60, / Q3 13. TECHNOPOLIS III office 9,900* 2018 / Q3 NAME PROPERTY TYPE RENTABLE AREA ESTIMATED COMPLETION NAME PROPERTY TYPE RENTABLE AREA ESTIMATED COMPLETION 3. SHOPPING CENTRE TRIPLA retail 85, K6 office 12, / Q2 1. RETAIL AND OFFICE PROPERTY retail 2,600* 2018 / Q3 10. LOGISTICS CENTRE OF LIDL logistics 60,000* 2018 / Q4 4. LAAJASALO RETAIL CENTRE retail 8, / Q4 15. LOGISTICS PROPERTY (HQ OF DSV) logistics 64,000* 2018 / Q4 2. KUOPION PORTTI retail, care, office 11,000* 2020 / Q1 11. LOGISTICS CENTRE (PHASE II; LOGITRI OY) logistics 15, / Q4 5. LOCAL SERVICE CENTRE HERTSI retail, care 18, EDUCATION- AND 16. education 26,000* 2018 / Q4 OFFICE PREMISES 3. IDEAPARK retail 66,000* 2019 / Q4 12. UNIVERSITY OF APPLIED SCIENCE education 28,400* 2020 / Q1 6. RETAIL PARK (LAAJALAHTI) retail 15, / Q4 17. HOTEL (192 ROOMS) hotel 2020 / Q4 4. ZSAR OUTLET VILLAGE,PHASE I retail 12,000* 2018 / Q4 13. CENTRAL HOSPITAL OF KAJAANI public 46,300* HEADQUARTER OF RAMBOLL FINLAND OY OFFICE PROPERTY (KAUPUNKIYMPÄRISTOTALO) 9. TIKKURILAN SILKKI (PHASE I) office 20,750* office 40,000* office 5, / Q / Q / Q LAPLAND HOTELS BULEVARDI (182 ROOMS) HOTEL HELLSTEN (84 ROOMS) HOTEL (SÖRNÄINEN, 197 ROOMS) hotel hotel hotel 2018 / Q / Q SHOPPING CENTRE LOHI ASEMAKESKUS CAMPUS (PHASE 1) KOY TECHNOPOLIS MICROKATU 1 retail 11, / Q3 office 13, / Q3 office 4,390* 2018 / Q CENTRAL HOSPITAL OF KYMENLAAKSO (REDEV. & EXT.) TAYS EXTENSION (D-WING) CENTRAL HOSPITAL OF JYVÄSKYLÄ public public public 63,000 (ext.10,000) * 27,100* 99,800* 2019 / Q / Q K-KAMPUS office 26, / Q1 21. HELSINKI CENTRAL LIBRARY public 12, / Q4 8. POWERGATE II office 10, / Q4 17. HYVINKÄÄ HOSPITAL EXTENSION public 22,800* 2018 / Q3 11. PRESSI (PHASE I) office 5, / Q1 22. HUS HOSPITAL (SILTA HOSPITAL) public 35,000* 2022 / Q1 9. LOGISTICS CENTRE OF S-GROUP, PHASES II-IV logistics 112,000* 2018 / Q4 18. T3 HOSPITAL public 54,000* 2021 / Q3 Source: KTI, Newsec *Gross Area Source: KTI, Newsec *Gross Area

22 HOUSING MARKET NEWSEC PROPERTY OUTLOOK AUTUMN HOUSING MARKET We have received requests asking us to include a more comprehensive overview of the housing market in our property market outlook, which we are pleased to present to you here. Newsec s expertise in relation to the housing market is the most versatile in the field. We are involved in transactions for apartments on an ongoing basis and manage client portfolios comprising 14,000 apartments. Thanks to our extensive housing business, we have our finger on the pulse of the rental market, making approximately 300 new apartment leases per month, with our clients portfolios growing thanks to new completed properties waiting for pricing and marketing. We have some 50 professionals working in housing in eight different locations. In addition to housing management and transactions, Newsec offers its clients comprehensive valuation services. We define the apartment portfolio market values for our numerous clients annually. The need and scope of valuation is determined separately for each client, and with our extensive market data base and advanced valuation tools we can draft apartment valuations efficiently and accurately. Our valuation team consists of approximately twenty real estate professionals, with annual property valuations amounting to approximately EUR 15 billion in value. The latest product we are offering our clients is an apartment valuation tool which can be used to make a fast valuation when, for example, making a credit decision. The Finnish housing market is polarising fast. There are no common trends, but regional differences are significant. All aspects of the metropolitan area, Tampere and Turku are experiencing strong growth, and ten or so other areas are growing but with certain reservations. In some towns, rental apartment build-ings are being demolished as demand has died, most likely permanently, and municipalities are facing great challenges. In some smaller towns on the other hand, industrial and even tourism investments are creating housing demand that the rental apartment market of a previously declining area cannot even begin to meet. In conclusion, the housing market remains busy and local market expertise is needed. In Helsinki, the number of rental households has already surpassed the number of owner-occupied households, and many other factors also support the continuing growth of rental apartment demand, which is being met by record-high construction activity. A solvent tenant can certainly pick and choose, meaning that the market is also very efficient from the enduser point of view. Construction companies are operating at the limits of their capacity, and while rental apartment production seems to be falling behind demand, it is worth remembering that many privately owned apartments end up on the rental market through private investors and smaller housing funds. This stock can easily adjust to the market situation: if a tenant cannot be found, the apartment is easily sold broke records both in terms of apartments completed and apartment construction started. The construction of more than 44,000 apartments started, which exceeds the average of the 2010s by approximately 34 per cent. A great number, some 35,000, of new apartments were also competed. Even if 2018 has not reached those figures in new construction projects, a considerable number of new apartments will be completed, which will inevitably be reflected on the rental apartment market. In the production of new apartments, the average apartment size has been in

23 HOUSING MARKET NEWSEC PROPERTY OUTLOOK AUTUMN DEVELOPMENT OF APARTMENT PRICES AND RENTS THE SIGNIFICANCE OF INCOME RETURN INCREASES FURTHER IN AREAS WHERE PRICE DEVELOPMENT OF APARTMENTS IS NOT ON PAR WITH THAT OF THE METROPOLITAN AREA AND LARGER GROWTH CENTRES. THESE AREAS ALSO ATTRACT INVESTORS: WHEN RISKS ARE CONTAINED, YIELDS CAN BE EXTREMELY TEMPTING Apartment prices, Rest of Finland Apartment prices, HMA Rents, Rest of Finland Rents, HMA Source: Statistics Finland decline for a long time now, and the trend is even stronger on the rental apartment market. Changes in living preferences and the declining average size of households have increased the demand for smaller apartments. While the average floor area of an average rental apartment completed in the 1970s is typically higher than 55 m 2, it can be as low or even lower than 45 m 2 in new rental apartment properties. Growing living expenses and the residents desire to keep the total rental cost at a moderate level have their role in directing consumers to increasingly small apartments, and apartment size is something the residents are willing to sacrifice. As investment instruments, apartments differ from other property types due to the strong element of change in value. When making an investment decision, a traditional apartment investor considers both rent yield and the property s potential for value increase, which is not always as significant in other property types. Looking at total return, i.e. the sum of income return and capital growth, apartments have long been the property type most profitable to investors, which is largely due to a prolonged rise in apartment prices in growth centres and in the metropolitan area in particular. The significance of income return increases further in areas where price development of apartments is not on par with that of the metropolitan area and larger growth centres. These areas also attract investors: when risks are contained, yields can be extremely tempting. Rents do not traditionally decrease like apartment prices, even in municipalities experiencing an economic downturn. The adjacent figure shows that the price development trend for older apartment building apartments in the metropolitan area has long been the same as the rents trend for non-subsidised rental apartments, whereas elsewhere in Finland rents have contin-ued to rise while price development has stagnated. Several foreign operators have arrived on the Finnish apartment investment market in the past few years, and our housing market is viewed as an attractive investment option. In the current climate, it is very common for an apartment portfolio on sale to attract both domestic and foreign investors, as long as it is a substantial enough investment. Naturally this creates an entirely new kind of competitive situation for domestic operators, but also an opportunity to benefit from the vibrant market, for example by selling older apartment stock and focusing on increasing the amount of new construction in their own portfolio. The Finnish apartment Antti Poteri Analyst Newsec antti.poteri@newsec.fi investor market is fairly liberal for foreign investors, and less regulated yet sufficiently standardised compared to many other European countries. Risto Mustaniemi Director, Residential Business Newsec risto.mustaniemi@newsec.fi

24 INFORMATION ABOUT NEWSEC NEWSEC PROPERTY OUTLOOK AUTUMN NEWSEC IN NORTHERN EUROPE AND THE BALTIC COUNTRIES TURNOVER 200 M OVER 40 OFFICES APPROX PROFESSIONALS ALLIANCE MEMBER OF BNP PARIBAS REAL ESTATE OULU KOKKOLA TRONDHEIM VAASA KUOPIO JYVÄSKYLÄ TAMPERE HÄMEENLINNA IMATRA BERGEN OSLO TURKU HELSINKI STOCKHOLM TALLINN NEWSEC OFFICES IN FINLAND GÖTEBORG AARHUS COPENHAGEN MALMÖ RIGA VILNIUS HELSINKI OFFICE Office hours: 8:00-17:00 Postitalo, Mannerheiminaukio 1 A PL 52, Helsinki Tel TAMPERE OFFICE Aleksanterinkatu 32 B Tampere Tel OULU OFFICE Saaristonkatu 11 A Oulu Tel TURKU OFFICE Yliopistonkatu 16 C 5 th floor Turku Tel KUOPIO OFFICE Kirkkokatu 1, 3 rd floor Kuopio Tel JYVÄSKYLÄ OFFICE Kauppakatu 18 C Jyväskylä Puh HÄMEENLINNA OFFICE Talaskuja Hämeenlinna Tel IMATRA OFFICE F.O. Virtasen katu 6, 3 rd floor Imatra Tel VAASA OFFICE Futura I - 3 rd floor Yrittäjänkatu 17, Vaasa Tel KOKKOLA OFFICE Yrittäjäyhteisö Kohtaamo Ristirannankatu Kokkola Tel