There are good reasons why institutional capital should want meaningful exposure to the Nordics’ private real estate markets.

Yields are compressing, yet still offer competitive spreads over long-term interest rates and other European markets; average prime CBD offices, for instance, sell at 3.60 percent, compared with 3.22 percent elsewhere on the continent, according to broker Savills.

At 1.8 percent and 1.7 percent, respectively, Swedish and Norwegian GDP growth remains stronger than most of the eurozone economies, according to Scandinavian bank SEB, ahead of the IMF’s forecast for the year of 1.4 percent. Also, unemployment is among the lowest; Norway, had an unemployment rate of 3.9 percent last year, compared with 6.3 percent Europe-wide, according to research houses Eurostat and the Bureau of Labor Statistics.

In another favorable demographic comparison, the Nordic region’s youth and working age populations are expected to grow over the coming five years, 4.5 percent in Sweden in one example, versus -1.8 percent across Europe, the Savills report says.

From a 1,000-foot perspective, it is thus easy to see why the broker is reporting investment volumes in the region are increasing: they were €29 billion in the first nine months of last year, up 4.1 percent on the same period the year before. Equally important, the cross-border element of that totaled €9 billion, Savills says, equal to 33 percent of total volume and up from 26 percent in 2018.

Against that backdrop, it is also easy to understand why Stockholm-based AREIM this week added to a growing cohort of private real estate fund offerings to see their fundraising targets beaten when it raised some $593.7 million for its AREIM Fund IV, 2.5 percent more than originally targeted. Add the $166 million raised in a sidecar and that percentage becomes 31 percent more.

The extra haul of AREIM is part of a bigger picture in Nordics private real estate right now; that of oversubscription by institutional capital for the region’s leading vehicles. Indeed, the $6.83 billion raised by the Nordics’ biggest 10 funds represents a 38 percent increase on the $4.94 billion they initially targeted, as per PERE’s own research.

Naturally, such oversubscription is aided by the fact these funds have been performing well. For its part, AREIM has managed a since-inception gross IRR of more than 20 percent for its value-add series.

But it is also a function of significantly limited choice for investors. Nine of the top 10 funds raised for private real estate strategies in the Nordics were by just three managers: AREIM, fellow Stockholm-based Niam and Copenhagen’s NREP. Private equity firm CapMan rounded out the top 10 with its second real estate fund, CapMan Nordic Real Estate II, which, at $482 million is the ninth-largest Nordics property fund ever raised.

According to one placement agent, which has represented Nordics funds, demand for Nordic products is only heading northward. He says increasing numbers of international investors are opting to supplement pan-European tickets with Nordic-only commitments, rather than rely on their pan-European managers to provide it. That is not lost on certain Nordics managers keen to join the race.

One example is Profi, another Stockholm-manager currently in market for its fifth vehicle. Having raised $126 million in a domestic first closing, the manager tells PERE it was focusing its roadshow subsequently on international money. Profi wants around $300 million, a figure that, even if achieved, would yet to see it join the Nordics’ current manager triumvirate.

The firm’s since-inception track record of 24 percent gross returns warrants attention no doubt. But it will take more than just attention from investors to prise open the region’s institutional competitive set for the Profis, CapMan Real Estates and others to join what is otherwise set to be a three-way oligopoly.