{{ result.type_rendered }}
The main challenge in the office market is the underutilisation rate, which is higher than for other property types. According to KTI, the underutilisation rate for offices in Helsinki has been one of the highest in Europe. In the short term, the market is also not expected to improve. According to this autumn’s Rakli-KTI Commercial Property Barometer, more than half the respondents estimated that the underutilisation of office spaces will continue to increase over the next six months in the Helsinki Metropolitan Area and elsewhere in Finland.
The slump in the real estate market is especially reflected in the performance of office properties, which is affected not only by the weak economic situation but also by other factors. Combined with changes in working culture, the structurally high underutilisation in the office market is a risk factor, even when the market situation is improving, according to the Bank of Finland.
“The challenging economic situation has made companies look at their space costs more critically. The use of office space is still characterised by constant change, as companies aim to find solutions that meet their business needs and the preferences of their employees. Hybrid work is here to stay, but after the pandemic, working life currently seems to be taking steps towards onsite work. Companies make extensive use of various means to promote this goal. Companies still continue their search for the best solutions. This is often done through experimentation, which highlights the importance of flexibility in planning space use,” comments Retta Management’s real estate analyst Anton Takkavuori.
The labour market outlook has weakened, and the employment rate in Finland is forecast to decline by more than one percentage point this year due to the weakening of the economic situation, according to the labour market forecast of the Ministry of Economic Affairs and Employment. The employment rate is not expected to grow before 2026. One reason for the market situation may be the slower rate of changes in the intended use, as the demand for alternative uses has decreased, for example.
According to the forecast of the Ministry of Economic Affairs and Employment, the number of employed people will increase by 14,000 next year, and the growth is projected to be 27,000 people in 2026. This is especially due to the strong increase in immigration, which increases the number of workers in Finland.
Companies have improved their efficiency, which is often reflected in the need to reduce the number of premises. However, the requirements for the quality of the premises have increased. Although companies need less space than before, they require more from their premises in terms of quality. Investor and user demand in the office market is expected to remain strong for well-located, state-of-the-art and ESG-compliant buildings.
The environmental certificate is a tangible indication of the sustainability of the premises. Indeed, despite the slowness of the investment market, demand for premises’ environmental certificates has grown strongly over a short period. We expect the number of acquired certificates to increase further as the investment market recovers.
Momentum remains in premium offices
The tightening quality requirements will ensure that the rents of the best premises also continue to increase in the coming years. The rental index describing KTI’s new office leases in the centre of Helsinki increased by 3.1% for contracts that came into force between September 2023 and August 2024.
For 2024–2028, BnB Paribas anticipates that the momentum in the Finnish office market will clearly remain in premium offices. This is expected to be reflected in the positive development of rents and values of premium offices compared to average offices in Finland. (Source: European Property Market – Outlook H2 2024 | BNP Paribas Real Estate)
According to the Rakli-KTI Commercial Property Barometer, there have been signs of stabilisation in the development of the requirement for prime yields, and the sharpest growth in net yield requirements is starting to be behind us. Rakli predicts that net yield requirements will decrease in almost all major cities in the autumn of 2025. The decline is expected to be moderate, but this will still have an upward effect on market values. However, statistics and forecasts in this area must be regarded cautiously. There are exceptionally few trade observations from recent years.
In the Rakli-KTI Commercial Property Barometer, well over half the respondents expect underutilisation to continue to grow over the next six months, both in the Helsinki Metropolitan Area and elsewhere in Finland. For a long time, empty office space was mainly a problem in the metropolitan area, but over the last couple of years, underutilisation has also increased in most large cities outside the metropolitan area. The changing needs of space users have kept the activity of the office rental market at a reasonable level.
Underutilisation of office space in the Helsinki Metropolitan Area has begun to grow again over the last two years. However, there are significant differences between submarkets. Of the major office submarkets in the Helsinki Metropolitan Area, underutilisation rates of higher than 20% were seen in Pitäjänmäki, Vallila and Sörnäinen in 24Q3. In contrast, underuse rates of less than 10% were achieved only in Keilaniemi, Hakaniemi and the secondary business district, according to the Helsinki Research Forum.
In 2024, the trade volume of office properties will probably be the lowest ever in the history of statistics. The share of offices of the total transaction volume is also falling to a historically low level. Regarding the completion of transactions, buyers and sellers still seem to have very different views on prices. The low level of trade also complicates the evaluation of properties.
The role of funds in the real estate investment market has increased in recent years. As funds have formed a significant buyer group in the domestic real estate investment market in previous years, the sales pressure they face may for its part slow down the pick-up in trade, according to the Bank of Finland.
Redemptions from domestic open-ended real estate funds began to grow steadily at the beginning of 2023. In recent years, domestic real estate funds that have actively purchased real estate have become net sellers of real estate instead of net buyers due to increased redemptions. However, it is positive that in recent months, net subscriptions have levelled off. For the growth of net subscriptions, seeing positive development in returns is central.
“The expected recovery of the real estate investment market has been delayed, but the future outlook remains positive. A large proportion of respondents to the Rakli-KTI Commercial Property Barometer in the autumn of 2024 expected both domestic and foreign investor demand to grow over the next year. In addition, the decline in the market values of investment properties seems to have stopped, which can also be considered a weak signal of a gradual recovery of the market. Regarding offices, 2025 will begin in defence mode. A more favourable outlook would require support from a better market,” summarises Takkavuori.
Additional information:
You can order a market review on the development of rental housing or tailor-made reviews from our real estate analyst.
Anton TakkavuoriKiinteistöanalyytikkoRetta Managementanton.takkavuori@retta.fiPuh. 0400 853 528
* Figures are based on Rakli-KTI Commercial Property Barometer, Bank of Finland publications, BnB Paribas European Property Market – Outlook H2 2024 market outlook, Ministry of Economic Affairs and Employment labour market forecast and Helsinki Research Forum data
