Property prices should continue to rise
Real estate companies continued to do well on the stock exchange this month. Long-term interest rates stabilised a few months ago and have been a driver for the sector alongside strong financial reports.
In addition, the real estate sector fell further on the stock market when the pandemic broke out and has lagged behind other sectors during the upswing. In general, risk appetite is also improving as Covid restrictions are eased and more and more people get vaccinated.
The last real estate companies reported their first-quarter results this month, and the positive trend continued. The reports can be summarised by saying that net asset values increased by an average of 18 percent compared with the first quarter last year, driven by both rising property values and strong underlying cash flows.
The positive trend is expected to persist in the current quarter (Q2). According to the latest consensus forecast from the Swedish Property Research Forum (SEPREF) for the second quarter of the year, prime office rents will remain at SEK 8,000 per square metre per year in Stockholm and at SEK 2,900 in Malmö, while rates in Gothenburg have been upped by SEK 100 in the latest quarter to SEK 3,500 per square metre. As to the required yield for prime offices, the levels have been adjusted down slightly in Stockholm to 3.28 percent, but have remained stable in Gothenburg and Malmö at 4.0 and 4.25 percent, respectively. We make the assessment that the real estate companies themselves are generally a bit more upbeat than SEPREF indicates. This is probably related to modest exposure to the very highest office rents in Stockholm. Aside from offices, we make the assessment that the yield requirements continue to fall for industry, warehousing and logistics. The positive trend is likely to continue for housing and community properties. For hotels and commercial properties, the situation is more difficult to assess.
The fund rose by just over 6 percent in May. Among our holdings in the portfolio, K2A and Samhällsbyggnadsbolaget performed best, while Selvaag and Magnolia performed worst during the month. The positions in Samhällsbyggnadsbolaget and Balder made the largest positive contributions to our portfolio, while Selvaag and Magnolia had the most negative effects on returns.
As for changes in the portfolio, we made more adjustments than usual this month. Brinova is a completely new holding in the fund. This is a relatively small company with housing and community properties in Skåne. The valuation compared to similar companies is low, and when the opportunity arose for a discounted investment we adopted the company into our portfolio. We made a modest investment in Annehem, a real estate company that was recently spun off from Peab. This valuation also stood out as attractive. We brought JM back into the portfolio this month. The company is a well-managed derivative, primarily in the Swedish tenant-owner market. Due to the buyout of Tre Kronor (bid raised twice), we have sold our entire holding in that company. As for minor changes, we upped our stakes in Diös, SBB and Skanska, and reduced our holdings in Balder, Klövern and Sagax D.