We are leaving yet another year behind us which was dominated by continued high uncertainty in the world around us, with geopolitical tensions, wars and a recession. Nevertheless, we see some rays of hope in the form of more stable markets and our customers’ increased willingness to invest for the future.
Hufvudstaden remains strong in this uncertain time of rapid changes. Our properties are situated in the most attractive locations in central Stockholm and Gothenburg, where rich offerings of culture, restaurants and shops as well as good transport links are available. It is clear that the premises in our property holdings are in line with what the market demands. Hufvudstaden’s strong financial position enables us to continue to develop our properties and operations. Our focus on customer satisfaction and profitability remains, with the objective of increasing shareholder value.
Marketplaces under development
Our properties are well maintained, with a high standard of quality, most of them feature attractive and sustainable architecture. This allows us to create and develop attractive marketplaces, together with other players in the city. These marketplaces combine offices, shops, restaurants and culture with a safe and welcoming environment. Our tenants support one another’s businesses when office workers shop, eat and socialise in the area, and the companies that rent offices find that their workers are more satisfied which facilitates the recruitment of people with the right skills.
In Gothenburg, our largest development, Kvarteret Johanna, has reached its full height and the new design is now visual to Gothenburg residents. The block has attracted widespread interest and there is full activity in the rental process, with several leases signed with strong companies. Upon completion, the new block will strengthen the Fredstan district.
Hufvudstaden and other property owners in Nordstan in Gothenburg have received a new detailed development plan for an extension of the northern part of the shopping centre, where the West Link will open a new station entrance at the end of 2026. The new entrance will result in higher footfall to the shops and facilitate office workers’ commutes.
A new detailed development plan for Orgelpipan 7, located nearby Stockholm Central Station, gained legal force during the spring. This plan allows for an extension covering approximately 3,000 square metres of office space. Project planning has begun, and the start of the project is planned for 2026/2027.
A stable but cautious office market
The office market in Stockholm was stable during the year, but letting processes were protracted due to cautiousness among companies when making decisions about new premises. The vacancy rate increased in most sub-markets. Nevertheless, demand for attractive offices in central locations was relatively strong. In Gothenburg, the vacancy rate remained high, primarily due to a large addition of new office space in recent years. At the same time, we see growing demand for high-quality premises in central Gothenburg, where market rents were stable and top rent levels were noted.
We see more companies requiring workers to come back to the office. In order to facilitate this, companies are increasingly demanding flexible offices in good locations that offer space for cooperation, innovation and building company culture. The street environment outside the office must also be inviting, and companies are standing in line to rent offices in marketplaces with such features. Bibliotekstan in Stockholm is an example of one of these marketplaces.
Challenges for the retail sector continue
2024 was a challenging year for retail, with profitability problems continuing to exert downward pressure on rents for retail space. Household purchasing power was low, primarily due to mortgage interest rates, food prices and a weaker job market. Restaurants have also experienced difficulties. People continued to go out to eat and socialise, but the average bill was lower than in good times.
In Bibliotekstan, one of the strongest marketplaces in Scandinavia, both Swedish and international brands have shown strong interest in establishing a presence. We continually strive to find the right mix of businesses in order to be the first choice in the market. We have seen an increase in activity in our properties in Nordstan and several new leases were signed, resulting in low vacancy at year-end.
NK continues to offer customers memorable experiences by combining an attractive range of products with first-class service. We had several successful launches that received widespread attention, such as Tommy Myllymäki and Pi Le’s takeover of the historic Bobergs Matsal restaurant, and the sought-after SKIMS brand.
While the sales increased in the department stores and for the e-commerce, vacancies and high costs led to a decrease in profit for NK’s property management. Consequently, we focused on implementing several measures to gradually increase occupancy rate and reduce costs in order to strengthen profitability. A change process was initiated for our own retail operations within NK_Retail. We reviewed our brand offerings and made changes to internal work processes in order to better meet customer demand and achieve profitability in the business.
We will welcome Hannes Hasselrot as the new President of NK at the beginning of 2025. With his wide-ranging experience from various areas of the retail sector he is well positioned to further develop NK’s operations and strengthen its profitability, in collaboration with the employees.
Higher priority given to sustainability
At Hufvudstaden, we take a long-term approach to reducing the climate impact of our properties. Adapting our premises in order to make them highly flexible is a top priority. We choose sustainable materials and robust technical solutions with long lifetimes in order to future-proof our properties. In doing so, our ambition is to create the conditions to reduce the climate impact of future redevelopments. At the end of 2024, 84 per cent of our properties were Green building certified. Interest in sustainability is on the rise, and more and more tenants are showing greater commitment to re-use and reducing climate impact. One successful example is the adaptation of the Danske Bank premises at Norrmalmstorg in Stockholm, where we share a high level of ambition for sustainability and re-use. This approach has resulted in less waste and purchases of lower quantities of materials, leading to fewer transports.
To facilitate the transition to electric cars, we installed fast chargers in the NK Parkering parking facility in Stockholm, which makes efficient charging of electric vehicles possible in the city centre. We also performed a double materiality assessment in order to meet the new sustainability reporting requirements that will come into force in 2025.
A changing property market
Interest rate decreases during the year made it easier for stable property companies to refi nance loans, both via banks and via the capital market. Although interest rates decreased, they are higher than during the previous period of low interest rates, which has continued to hamper the property market.
While the differentiation between attractive and less attractive properties remained unchanged, the gap in price expectations between sellers and buyers decreased slightly. A recovery was noted during the final quarter of the year, with higher activity among high-quality properties in attractive locations. The total transaction volume in Sweden was approximately SEK 145 billion, an increase compared to 2023 which was a weak year for transactions.
Yield requirements in Stockholm and the central areas of Gothenburg were stable. At year-end, the value of Hufvudstaden’s properties was SEK 47.1 billion.
Higher gross profit from property management
Hufvudstaden’s gross profit from property management increased for the fourth year in a row to SEK 1,435 million (1,359). This 6 per cent increase was primarily attributable to higher rent revenue. The net result for the year was SEK 365 million (-1,927), a significant improvement primarily attributable to lower negative unrealised changes in the value of the property holdings.
A brighter future
I feel positive about 2025, even though our operating environment remains uncertain. My assessment is that the economy will gradually strengthen, but the effects on our operations will probably not be seen until the second half of the year. We will maintain our strong financial position in order to meet new challenges and deliver stable dividend growth to shareholders over time.
I am extremely pleased to report that Kvarteret Johanna in Gothenburg is nearing completion. After several years of hard work, we look forward to welcoming the first tenants to a block that will be filled with life and activity once again in 2026. This project is a milestone for us, and an important investment which will create new cash flows and strengthen our profit.
In 2025, we will continue to develop our ongoing property management operations, focusing on leasing, customer satisfaction, sustainability and improved profitability for NK.
Finally, I would like to express my heartfelt thanks to all of our employees for their good work and high level of commitment during a challenging year. I would also like to thank our customers for the trust you have shown us and our positive cooperation during the year.
Stockholm, February 2025
Anders Nygren
President
