Last year, Swedish cross border investment volumes into European real estate totalled €18.9 billion, according to RCA data, a 157 per cent increase compared with 2020 levels. As a result, Sweden is now the second largest country of capital origin, only behind the US at €43.3 billion. Swedish cross border activity has been driven by large portfolio and entity acquisitions, mainly targeting residential properties, which accounted for 70 per cent of all investments abroad in 2021, followed by offices (27 per cent) and logistics (10 per cent).

A mix of risk diversification, the possibility of achieving higher returns in neighbouring countries and the Swedish market alone not being large enough given the size of the listed companies and private equity funds, are pushing Swedish investors to seek opportunities beyond their borders, even outside the more familiar Nordic region.

One of their favourite destinations last year was Germany, where they invested €7.9 billion, eight times more than 2020 figures and 42 per cent of their total investment share. Heimstaden was particularly active here.

Investment volumes into Denmark multiplied by five between 2020 and 2021 to €5 billion, 27 per cent of the total, with Heimstaden, CRIM and NIAM all making large residential acquisitions last year. Finland and Norway both accounted for 10 per cent of their capital allocation respectively. The biggest increases, albeit off a much lower base, occurred in Poland, which received a tenfold increase of investment year on year to €700 million and the UK, which saw a fortyfold increase to €434 million.

Swedish investors have also been very active in their home country. Last year they invested €27.8 billion (SEK 285 billion) domestically, 82 per cent above 2020 volumes. One of the key drivers behind this was a record number of Mergers and Acquisitions (M&As). In 2021, 17 M&As were transacted, a remarkably high number compared to an average of three deals per year recorded between 2017 and 2020. 

Most of the deals involved listed real estate companies acquiring other companies operating within the same area of the market, often involving the living sectors. The driving force behind this is that some residential market players are expanding their footprint in order to achieve economies of scale and to increase their profit margin. Despite the surge in M&A activity, the number of listed Swedish real estate companies has steadily increased over the past five years.

So what will happen next? We expect cross border investment volumes in Europe overall to increase further in 2022, by somewhere between 2 and 5 per cent. This growth will be led by oversees and intra-regional capital. US investors will remain the predominant players in Europe followed by German funds and Swedish real estate companies, particularly listed ones.

As we expect prime yields to further compress in Sweden, local investors will continue to seek attractive yields in other European countries, especially as there is likely to be more competition between domestic and international players.

We also believe that we will see more M&As in 2022 as they allow companies to achieve portfolio growth quickly and enable synergies in financing, property management and project development.

Further information

Contact Lydia Brissy and Carolina Herling

Spotlight European Cross Border Investment