MARKET UPDATE APRIL 2015 Borregård HQ, Sarpsborg Malling & Co Eiendomskapital arranged the acquisition of Borregård HQ, Sarpsborg. The transaction was structured as a club deal.
Latest figures – Norway
GDP: Mainland Norway vs. Eurozone
•
The central bank defied most analysts’ advice when it decided not to cut the policy rate from 1.25 % in March. The next policy meeting is in May.
•
The central bank’s regional network reported that the economic activity so far in 2015 has been lower than anticipated. This report was published in March.
•
According to Statistics Norway (SSB), mainland GDP growth was 2.3 % in 2014. As a result of the anticipated fall in oil investments, mainland GDP growth for 2015 is revised down from 2.1 % in September 2014 to 1.1 % in March 2015. SSB expects the downturn to be relatively short-lived, and estimates mainland GDP growth to 2.2 and 2.4 % in 2016 and 2017, respectively.
•
IMF agrees with SSB’s 2015 estimates. In the last (April) issue of World Economic Outlook, the IMF estimates that the Norway GDP will rise by 1 % in 2015. It should be noted that this is not a mainland figure.
•
Inflation is running close to the central bank’s target of 2.5 %. In March, the twelve-month growth in the CPI and the CPI-ATE indices were, 2.0 % and 2.3 %, respectively.
•
According to SSB, the unemployment rate (LFS) was 3.9 % in January – up 0.1 percentage point since October 2014. SSB expects that the unemployment will rise modestly in the near future, peaking at 4.1 % in 2016.
•
Despite the persistent low oil price, the OSEBX-index has risen by approximately 13 % so far in 2015.
Labour market
6,0 %
5,0 %
4,0 %
4,0 % 3,0 %
2,0 %
2,0 % 0,0 % 1,0 % -2,0 % 0,0 % -4,0 %
-1,0 %
-6,0 %
-2,0 %
Mainland-Norway
Eurozone
Unemployment rate
Employment growth
Source: Statistics Norway/IMF
Source: Statistic Norway
Nydalen/ Sandaker
SUPPLY* IN OFFICE CLUSTERS IN GREATER-OSLO Majorstuen
0-5%
Latest lease contracts
Økern/ Tenant Løren/ Risløkka
Skøyen
Address
Cluster
Size (m²)
Bydel Bjerke
Ulvenveien 88
Økern
~ 8 500
Plasitilin and others
Kongens gate 11
Kvadraturen
~ 2 500
Forskerforbundet
Tullins gate 2
Inner City
~ 1 550
SATS Elixia
Nydalsveien 28
Nydalen
~ 2 000
Questback
Bogstadveien 54
Majorstua
~ 1 700
5 - 10 % 10 - 15 %
Inner city
Lysaker > 15 %
Bryn/Helsfyr CBD Kvadraturen
Sandvika
Bjørvika Fornebu
Latest transactions
Billingstad
Price (NOK mill.)
Address/property
Buyer
Seller
75 % of Storebrand Eiendomsfond
Partners Group
Storebrand Eiendomsfond AS
3709
Ullevål Senter
Oslo Pensjonsforsikring
DNB Livsforsikring
Confidential
Aibel HQ, Bergen
Pareto PF
Ferd Eiendom
570
Colosseum Kino
Ragde Eiendom
DNB Markets
Confidential
Borregård HQ
Malling & Co Eiendomskapital
Fearnley Finans
Confidential
Asker
Source: FINN.no/Malling & Co *Advertised office space of the total office building mass in greater-Oslo. This includes potential advertised new projects.
Number formatting: SI style (English version)
Key facts real estate
Advertised office volume in Oslo (m²) 1 000 000
Commercial Real Estate PER APR. 2015
PER APR. 2014
Prime yield*
4.50 %
5.00 %
Normal yield*
6.25 %
6.75 %
5 yr swap rate (per April 16th)**
1.46 %
2.48 %
3 060 NOK/m²/yr.
3 290 NOK/m²/yr.
Office contracts signed (Oslo)*** (Q1)
134 540 m²
138 120 m²
Largest office contract (Oslo)*** (Q1)
8 869 m²
15 290 m²
4.9 yrs.
5.1 yrs.
900 000
Office letting market •
The office supply in the defined office clusters was 12.1 % in March, while the vacancy rate is 8.8 %.
•
The volume of signed lease agreements in Q1 2015 was approximately 135 000 m². This is about the same level as in Q1 2014, but the number of contracts (210) is 11 % higher.
•
Office rents have fallen somewhat recently, according to Arealstatistikk’s register. The average rent of lease contracts signed in Q1 2015 is approximately 6 % lower than in Q4 2014.
•
The number of tenants subletting parts of their areas is increasing: Aker Solutions is subletting 15 700 m² office in Hinna Park, Stavanger.
•
The office construction activity is high this year: Approximately 165 000 m² is expected to be finalized in the Oslo region in 2015.
800 000 700 000 600 000
Average of 15 % highest rents in Oslo*** (Q1)
500 000 400 000 300 000 200 000
Avg. contract length (Oslo)*** (Q1)
100 000 0 Q1 Q2 Q3 Q4 Q1 Q1 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 < 5 000 m²
> 5 000 m²
Definition: Normal yield is defined as the net yield of a well maintained building situated in the fringe zone with strong tenants on a 5 – 8 year’s contract. *Source: Malling & Co **Source: Kommunalbanken ***Source: Arealstatistikk Q1 2015
Source: FINN.no/Malling & Co
Office rents in Oslo (NOK/m²/yr)
Transaction volume (>50 MNOK)
OFFICE CLUSTER
PER APR. 2015 Prime / normal*
PER APR. 2014 Prime / normal*
CBD (Vika/Aker Brygge/Tjuvholmen)
4800 / 2800-3200
4700 / 2700-3300
Skøyen
3000 / 2100-2400
3300 / 2100-2400
Central Oslo
3500 / 2000-2400
3500 / 2000-2400
80 70 60
3500 / 2700-3000
3500 / 2700-3000
Lysaker
2350 / 1600-1800
2350 / 1600-1800
Fornebu
2150 / 1500-1700
2150 / 1400-1600
Nydalen/Sandaker
2200 / 1500-1700
2300 / 1500-1700
Økern/Løren/Risløkka
2200 / 1000-1500
2100 / 1400-1600
Bryn/Helsfyr
2200 / 1550-1750
2100 / 1550-1750
Bill. NOK
Bjørvika
50 40 30
Transaction market •
So far in 2015, we have registered a transaction volume of approximately 24 billion NOK divided into 51 transactions.
•
We estimate the prime office yield to be 4.50 %. There are few completed transactions in this segment in recent time, but we know of buyers who are willing to accept a yield of 4.50 % for “trophy assets”.
As the expectations for economic growth are revised down, the development in the letting market is more or less constantly being questioned. We wish to shed light on important factors:
•
The labour market: The lower oil price will impact the labour market in two ways. First, the direct effect is already evident in the oil-related industry. Second, the weakened economic state will affect the employment more broadly. Some analysts claim that the west axis of the Oslo region is exposed. Our mapping of the tenants in the axis shows that 18 % of the tenants are in the oil/gas sector. Furthermore, these tenants are highly adaptive, so an increase in the vacancy rate could be quite short-lived.
The normal yield is estimated to be 6.25 %. It is noteworthy that the gap between prime and normal seems quite robust. This differs much from the situation prior to financial crisis in 2008.
•
Foreign investors have been present in the Norwegian market so far in 2015. Partners Group acquired 75 % of Storebrand Eiendomsfond, while Hemfosa Fastigheter have acquired 8 properties in Norway. Foreign investors now account for approximately 40 % of the transaction volume this year, and we know that international investors are involved in larger ongoing transactions.
•
As we have stressed in earlier updates, there seems to be a mismatch between supply and demand in the prime segment of the investment market. The low supply of prime properties is likely to increase the demand for secondary assets.
•
Folketrygdfondet, the biggest institutional investor on the Oslo Stock Exchange, has announced that it, conditional on approval from the Ministry of Finance, will invest in domestic property.
20 10 0
*Definitions: Prime rents are consistently achievable headline rental figure that relates to a new, well located, high specification unit of a standard size commensurate demand within the predefined market area. The prime rent reflects the tone of the market at the top end, even if no new leases have been signed within the reporting period. One-off deals that do not represent the market are discarded. Normal rents should reflect the interval where most contracts are signed in the specified market area. Source: Malling & Co
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Registered
Estimate Source: Malling & Co
Topic of the month: How will the office letting market evolve?
The construction activity: Following a weak construction volume in 2014, 2015 is expected to be characterized by a larger volume. Thus, the supply is likely to increase in the short term, but the low construction volumes in 2016 and 2017 provide a possibility for rental growth in the long term. Subletting: Subletting is a threat to rental prices since the tenant in general is more inclined to accept lower rents. As evident from the table below, there has been some cases of subletting. However, we do believe that companies which are in the process of re-organizing will reduce the workforce before they sublet. DNB Markets claims that about 15 000 workers have been dismissed in Norway’s oil-related companies since 2013, and several companies have signaled that they will reduce the workforces further. Thus, we expect subletting to be an increasingly important part of the supply ahead. Significant subletting
New build projects
Property
Tenant
Size
Property
Size (office)
Cluster
Finalized
Lysaker Polaris
Technip
5 000 m²
Verkstedveien 1
26 000 m²
Skøyen
Q2 2015
Aibel, Asker
Aibel
7 500 m²
Ullernschausseen 56
20 000 m²
Other
Q2 2015
Aibel, Bergen
Aibel
8 000 m²
Lysaker Polaris
18 500 m²
Lysaker
Q2 2015
Aker, Stavanger
Aker Solutions
15 700 m²
Fridtjof Nansens vei 16
9 600 m²
Majorstua
Q4 2015
Aker, Tr.heim
Aker Solutions
8 000 m²
Schweigaards gate 16
15 300 m²
Inner City
Q2 2015
Eiendomshuset Malling & Co Dronning Mauds gate 10, Postboks 1883 Vika, NO-0124 Oslo, Norway T: +47 24 02 80 00 – E: post@malling.no – www.malling.no