Declining property market values over the past two years, in particular driven by rising interest rates have weakened the leverage metrics and interest coverage ratios of commercial real estate (CRE) companies in Sweden. The central bank has cut interest rates twice this year and is preparing to do so again, which could support real estate market activity and valuations. However, rates are likely to remain structurally higher in the medium term, pressuring CRE companies to preserve capital.
The credit quality of Swedish CRE companies has nevertheless shown some signs of stabilizing, driven by anticipated further rate cuts and the reopening of bond markets at more attractive spread levels. Since the transaction market is still soft it remains to be seen where values will be. Structural challenges remain in the bond markets and may even intensify as issue volumes rise. Companies continue to benefit from inflation-linked rental income growth. While this growth has not been strong enough to fully mitigate market value declines and prevent credit metrics from weakening, it has limited property market value declines to date.
Because a weaker macroeconomic environment will curb rental increases and indexation will be significantly lower, risks are now more focused on income streams. Despite a good supply-demand balance in the residential and logistics/industrial asset class, vacancies have increased in some office locations and structural challenges persist, implying greater effects from the work-from-home trend or work-from-home combined with a weaker macro economy.
We ask whether this confluence of factors represents a sustainable recovery for CRE companies and the start of a new real estate cycle, or a temporary improvement with setbacks along the way.
Join us at this year's conference as we will assess the prospects for Sweden’s real estate sector from an issuer, investor and rating agency perspective.
The sessions will be held in Swedish, unless stated otherwise.
