Vasakronan ready for new investments

2023 was another eventful year marked by uncertainty and turbulence in the operating environment. Vasakronan’s CEO, Johanna Skogestig, notes that the company has nevertheless shown resilience.

“Of course, we are not unaffected by either the recession or higher interest rates, but we have a property portfolio and an offering that well meets market demand. Our stability and financial strength allow us to focus on our business to prepare for the future and invest when our competitors cannot.”

Turbulence in the operating environment has posed different challenges for different segments of the property sector. How has Vasakronan, the country’s largest commercial property owner, been affected?

“Everyone is affected by the recession and uncertain outlooks, and that includes us. Financing costs increased during the year and the transaction market remained cautious, but the fact is that demand for office space was surprisingly stable, despite the weakening of the labour market in the autumn.

“This is reflected in the occupancy rates in our four locations, which are relatively unchanged, although I have noted a polarisation in the lettings market. Prime locations and products benefit from new ways of working at companies, which is also reflected in their willingness to pay.

“This is clearly a sign that the market has become more discerning. The perception of the office and the workplace has simply changed after the pandemic and the demand for flexibility and better locations has increased.”

How has the perception of the office changed? Has a “new normal” been established?

“No, the ‘new normal’ is far from clear. Many companies and government agencies are still figuring out how to create the optimal workplace for their organisations and employees. The rising prevalence of hybrid work makes it more difficult for companies to define what they need in their premises and many customers need guidance with designing the best possible workplaces. It is important to remember that there is no one-size-fits-all solution. Everything depends on the type of business, culture and leadership of the companies.  Here we play an important advisory role.

“Of course, customers still require an efficient and good workplace that offers the basics: a good indoor climate, sound and light conditions. But it has also become more important that we as property owners can offer complementary services and shared resources, for example in the form of Arena, our co-working offering.

“For most organisations today, offices are very much about attracting people, especially to retain and recruit new talent. Here, location plays an important role.”

Johanna Skogestig, CEO Vasakronan

I would say that location has become, if possible, even more important. There is a clear trend to seek easily accessible locations in the more central parts of our cities.

Johanna Skogestig, CEO Vasakronan

Speaking of location, do you feel it is as important as before?

“Absolutely! I would say that location has become, if possible, even more important. There is a clear trend to seek easily accessible locations in the more central parts of our cities.

“It has also become clearer that tenants are increasingly likely to choose premises at a property in a larger context. It’s not only about the premises or property itself and what it can offer, but also what and who is around it. Naturally, this benefits Vasakronan, which has properties with all the in-demand qualities in the very best locations.”

When you say “larger context”, what do you mean?

“That the surrounding streets and neighbourhoods are appealing at eye-level and generally perceived as attractive, with restaurants, services, fast-food outlets and stores that you want to visit, and where you can spend time outdoors during the summer. We Swedes live in a country that is cold for much of the year, so we want to be able to spend time outdoors during the few warm months we have.”

Can you give some good examples of such attractive urban environments?

“I am extremely pleased with the development of Sergelstan in Stockholm and not least the renewal of Malmskillnadsgatan, which has been transformed from an obscure and unwelcoming back street into one of the city’s most vibrant and inviting environments. Welcoming entrances, restaurants on different levels, the fine staircase down to Sergels torg, the red pavilion and the addition of greenery to Stockholmsterrassen have collectively changed the experience of the entire area. The City of Stockholm’s decision to close Malmskillnadsgatan to car traffic for some months in the summer has created even better conditions for outdoor life.

“Other development projects that have resulted in fine examples of urban environments are Fredstan in Gothenburg, and Triangeln and Södra Förstadsgatan in Malmö. All these areas also appeal to retail tenants. Despite the challenges facing the retail sector, 2023 was something of a comeback for physical retail. This is reflected in the occupancy rate for our retail premises, which is actually higher than the occupancy rate for the company as a whole.”

And investment in urban development is continuing, yes?

“It is indeed. In Stockholm we are nearing the completion of Hästskopalatset on Hamngatan and Grev Tureplan on Birger Jarlsgatan, and several stores and restaurants have signalled their interest. We are also noting considerable interest in the newly remodelled second Hötorgsskrapan building, and soon Sergelterrassen will reopen along Sergelgatan. We expect that it will remain an attractive summer hangout both for Stockholmers and for visitors to the city.

“The next phase of the development of Södra City in Uppsala is ongoing, where the renovation of the Lumi property will create a clearer context for our other properties in the area. In Gothenburg, we are focusing on Lilla Bommen, which will be developed from a fairly dull area with nothing but offices into a dynamic and vibrant district close to the water and the city, and with the best public transport links. We are currently constructing a new building, Kaj 16. It will become part of the city centre, nicely complementing the classic Läppstiftet and the area as a whole.

“In Gothenburg, the impact of the new West Link on the city’s development will also be exciting to see. We know that hubs, where many people pass through, are important, but it is also important to make them attractive.

“The most important lesson from many years of working in urban development is that you’re never finished. It’s not enough to carry out one renovation and then think you’re done. You always need to be actively developing and improving your local area.”

Lumi is located between Resecentrum (the Travel Centre) and the Fyris River in Uppsala. This is the third property development project in Södra City, an area that is being developed at a rapid pace by Vasakronan in close collaboration with Uppsala Municipality. The goal is a sustainable city district, a new green urban area and cutting-edge solutions.
For many years Vasakronan has focused on project development without being very active in the transaction market. Where you have made deals, they involved divesting properties that didn’t really fit the property portfolio. Is it time to buy now?

“Our approach has been extremely consistent – we invest in cities with good economic growth and in the right locations. Instead of competing to buy at high prices, we have chosen to invest in developing existing properties or building new ones. In hindsight, this assessment has proven both profitable and correct. As a result, our property portfolio is well positioned in terms both of location and of quality.

“That said, we are well prepared for acquisitions if the right property comes up for sale. However, we will continue to be selective. If we make acquisitions, they will be objects that strengthen our business and our offering.”

Given the economy and increased construction costs, what opportunities do you see for starting new projects in the future?

“As I said, we have timed our project development very well. A number of fine properties have come to market in all four of our cities at a time when the demand for modern, high-quality premises has been high. They are fully let, which means that our property portfolio has grown significantly compared with a few years back.

“Our ongoing projects have high occupancy rates and several projects are nearing completion. Given everything you mentioned – the economy and increased construction prices – we have naturally exercised a little more caution in terms of starting new projects over the past year. Despite squeezed margins, our development portfolio still has potential and we are ready to press the start button for new development projects if the conditions are right.”

The most important lesson from many years of working in urban development is that you’re never finished. It’s not enough to carry out one renovation and then think you’re done. You always need to be actively developing and improving your local area.

Johanna Skogestig, CEO Vasakronan

Vasakronan’s properties have a high environmental profile. How important is that for your tenants?

“It has – finally, I’d like to add – become extremely important. While corporate climate policies have become tougher, what has really made a difference is the stricter reporting requirements that require companies to include the environmental impact of their premises in their sustainability reports. And when sustainability matters impact companies’ finance departments, that’s when things really take off.

“Simply put, companies need a climate calculation as well as a profitability calculation. So now we see that high environmental performance is a basic requirement for an increasing number of tenants.  We also receive many more questions about the energy class of the properties and whether or not they are Taxonomy-aligned, and the sustainability reports we produce for all customers are highly appreciated.

“For us, this is a welcome development. In our world, quality assurance in finance and sustainability are exactly the same thing. 93% of our properties are environmentally certified, of which 84 percentage points are certified to LEED Gold or higher, so we are well equipped to meet the new sustainability requirements of our tenants.”

It’s been ten years since Vasakronan issued the world’s first green corporate bond. How has that affected Vasakronan’s options for financing?

“It has been exclusively positive. We noted early on that green financing increased our ability to secure access to capital, especially in times of uncertainty. This trend has strengthened in recent years as more and more capital has been allocated to sustainable investments.

“At the same time, a lot has happened in the decade since we issued the first green bond. The market and Vasakronan have both evolved and we have now seen the addition of the EU Taxonomy. This is why we launched a new, sharper green framework during the year. It is adapted to the Taxonomy’s more stringent criteria for energy efficiency in existing property portfolios and includes thresholds for carbon emissions from the building phase in new construction and redevelopment projects. The framework has been well received in the bond market and helped maintain good access to capital. During the year, we raised total borrowings of SEK 10 billion. Out of the total loan portfolio of SEK 76 billion, the share of green financing now amounts to 83%. The goal, of course, is for all our financing to be green.”

Sergelhusen in Sergelstan, Vasakronan's and one of Stockholm city's largest renovation projects in modern times.
During the year, Moody’s affirmed Vasakronan’s high rating of A3 with a stable outlook. What does the rating mean to you and what was the reasoning behind it?

“It means a lot, of course. The rating is an important precondition for ensuring access to financing and for reaching our goal of a diversified financing structure. The fact that an independent institute performs a comprehensive review of the company also creates additional transparency for investors.

“Their reasoning was based on factors including our strong ownership structure as well as our well-located and high-quality property portfolio with a high proportion of environmentally certified properties.”

How will 2024 differ from last year?

“In many respects, 2023 was an eventful year. Nervous financial markets and high inflationary pressure resulted in interest rates rising to levels higher than they have been in many years. All of that in combination with geopolitical turmoil in the operating environment have created uncertainty for many businesses and individuals.

“All together this has resulted in some changes in the market, which also affect Vasakronan. But, unlike some other property companies, we have not been under financial pressure. This has allowed us to focus on our customers, both new and existing, as well as on the management and development of our business. This has had results and we continued to deliver stable full-year figures in the underlying operations and our income from property management increased 8% despite higher interest rates.

“In 2024, we will continue on this path, focusing on our customers and their needs, and further developing our areas and properties. We can also leverage our strong finances and take advantage of any business opportunities that may arise in times of uncertainty – wisely.”

Stockholm in Mars 2024

Johanna Skogestig


Vasakronan – summary of 2023

Annual and Sustainability Report 2023