Reflecting on the Past Year: Navigating Choppy Waters in the Real Estate Market
As we stand at the beginning of 2024, it is important to look backward and acknowledge the challenges that confronted us in the previous year. The real estate market, in all its complexity, proved to be an exceptionally challenging terrain. Our relatively young business, heavily reliant on transactions, found itself navigating turbulent and uncertain waters. In times when transaction activity slowed significantly, we faced the task of adaptation.
Despite the headwind, our resilient team managed to execute 12 transactions and deliver substantial value to our customers. We weathered the storm admirably, demonstrating our unwavering commitment to excellence. From an international perspective, it’s particularly heartening to note the strides made by our business in Sweden. We’ve hit the ground running, successfully closing our first deals, and cultivating a robust pipeline for the future.
While we’ve been working on diversifying our business for some time, the events of 2023 made it abundantly clear that our strategy, centered predominantly around transactional business, required a swifter transformation. Last year served as a catalyst, propelling us to develop additional cornerstones for our business. The journey is ongoing, and we’ve made substantial progress along the way.
In the following texts, my colleagues will delve deeper into the challenges and opportunities in the realm of Value Creation (leasing) business in Finland. I highly recommend staying tuned and continuing your reading journey.
#NotJustAnAdvisor
– Henri Hakala
Let’s catch up!
Henri Hakala
henri.hakala@reagle-fi
+358 415 063 101
About the Market
The tenant market is broken?
Real estate investors rely on the rental market for income, while tenants view space as a production factor. In an economic slowdown with dropping property values, maintaining consistent cash flow becomes crucial. Understanding the tenants’ needs and the factors influencing space demand, and matching the right users with suitable spaces is the basis of our real estate field.
The office market illustrates how changes in production methods reshape real estate. The pandemic introduced hybrid work models, prompting discussions about the necessity of office space. While some advocate for substantial space reductions, global variations in the return to offices create diverse market outlooks, leading to a polarized investment landscape.
For instance, according to the Helsinki Research Forum’s data in December 2023, the Helsinki Metropolitan area had 623,000 square meters of unoccupied office space equaling a 14.3% vacancy rate and Helsinki CBD being around 13 %. Comparable rates exist in CBDs such as Manhattan (14%) and Boston (15.5%). In contrast, vacancy rates in European CBD markets, from Copenhagen to Munich, hover around and less than 5%. (Helsinki Research Forum, M&G Investment 2023).
This is not only an office asset class problem. Clearly, our tenant market faces challenges. Oversupply and location issues are factors, but another significant problem lies in the structure of the tenant market itself. There’s a mismatch between available spaces and tenants’ needs, and the brokers and lease advisors aren’t efficiently connecting properties with suitable occupants.
Intelligence helps to create value.
We believe that leveraging more data and intelligence in the leasing process can add value to properties. By understanding buildings, identifying suitable industries, and using data to match the right tenants, we can create more successful property matches. Quantitative modeling of the user market allows us to predict companies’ needs and movements, uncovering new market prospects to fill vacant spaces efficiently and secure income.
Example of data:
Below map shows location where companies (golden points) have moved to Keilaniemi and Otaniemi (green points) starting from year 2023. Short analysis: 40 % of companies moved within Keilaniemi and Otaniemi areas and 15 % companies moved from Helsinki Center.
Let’s talk about more efficient ways to find the right tenants. Contact us to explore these strategies further.
Want to talk about data and insights?
Olli-Pekka Mustonen
olli-pekka.mustonen@reagle.fi
044 522 26 39
Leasing advisory – The last dinosaur of real estate advisory?
(The way we have always done it!)
Does your portfolio have vacancies which need resolving? How would you or your leasing team approach the task of filling these vacancies? The current way would probably be something like signing broker contracts and mandates with at least five or six different leasing advisors on a success-fee basis, sending them all your listing of empty premises once a month and just waiting by the phone for the advisors to find the tenants. Simple and easy, the way we have always done it, right?
Surely, the uninitiated would think this kind of diversification and sharing the mandate to several advisors equals to more efficiency, more hands-on deck, and more leasing leads, but I can tell you the reality is quite the opposite. In this “old-school” model, no one is incentivized to do much, to walk the extra mile. At any time an advisor might lose the lead to one of the other advisors and all the work done goes to waste. This drives the advisors’ earning model to a volume-based approach, where a high number of vacant premises an advisor has in their leasing portal equals to better-expected revenues.
From the investors’ point-of-view, this means five or six slightly differing portal listings but very little active work. And let’s be honest, if there´s one thing empty premises are bad at, it’s leasing themselves.
Now that I have completely trashed on leasing advisors’ approach to leasing mandates, you are probably asking, Arttu, what are you trying to sell? What I am doing is simply introducing a modern way of solving vacancies.
The only thing you need to do is trust one advisor. You do this with the transaction mandates, so why not in leasing? Why not let a selected professional analyze the premises or asset in question and the surrounding market, study and list the potential tenants with advanced and unique data-based mapping, design professional-looking materials and portals, and above all, directly and proactively contact and negotiate with potential new tenants all the way to the signing of lease agreement.
Doesn’t sound too bad, eh?
What this kind of service gives you, is…
- a scheduled project with reasonable duration
- transparent reporting of all potential tenant negotiations and direct feedback of their needs (market intelligence)
- an extension to your team and a dedicated resource for the entire duration of the process
- increased hit-rate in leasing
- and at the end, increased asset value.
I might be gullible, but isn’t this how an efficient client-advisor relationship should operate?
Think about it, let’s meet up and talk about Value Creation. 😊
Let’s keep in touch!
Arttu Ikäläinen
arttu.ikalainen@reagle.fi
+358 40 591 1509
Reagle Team
Erik Lilliecreutz
“Reagle is looking for an analyst/associate in Stockholm” popped up on my cellphone one summer evening late at night. At an instance I decided to apply for the position and three days later I was sitting next to Peder and Henri in a first interview. “All Fins speak Swedish right?” at least that is what I presumed. A quick google search led me to do some reconsidering and perhaps just prepare to do it in English – just in case.
That “just in case” thought happened to be a good one and that google search proved me right. The meeting went well, and I was really impressed by Reagle and the way of how they see the process and their overall business approach. More than 100 transactions since 2017, that’s more than one transaction a month through a six/seven-year period. Also hearing about the various people in the company and their different backgrounds really made it even more distinctly unique and interesting to me.
I have previously been working on the owner side of the real estate market in companies such as Ankarhagen Fastigheter and Magnolia Bostad. In roles such as an analyst and within the sourcing side. Having worked within the segment of housing, communal properties as well as warehouse and light industrial type of buildings has provided me a broad spectrum of the sector.
Together with Peder I hope to further contribute to building up the Swedish part of Reagle and looking forward we have a lot of interesting opportunities ahead. The market is undoubtedly in a tougher spot than it has been in the last 30 or so years. But with the right attitude, the Reagle mindset and some creative and out of the box thinking, I am certain that we’ll succeed in establishing Reagle as a competitive actor in the Swedish market.
In my spare time, I try to exercise in all different sports and spend time with my friends and family. I have a keen interest in architecture and film, and yes, I often rewatch movies and series rather than picking up new ones.
Hope all of you have had a great year and that this one will be even better!
Best wishes from Stockholm.
-Erik Lilliecreutz
This is how it’s done
It’s always nice to start the year – and end the newsletter – on a high note. Earlier in this newsletter my colleague Arttu argued why a systematic and carefully thought and executed value creation and leasing process yields results. Well, you don’t have to take just our word for it: Back in 2022 we started a value creation project with Jatke Toimitilat Oy to their empty industrial plot in Piispankylä, Vantaa. As a part of the project, we contacted a vast number of companies with a view of finding a tenant to the development, and to get the development started in the first place. Fast forward 18 months or so, wood construction expert Puumerkki Oy has signed a lease agreement for 8 000 sqm built-to-suit facility, that will be developed by Jatke Toimitilat together with the investor.
“Reagle did exactly what they promised and found a quality tenant and helped us to negotiate the deal that kickstarted the project. I’m looking forward to the next successful project together!”
-Mikko Halme, Jatke Toimitilat Oy
That, if anything, is a testament to what can be achieved with a systematic approach, hard-working attitude and good team-work with the client.
Greetings from Reagle’s Christmas party!
“We got to play Secret Santa, attended drink school and enjoyed some amazing food!“
