Sweden's financial watchdog warned of the threat to the country's financial stability from its heavy commercial sector loans. In the stability report released earlier this week, the Financial Supervisory Authority implored Sweden's commercial real estate owners should reduce their debt and strengthen their balance sheets to avoid more financial turbulence. Property owners in the country are set to refinance over $40B of maturing bond debt in the next five years. Under current market conditions with rising interest rates, this is a cause of concern for the financial viability of leveraged landlords. The FSA's General Director, Daniel Barr, said, "There is a heightened risk that there will be turbulence on financial markets. Our assessment is that the Swedish financial system is resilient, with well-capitalized banks, but we need to follow developments and be ready to act." One important reason for FSA's concern is the substantially higher commercial real estate lending by the country's banks compared to its neighboring countries. For over a decade, property owners have leveraged rising property values and low-interest rates to take in more debt. Now, many such loans need to be refinanced at a time when interest rates are at the highest levels since the Great Financial Crisis.
Newsec Property Management AB projected a 20% decline in the commercial real estate deal volume this year. Newsec estimated transactions to decline to 175 billion kronor (~$16.7B), less than half of the activity seen in 2021. Newsec's deputy CEO, Max Barclay, pointed out that rental properties in less desirable locations saw minimal activity, and centrally located offices saw no price changes. According to Colliers Research, the monthly deal volume in the Nordics dropped by 74% YoY in February, the lowest since 2014. Last month, S&P downgraded the credit rating of SBB, which specializes in social infrastructure. SBB's stock price peaked in 2021 and then plummeted 80%, shaving off $15B of its market share. Short sellers have targeted SBB after the downgrade. Rising interest rates have made SBB the hardest-hit company in Europe's property markets. Following the S&P downgrade, SBB was forced to cancel its dividend and rights issue. Its share price has dropped over 90% since the start of last year. Today, SBB announced its founder and CEO Ilija Batljan is stepping down and is being replaced by Leiv Synnes as the board plans to divest assets and find a buyer. Other Swedish landlords are also slashing the valuations of their portfolios. In February, Wallensam AB and Herba Fastighetss AB decreased the valuation of their property assets. According to a survey by Fastighetsagarna, a majority of landlords expect prices to plunge across asset types this year. |
