Stricter carbon emission obligations changing commercial real estate market

“The transaction market strengthened slightly during the first half of the year, but is currently experiencing a major historical shift in investor sentiment driven by substantially lower financing costs, which will significantly boost activity over the next 12–18 months,” says Thomas Persson, Head of Capital Markets Nordics.

Following a period of high interest rates, it is now clear that we have passed the peak given the Riksbank’s announcement that we have begun a cycle of rate reductions. The Riksbank led the way among central banks when it cut the key interest rate by 25 points in May and by an additional 25 points in August. The market expects a further three to four cuts from the Riksbank by the end of the year.

Financing through the bond market is another factor behind the improved transaction market, as real estate companies have issued a larger volume in the Swedish bond market during the first half of the year than in the whole of 2023.

The Swedish stock market’s property index continued its recovery since bottoming out in October last year. In 2024, we noted an increase of approximately 10 percent. Substantial variation remains between different real estate segments and companies, where industrial and logistics companies are trading above their reported net asset value, while the tendency for companies in other segments is to trade at a significant discount.

The autumn report focuses on how the obligations of corporations to reduce carbon emissions will drastically change the commercial real estate market. With the urgency to reach the goals set by the Science Based Targets initiative (SBTi), we are approaching a green turning point that opens for new investment opportunities as focus shifts from environmental certification to actual carbon footprint.

“A growing number of tenants are increasingly prioritising sustainability in their choice and use of premises. One target for customers is clear, namely to reduce their carbon footprint, not only in operations but across the life cycle,” says Erik Nyman, Head of Research Sweden.

In the most recent edition of the JLL Nordic Outlook you can read about:

·       GDP growth in the Nordic countries, which is expected to exceed average GDP growth in the eurozone over the next two years, driven by factors that include real wage growth and more expansive monetary policy.

·       Expectations for office rent levels in major European cities up until 2028 and the expected rent trends in the Nordic markets.

·       The Nordic transaction volumes, which increased more than 15 percent during the first half of 2024, with Sweden also ranked as one of the ten largest global markets for commercial real estate during the second quarter.

·       Increased focus on the obligations of corporations to reduce carbon emissions, which will shape the real estate market and bring us closer to a green turning point.

·       How to encourage transparency in sustainability reporting, aligned with JLL’s Global Real Estate Transparency Index.

To download the report free of charge, click on the link below

https://www.jllsweden.se/en/trends-and-insights/research/jll-nordic-outlook-autumn-2024

JLL Nordic Outlook, which is published twice per year, analyses the Nordic property market from various perspectives. The report includes an analysis of the office markets in Stockholm, Gothenburg and Malmö, and the other Nordic capitals, as well as retail, logistics and residential property markets in the Nordic region. An analysis is also conducted of how the obligations of corporations to reduce carbon emissions will change the real estate market and how we are approaching a green turning point.