While rates remain high in the region amid a struggle to curb inflation, predominantly Swedish companies have in recent months scrambled to refinance large bond loans with short-term maturities, while their credit ratings have been cut to junk status.

Barclays analyst Paul May said property values for Nordic real estate companies would see downward pressure from rising reported property yields in the quarter, which would weigh on the sector's balance sheets.

Goldman Sachs has forecast that property values for real estate companies within its European coverage could fall 7%, with declines continuing into the first half of 2024.

The broker said the balance sheets of the Nordic companies are the most exposed to property value drops, as the sector's leverage of 48% is already higher than the European sector average of 39%.

Falling property values could push up companies' loan-to-value ratios, a key metric used to determine credit risk, raising the risk companies will breach debt covenants, the terms under which they borrowed.

Still, liquidity and the ability to refinance loans remained the most important factors for companies struggling with rates and loan repayments, Carlsquare analyst Bertil Nilsson said.

In Sweden, which has close to 40 real estate companies listed on its main market, the highest number in the Nordics, the Financial Supervisory Authority (FSA) flagged in May that over the next four years, around 100 billion Swedish crowns ($9.14 billion) in outstanding bonds for the sector would mature each year.

Swedish landlord SBB recently said it was eyeing a sale of its residential arm to meet debt deadlines and pension fund Alecta flagged that residential landlord Heimstaden Bostad was in need of cash.

Local analysts in Sweden now remain on the look out for further declines in booked property values.

Pareto Securities analyst Emil Ekholm pointed to "somewhat lower" closing prices in recent property transactions, compared to the values many companies have on their books.

Carlsquare's Bertil Nilsson expected write-downs of another 0.5-1% for the quarter for the brokerage's Swedish coverage, after seeing value drops of about 2.9% in the first half of the year.

Larger cuts could come for companies that need to sell properties to release liquidity, like SBB and Corem, as recognising realised losses would pressure companies to write down other properties to similar values, Nilsson added.

Sweden's Fabege is the first Nordic real estate company listed on the pan-European STOXX 600 index to report results on Oct 19, with struggling SBB set to report on November 9.

($1 = 10.9352 Swedish crowns)

(Reporting by Greta Rosen Fondahn; Editing by Sharon Singleton)

By Greta Rosen Fondahn