The financial profiles of companies in the Swedish real-estate sector are likely to weaken further in the remainder of 2023, according to a report published by Nordic Credit Rating (NCR) today. Although Sweden's central bank policy rates are likely approaching their peak, significantly higher financing costs will continue to undermine companies' interest coverage over the next few quarters. The impact of higher interest rates is already clear in companies' reported figures; among NCR-rated real-estate issuers, the average reported interest rate increased to 3.7% at the end of the second quarter of 2023, from 3.1% at year-end 2022. However, with the policy rate expected to rise above 4.0% and credit spreads inflated across the sector, interest costs will increase further as the benefits of interest hedges decrease.
"So far, property values have been remarkably resilient, despite higher yields," said NCR credit analyst Yun Zhou. "Transaction activity has remained relatively low, but we expect more transactions to be completed as buyers and sellers' price expectations become increasingly aligned. We believe this will accelerate declines in reported property values and add pressure to loan-to-value ratios. We also expect the risk of recession and concerns related to occupancy rates and rent levels to hang over the real-estate sector for some time to come".
Contacts:
Yun Zhou, analyst, +46732324378, yun.zhou@nordiccreditrating.com
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com