“After a strong run lasting for many years, we have now seen a price correction in the Nordic listed property sector,” says Mikael Söderlundh, Partner and Head of Research at Pangea Property Partners.

Since the peak in September last year, property shares have dropped 5 percent in the Nordics, while the overall equity market has increased by 12 percent during the same period. In Sweden, the largest market in the Nordics, property shares have decreased by 6 percent.

“It’s surprising since the underlying property portfolios have continued to increase in value, but the weak stock market performance is probably driven by fear of higher financing costs and new tax regulations,” adds Söderlundh.

The combination of decreasing share prices and increasing net asset values has made the Nordic property shares trade close to par, according to the report. The former large valuation premiums are gone and many property shares, particularly in Norway and Finland, are traded at a significant discount.

“The discount in these markets is partly motivated by lower liquidity, and a smaller listed sector,” says André Lundberg, Director and Partner at Pangea Property Partners.

Looking at different segments, the smaller property shares on the secondary market have underperformed compared to the larger property shares on the main list. Since the beginning of September last year, the small growth companies have decreased by almost 14 percent.

“Many of these property shares are more volatile, and it is quite natural to see a reaction to the in some cases quite extreme price increases in recent years,” adds Lundberg.

Overall, the Nordic property market is still performing well, with solid transaction volumes, strong rental growth in many cities and increasing interest from international core investors.

“We don’t foresee any dramatic changes in the nearby future. The defensive characteristics of Nordic real estate are appreciated by investors in the current market,” says Bård Bjølgerud, CEO and Partner at Pangea Property Partners.

So far in 2017, the transaction volume in the Nordic property market is EUR 12.2bn, down from EUR 15.6bn same period last year. In Norway, the volume is EUR 3.1bn, which is more than 60 percent higher than last year.