Nordic Credit Rating (NCR) covers a wide range of Swedish real estate companies that focus on a variety of property types. Most are small in the context of the wider Swedish property sector, with NCR-adjusted portfolio values of SEK 10bn to SEK 30bn.
Occupancy set to decrease slightly in the coming quarters
We see a limited impact from a potential decline in occupancy on the business risk profiles of the real estate companies we rate. However, corporate defaults remain high in Sweden, and the worst-affected sectors are construction, retail, hotels and restaurants. We regard residential and community service property managers with direct government funding as best positioned to maintain high occupancy and rental growth in an economic downturn.
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Average remaining lease terms in the quarter range from a few months for managers focusing on the residential segment to as much as 9.8 years for community service property manager Vacse, an increase from 9.6 years in the previous quarter ended 31 Dec. 2024. Intea completed the construction of a prison facility in northern Sweden, raising its average remaining lease term to 8.3 years from 7.8 years at the end of the prior quarter. Svenska Handelsfastigheter increased its average remaining lease term to 5.4 years from 5.1 years due to successful renegotiations and new lettings. Most other NCR-rated real estate issuers experienced a decline in their average remaining lease term during the quarter, with a larger impact on companies exposed to cyclical segments.
Occupancy rates among the property companies we rate fluctuate between 90% and 100%. Managers of residential, retail and community service properties are generally at the higher end of this range, while office and industrial/logistics managers are usually at the lower end owing to higher tenant rotation and cyclicality. Occupancy remained stable during the quarter, though the performance varied. Stenvalvet and Svenska Handelsfastigheter experienced increases in occupancy rates of 80bps and 30bps, respectively. The most significant decline in occupancy occurred in the office segment, whereas other segments showed more stable trends.
Net letting has stabilised with a slight decline during the quarter, and we expect companies will continue working proactively to keep their facilities occupied. We anticipate signs of recovery in occupancy and more pronounced positive net letting by the end of 2025 in the cyclical segments. However, tenants reassessing their facilities and locations may offset some of the positive contributions from higher rental growth. So far in 2025, companies' net operating income margins have improved by 30bps on a rolling 12-month basis.
The financial risk profiles of the companies we cover vary substantially. Net debt/EBITDA, a key credit metric, is generally comparatively weak among property managers with lower-yielding assets, such as residential properties. It is also often weak at companies that are growing rapidly, since net debt increases instantly, while any resulting EBITDA gain comes over the subsequent 12 months. This metric has seen improvement over the last two years due to property managers' moderation of growth ambitions after previous rapid expansion.
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Transaction volumes poised to increase as companies shift their focus to growth
Following easing inflation, the Swedish central bank lowered its key policy rate by 175bps in the period from May 2024 to February 2025. We expect that the floating rate will remain at 2.0─2.25% during the remainder of 2025. In general, we foresee improved financial risk profiles in the sector over the next couple of years as the cost of financing levels out. Capital market financing has become increasingly accessible at longer tenors since 2024, with substantial amounts of new issues at more normalised levels relative to the elevated spreads of 2022 and 2023. We believe that some issuers will become more growth oriented, after a relatively conservative approach in the past due to uncertain market conditions.
Total transaction volumes in Sweden stood at SEK 35.3bn in the first quarter of 2025, up from SEK 27bn a year earlier. However, NCR-rated issuers had limited transaction volumes during this period. Notable transactions included CA Fastigheter's purchase of Lidingö Centrum (outside of Stockholm) for SEK 811m, and Platzer's sale of a school property in Södra Änggården (south of Gothenburg) for SEK 552m. So far in the second quarter of 2025, NCR-rated issuers have been more active, with Heba, Intea, Svenska Handelsfastigheter, and Vacse making acquisitions. Yield requirements have stabilised, and we expect it will be easier for buyers and sellers to complete transactions in the current environment. We anticipate higher transaction volumes for NCR-rated issuers in the coming quarters.
In addition to a purely ratio-driven assessment, we take into account a real estate company's financial risk appetite when considering financial risk. Among other factors, we consider a company's average debt maturity and average fixed-interest period, as well as its average interest rate. As with key credit metrics, individual companies' approaches to financial risk vary significantly. We believe that differences in levels of interest rate hedging and debt maturity profiles have a marked impact on the pace and extent of change in interest coverage over time.
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Interest coverage likely to rebound as financing costs level out
Sector players' average debt maturity remained stable at 2.5 years in the first quarter of 2025. We had anticipated that companies would take advantage of the strong capital markets and favourable financing conditions to lengthen their debt maturity profiles before the announced US rollout of tariffs and the ensuing uncertainty. A few issuers refinanced their debt in both capital markets and the banking sector. The overall sample experienced a decline in average interest cost by approximately 10bps, reducing interest cost to 3.4% from 3.5%. This aligns with our expectations for long-term sustainable levels, as interest rate derivatives entered into at lower rates expire and borrowing margins compress. The average interest-fixing period in our sample increased to 2.9 years, up by 0.1 years from the end of 2024. We expect interest coverage will improve slightly for most issuers in the sample, unless they face further operational challenges.
In January, Stenhus refinanced 60% of its outstanding bank debt, which, along with its short interest-fixing profile led to a 30bps decline in average interest rates during the first quarter.
In January, NCR revised its outlook on Platzer to stable from negative and raised its issue rating on the company's senior unsecured bonds to 'BBB-' from 'BB+'. We based our decision on the expectation that the capital structure would include a larger proportion of senior unsecured funding, with gross secured loan-to-value below 40%. Subsequently, the company issued two senior unsecured bonds amounting to SEK 750m in the quarter, each with a four-year tenor. The spread levels were approximately 73bps lower than before, leading to a slight reduction in the average interest rate for the period. However, this effect was counterbalanced by higher margins on refinancing of maturing bank debt and the expiration of swap contracts at low interest rates.
Events after the first quarter
Equity raises
Both private and public equity markets appear accessible for issuers. After the first quarter closed, three NCR-rated issuers raised new equity capital.
In April, Vacse raised SEK 894m in new equity and added Telia Pensionsstiftelse as a new owner. The ensuing reduction in net debt effectively lowered NCR-adjusted net loan-to-value (LTV) to 27% from 35% at the end of the first quarter. Vacse is likely to maintain its low-risk strategy and disciplined acquisition approach, resulting in uncertain timing of any new debt additions. We anticipate the company will aim for a net LTV closer to 40% over time, compared with current estimates around 27%.
In May, Stendörren raised SEK 300m in equity capital to capitalise on growth opportunities. The equity raise effectively lowered net LTV to 52.4% from 55.1% at the end of the first quarter. We expect that the company will use the proceeds for financing acquisitions and projects.
In May, Intea raised SEK 1.1bn in equity capital. The equity issue reduces Intea's net debt to SEK 11.1bn from SEK 12.2bn, effectively lowering NCR-adjusted LTV to 46% from 50% on a pro forma basis as of 31 Mar. 2025. We expect this reduction in leverage to be temporary, as the company has announced plans to use the proceeds to finance its ambitious project pipeline, which require an estimated SEK 11.2bn in investments in 2025─2031. Intea may also make acquisitions if opportunities arise.
Acquisitions
In April, Intea completed the acquisition of a jail facility in Västerås for SEK 620m, with an estimated additional planned investment of SEK 2.2bn in 2025─2028. Intea also secured the contract for constructing a police station in Gävle, with an estimated investment of SEK 1.6bn until 2030. We have incorporated Intea's ambitious project pipeline in our forecast of its financial ratios, which we expect will keep the net LTV within the company's target range of 50─55%.
In May, Heba signed a letter of intent for a joint venture with PEAB to development a care and nursing home in Lilla Essingen, an area in Stockholm, Sweden's capital. The project will likely be completed during spring in 2028 and financed jointly by both parties. We understand Heba plans to acquire the property upon completion, with an estimated total investment of SEK 830m. In our view, this will have a limited impact on Heba's financial metrics due to the long construction phase. Strong rental growth from residential properties should support cash flows during the development, offsetting the impact of increased debt.
In May, Vacse acquired two newly constructed community service properties: an agency headquarters in Karlskrona and a district court in Borås. These acquisitions were made through forward funding arrangements entered in 2021 and 2022 at a fixed price. This slightly reduces the company's property concentration, which will nonetheless remain meaningful given Vacse's small size.
In May, Svenska Handelsfastigheter acquired a big-box retail property located outside of Malmö, with a property value of SEK 929m, adding SEK 74m in annual rental income. The acquisition was financed using equity capital. We expect this acquisition to slightly diversify the company's tenant composition, although a significant portion of tenants are the same as those in other properties owned by Svenska Handelsfastigheter.
Our quarterly comparisons from the fourth quarter of 2024 are available here.
Recent publications
Intea Fastigheter AB (publ) 'BBB' rating unchanged following equity issue, 22 May 2025.
Intea Fastigheter AB (publ) 'BBB' long-term issuer rating affirmed; Outlook stable, 14 May 2025.
Fastighets AB Stenvalvet 'BBB' long-term issuer rating affirmed; Outlook stable, 14 May 2025.
CA Fastigheter AB 'BBB-' long-term issuer rating affirmed; Outlook stable, 11 Apr. 2025
Comparison of Swedish industrial and logistics property managers, 1 Apr. 2025.
NCR comments: Vacse AB (publ) 'A-' rating unchanged following addition of new owner and equity issue, 1 Apr. 2025.
LSTH Svenska Handelsfastigheter AB (publ) 'BBB-' long-term issuer rating affirmed; Outlook stable, 11 Mar. 2025.
Heba Fastighets AB (publ) 'BBB' long-term issuer rating affirmed; Outlook stable, 4 Mar. 2025.
NCR Comments: Stenhus Fastigheter 'BB' rating unchanged following dividend announcement, 20 Feb. 2025.
Svensk FastighetsFinansiering AB (publ) 'BBB+' long-term issuer rating affirmed; Outlook stable, 31 Jan. 2025.
Platzer Fastigheter Holding AB (publ) outlook revised to stable; 'BBB-' long-term issuer rating affirmed, 23 Jan. 2025.
This commentary does not constitute a rating action.
Analyst contact details:
Gustav Nilsson, +46735420446, gustav.nilsson@nordiccreditrating.com
Elisabeth Adebäck, +46700442775, elisabeth.adeback@nordiccreditrating.com
On
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