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In the rental market, attention has increasingly shifted to the Helsinki Metropolitan Area. According to KTI, both the value development of residential properties and net yields were weaker in the metropolitan area than in the rest of the country last year, partly due to persistently low occupancy rates. In this light, one of the positive developments in Q1 2025 was the increase in the occupancy rate in the capital region to 91.4%, up from 90.9% in the previous quarter and 90.0% a year ago, according to KTI’s statistics. However, occupancy rates remain higher in other major cities. Nevertheless, the situation held firm in the capital region in Q1 2025, and the outlook for the remainder of the year is more favorable than it was a year ago.
According to PTT’s forecast, market-based rents are expected to rise by 1.6% nationwide this year. In the Helsinki region, rent growth is anticipated to continue lagging behind the rest of the country but still show improvement compared to last year. Meanwhile, in many growth centers, the rental market is tightening, and positive development continues without signs of reversal. In the bigger picture, population growth and accelerating urbanization remain key drivers supporting the rental market. In contrast, VTT’s projection of the slowing decrease in average household size is a trend worth monitoring more closely, especially in the short term.
“Young adults living alone became more common from 2016 onward, as students became eligible for the general housing allowance. At the same time, low interest rates and a stronger presence of foreign investors in the Finnish market boosted the construction of small apartments. According to VTT, the cuts to the general housing allowance that took effect in April 2024, along with students returning to the student housing supplement system in August 2025, are slowing the decrease in average household size. The impacts of benefit changes were already visible last year, and starting from 2024, the cuts to general housing allowance have reduced the number of households headed by people under 29 in growth centers, increased cohabitation, and delayed young people from moving out. With students transitioning back to the student housing supplement in August, the situation warrants close monitoring in the near term,” summarizes Anton Takkavuori, a real estate analyst at Retta Management, commenting on the underlying factors shaping the rental market.
Construction Has Hit Bottom
Construction reached a low point last year, and according to the Construction Industry’s Economic Review Group, the situation is gradually improving. New construction is expected to recover in 2025, although volumes will remain clearly below the boom years of the early 2020s. Due to the long delays inherent in residential construction, a significant number of new homes will not enter the market until 2027 at the earliest. Meanwhile, the demand for housing remains high.
Demand for housing is influenced by changes in the size of the adult population, the structure of households, and the proportion of people living alone, as well as where the housing is needed. According to VTT, a key question in determining housing production targets is whether Finland’s net immigration will grow annually by an amount comparable to the population of Iisalmi (~20,000 people) or Kirkkonummi (~40,000 people). Based on these scenarios, the estimated housing need is 31,000–35,800 units annually over the next 20 years. A study published this year forecasts a slightly higher housing need than a previous study from 2020, which estimated the need at 30,000–35,000 units per year.
Until 2023, the trend of people living alone increased relatively rapidly, but in VTT’s scenarios extending to 2045, this trend is expected to slow due to changes in the housing benefit system. However, it is still likely that single-person households will become more common in both younger and older age groups. VTT also expects aging populations to increasingly live at home.
Uncertainty Is Toxic for the Market
Rising interest rates turned capital flows into real estate funds negative in 2023. The decrease in the net asset value of open-ended real estate funds reflects negative net redemptions and valuation changes during 2023 and 2024. Property market values have declined over the past two years due to rising interest rates and a sharp drop in investment demand. However, according to KTI, the stabilization of interest rates, the leveling of fund share values, and the expected recovery of the property market create conditions for a gradual strengthening of liquidity and returns.
As net asset values have declined, the share of debt in real estate funds has increased slightly since the end of 2022. According to the Financial Supervisory Authority (FSA), the weighted average share of debt in open-ended real estate funds stood at 31.8% of assets under management as of December 2024.
The FSA notes that the increase in debt has been most significant in funds focused primarily on residential investments, where the share of debt has grown by about 9 percentage points from the end of 2022 to the end of 2024. Despite the growth in debt, the weighted average loan-to-value ratios of the funds remain well below the regulatory limits set by the Real Estate Fund Act. However, differences between funds are considerable.
The sharp drop in market values pushed the total returns of residential properties into negative territory in 2022 and 2023. In 2024, the decline in values slowed, and a modest increase in net yield turned total returns positive again, reaching 1.2% according to KTI statistics. Nevertheless, differences between cities remain significant. Future rent outlooks are expected to positively impact residential property market values.
Turning total returns back to positive is an important step toward reviving transaction volumes. At the same time, access to financing clearly improved over the course of 2024, creating better conditions for increased market activity. However, the Finnish property market remains more dependent than others on the activity of international investors, whose presence has collapsed in recent years. The recovery of the transaction market is therefore heavily reliant on the return of foreign capital. On a positive note, foreign investors’ net purchases have remained positive every year since international investment became part of Finland’s real estate market, according to KTI.
“The zero interest rate environment pushed return expectations for real estate investments to record lows, but the subsequent rise in rates has eroded the excess returns of previous years. At the same time, increasing yield requirements, sluggish rental growth, and occupancy challenges have weighed down property valuations, which continued to decline in 2024. However, lower valuations and potentially increased willingness to trade create attractive buying opportunities, and signs of market recovery are already visible. One positive signal from early 2025 was the expansion of the residential investment platform Bolivo Bostad into the Finnish market. The revival of the market is also supported by growing transaction volumes—according to Colliers, Finland’s transaction volume rose by 24% in January–February compared to the same period last year,” Takkavuori summarizes the investment market outlook.
Additional Information:
Anton TakkavuoriReal Estate AnalystRetta Managementanton.takkavuori@rettamanagement.fiPuh. 0400 853 528
*Figures are based on publications and statistics by KTI, Statistics Finland, RAKLI, and PTT.
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