Standard Life Investments, the manager of 205 billion euros ($278 billion) of assets, plans to buy commercial real estate in Stockholm after calling the Swedish capital one of Europe’s most attractive markets.
The company may spend at least 100 million euros to double its holdings in Sweden, Mark Meiklejon, a real estate investment director, said in a Feb. 6 interview in Stockholm. The Edinburgh-based unit of Standard Life Plc will focus on prime offices in Sweden’s capital, he said.
“For international companies wanting to locate to the Scandinavian region, Stockholm is probably the top pick,” Meiklejon said. “It’s a very transparent market; it’s liquid and pretty large; there is fiscal independence and a strong banking system.”
Sweden avoided the kind of property collapse that sank economies from Ireland to Spain and Denmark following the failure of Lehman Brothers Holdings Inc. in 2008. Now there are signs that rising prices are creating a residential bubble, according to the country’s National Housing Board.
Standard Life, which owns retail assets in Sweden valued at about 100 million euros, will target offices instead of retail as consumer spending shows signs of declining, Meiklejon said. A lack of office construction now favors returns in that market, he said, though a future increase in building may change that.
The company expects average annual returns before acquisition costs of 7 percent to 9 percent on the city’s commercial real estate in the long term, he said. That would be “toward the top end of our return expectations in Europe over the next three to five years.”
Skanska AB, the Nordic region’s largest builder, expects demand to rise for office space in the city.
“We see an inflow of people and there is demand for new premises from companies and corporations,” Skanska Chief Executive Officer Johan Karlstroem said in a Feb. 7 interview. “In the transaction market in Stockholm, you need the right location, a modern property and it has to have the right tenants and long leases.”
Standard Life’s interest in Swedish commercial real estate comes amid concern that home prices are unsustainable. Sweden’s National Housing Board said that the market in the largest Nordic economy is experiencing a bubble. Residential property, adjusted for inflation, is overvalued by about 20 percent, housing board analyst Bengt Hansson estimates.
Swedish home prices may fall by as much as 10 percent in the next 18 to 24 months, Jens Hallen, director for financial institutions at Fitch Ratings, said in an interview this month.
In addition, risks to Sweden’s economy may be rising as Europe’s debt crisis causes companies such as Ericsson AB and truck maker Volvo AB to cut thousands of jobs. Credit impairments at Swedbank AB’s Swedish retail unit jumped 48 percent in the fourth quarter from the third. Economic growth slowed to 0.9 percent last year from 3.7 percent in 2011, the government estimated in December.
Standard Life’s European Property Growth Fund owns real estate in cities including Paris, Madrid, Barcelona, Lisbon, Prague and Stockholm. It targets a total return of 10 percent annually over a five-year period, according to its website.
The investor entered Sweden in 2007 with the purchase of retail warehouses in Gaevle. It added warehouses in Stockholm as well as the cities of Falun and Kungsbacka.