Market Report Q1 2023
Created on Apr 25, 2023

Market Report Q1 2023

"Positive net operating income will be the key to sustainable real estate sector development during 2023"

2022 was an extraordinary year to remind us all about the brutal impact caused by a volatile financial market.

The Swedish central bank (Riksbanken) took a drastic turnaround on their monetary policy to regulate the increasing inflation while CPI continued to increase, with costs being challenging for a large share of companies.

A considerable part of the listed real estate companies experienced a dramatic decreased market value throughout the year and are facing significant bond maturity pressure, which stands in contrast with approximately 15% premiums recorded during spring of 2022.

The policy

The Swedish central bank decided to increase the policy rate from 0 to 2,5% during 2022, to combat the increasing inflation rate, which stood at 10,2% in December. This was slightly lower than the central bank's forecast, solely due to energy prices being lower than expected.

The Central bank is taking steps to curb inflation by implementing active monetary policies. Additionally, liquidity in real estate corporate capital markets has declined, leading to increased funding costs. Although Nordic banks continue to demonstrate interest in lending, they are primarily prioritizing established relationships and are offering lower refinancing loan-to-values (LTVs). This due to increased scrutiny of interest-coverage ratios (ICRs), resulting from the continuing rise of interest rates.

Higher funding costs

For decades, the corporate bond market has served as a substantial source of funding for numerous real estate companies. However, the rising costs associated with borrowing bond debt have made the market costly for issuers, and rendered it to quickly become inaccessible for many companies.

In 2022, the hesitancy of real estate companies to procure newly issued bonds at elevated prices resulted in a reduced rate of bond issuance. As a result, real estate companies began to explore alternative options.

Stable long-term rates

The current inversion of the interest rate curve and the anticipation of the central bank's focus on inflation control, have caused concerns about the length and depth of the recession. The outlook indicates a decline in economic growth during 2023 and 2024. Inspite of the high employment rate, weak consumer confidence indicators continue to add downside risks.

We expect limited transaction volumes and total return on assets, due to the lack of debt financing and higher financing costs. However, we can expect a stabilization of long-term rates, a successive inflation decrease, and an expected rebound in the general economy by the end of 2023, or in the beginning of 2024.

The report

Our initial release of the Carousel report seeks to review the macroeconomic conditions of 2022 and provide a 2023 outlook. Moreover, we aim to share our practical experiences and conclusions from the last year, focusing mainly on leasing and asset management. The report also intends to highlight upcoming investment opportunities in the commercial real estate field.

Despite the slow inflation rate decline in January, it is anticipated that the Swedish central bank will persist in tightening its monetary policy throughout the year, to attain the CPIF target.

Macroeconomic situation

The Swedish central bank implemented drastic measures to curb the steeply rising inflation rate. In January 2023, the inflation rate in Sweden declined to 9.3%, having peaked at 10.2% in December 2022. There is a scant indication that the central bank intends to ease its monetary policy, as it remains committed to attaining its target of a 2% CPIF by 2024. Based on the recent 50 basis points increase from the European Central Bank (ECB), there is a likelihood that a policy rate hike of 75 basis points will be announced during the upcoming monetary policy meeting in April. Our forecast indicates that the policy rate is expected to reach 4.5% by the end of this year.

Development of policy rate in Nordic countries 2023

The demand for modern and efficient amenities in Stockholm's central business district (CBD) has endured during 2022.

Carousel 2022

The need for contemporary and efficient premises within the central business district (CBD) of Stockholm has persisted, due to the increasing number of businesses urging their staff to return to the office in the aftermath of the Covid-19 pandemic. Approximately 40% of the potential clients with whom we have had daily interactions, conveyed their explicit desire for premises to facilitate team reunification.

Outlook 2023

8.7 bn USD investment volumes for the office segment in the Nordics over the last 12 months (JLL)

Although this trend has been emerging since the pandemic outbreak, we anticipate that the demand for flexible lease periods, and the ability to scale leased areas in both directions, along with the option to exit, will be crucial for a number of organisations in the near future.


The upward trend of inflation and fund costs will remain a concern for the industry and potential investors. However, following the market turbulence observed in Q3 and Q4 of 2022, we anticipate a more stabilised monetary policy in 2023, with continued support from Swedish banks. Despite a potential decrease in the loan-to-value (LTV) ratio, the devaluation of the Swedish krona may present new opportunities for international investors, especially in premium office properties.


Sustainability is increasingly important for both potential tenants and investors. While many tenants strive to meet their environmental, social, and governance (ESG) targets, a growing number of landlords are willing to invest in their existing portfolio to increase the attractiveness as well as enhance market valuation.

From a dual standpoint of financial and sustainability considerations, it is our belief that the aforementioned factors will serve as a significant determinant for the heightened polarization that is expected to occur between AA/A and B/C properties.