Nordic metropolitan areas are amongst fastest growing in Europe

10/02/2025

Autor

Mikael Hjorth

Partner

Blogbeitrag

The population growth of major Nordic cities is remarkably strong in the European context. The latest population projections by Eurostat indicate that the ten largest Nordic cities, home to over 11 million people, will grow 9% by 2040 with the Nordic capitals growing by 10%. In comparison, London’s population is forecast to grow by 6% and Berlin’s by 4% over the same period (Graph 1).

The concentration of Nordic population to metropolitan cities has been ongoing for several decades. While the large industrial and manufacturing sectors still contribute substantially to the region’s GDP, new knowledge-based sectors such as healthcare, software, and biotech are gaining in importance as drivers of economic expansion and employment. Geographically, industrial production is relatively evenly spread across the region, while the growing knowledge-based sectors concentrate disproportionately in the largest cities drawing people to them at an increasing pace.

In addition to domestic migration, Nordic metropolitan areas are expected to keep attracting people from abroad. With local migration policies becoming more restrictive, the composition of migration is changing, but the phenomenon continues to support the population growth of the metropolitan areas.

To illustrate the ongoing development, in 2000, the four Nordic capitals including Copenhagen, Helsinki, Oslo, Stockholm were home for 23% of the total Nordic population, in 2020 the figure was 25%, and in 2040, the capitals’ share is projected to increase to 27%.

Structural shift towards renting out of choice
The landscape of the Nordic housing market is evolving with demand for rental properties on the rise. The home-ownership rate is the highest in Norway (78%), followed by Finland (70%), Sweden (65%) and Denmark (59%), but the figures are substantially lower in large cities. For example, in Copenhagen, renting is already a more popular living arrangement than owning with 55% of city dwellers living in rental accommodation.

Key drivers behind increased demand for modern rental housing include economic factors such as affordability constraints and increase in short term employment, lifestyle choices, and changing demographics and family structures. In addition, long term renting is becoming standard for many including a large number of middle-income households. The new generation of Nordic renters value modern and well-maintained properties, secure tenancy, and quick service, creating more demand for professionally managed assets by institutional landlords.

Increasing supply-demand imbalance
Rapidly growing Nordic cities have invested heavily in new infrastructure, but many of them have struggled to keep up with the increasing demand for housing. Historically residential supply has been constrained by a restrictive land-use and planning environment, but more recently, supply has been most affected by increased financing costs for developers, higher build costs, and decreased investor demand for new developments.

With prime residential yield ranging between 4.00% and 4.50% today, new projects are rarely profitable from developers’ point of view as investors require further 40 to 50 bps in yield premium to fund developments. This reality coupled with substantially decreased consumer demand for new condominiums has resulted in residential construction starts hitting the lowest level since 2009. For example, in Copenhagen, Helsinki, and Stockholm, construction starts in 2024 were only about half of what is required to meet the increasing demand for housing (Graph2).

Between 2016-2024, annual rental growth averaged at 3.1% in Stockholm, 3.6% in Copenhagen, 2.4% Helsinki, and 4.4% in Oslo. During the same time period, the average inflation rate was 2.2% across the region. Considering the substantial decline in residential supply, the supply-demand imbalance is set to increase creating further upward pressure on rents.

Opportunity to capitalise on uncertainty and dislocation
Today’s transaction market is characterised by subdued investment activity, high bid-ask spreads, and only a handful of active buyers. With most institutions and publicly listed property companies still holding back, there is a unique opportunity to acquire well-located properties at a clear discount to long-term assessed value.

The case for residential investments in the Nordics has not been stronger in years, and with interest rates having already decreased notably from their peak, pricing across the risk spectrum appears extremely attractive.