Malling & co market update february 2015 (revised)

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MARKET UPDATE FEBRUARY 2015 Latest figures – Norway

Magnus Poulssons vei 7, Lysaker Malling & Co Næringsmegling is leasing 9 500 m² on behalf of a syndicate arranged by Pareto.

GDP: Mainland Norway vs. Eurozone

Labour market


5,0 %


4,0 %


3,0 %

The key policy rate is 1.25 %, and there is a considerable probability of a rate cut in the near-term future.

According to Statistics Norway (SSB), mainland GDP growth was 2.6 % in 2014. In tandem with the anticipated fall in oil investments, economic growth for 2015 is revised down from 2.1 % to 1 %.

Inflation is running close to the central bank’s target: In January, the twelve-month growth in the CPI and the CPI-ATE indices were, 2.0 % and 2.4 %, respectively.

The swap rates have increased somewhat from historically low levels in the past month. The 10-year swap rate is currently 1.80 %, while the 5-year swap rate is 1.34 %.

According to SSB, the unemployment rate (LFS) was unchanged at 3.7 % in October. Due to the expected downturn in the Norwegian economy, the unemployment is expected to increase moderately in the time ahead, peaking at 4.0 % in 2016.

In January, the price of brent crude oil dipped below the 50-dollar mark. Recently, the price has increased moderately, and is currently hovering above 55 dollar.

According to Eiendomsverdi, the twelve-month growth in house prices was 8.5 % in January. In Oslo, the increase was 10.2 %.

In January, the ECB decided to expand its quantitative easing program to include sovereign bonds. This might affect the supply of capital in the Norwegian market.

2,0 %


1,0 %


0,0 %


-1,0 %


















-2,0 %

Eurozone Unemployment rate

Employtmenth growth

Source: Statistics Norway/IMF

Source: Statistics Norway

Nydalen/ Sandaker



Latest lease contracts

Økern/ Tenant Løren/ Risløkka




Size (m²)

Statens Legemiddelverk

Strømsveien 96


~ 6 500

Bydel St. Hanshaugen

Holberg Terrasse

Inner City

~ 3 500

Skatt Øst

Elias Smiths vei 14-26


~ 3 000

Skala Prosessteknikk

Grenseveien 92

Bryn Helsfyr

~ 1 500

Volvat Medisinske senter

Stortingsgaten 30


5 - 10 % 10 - 15 %

Inner city

Lysaker > 15 %

Bryn/Helsfyr CBD Kvadraturen


Bjørvika Fornebu

Latest transactions



Source: & 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)

~ 800




Price (NOK mill.)

The Fortin fund

Starwood Capital Group


~ 4 600*

Gaustadallèen 21

Arctic Securities

DNB Markets

Lysaker Polaris

Storebrand Eiendomsfond


Sannergata 2

Hemfosa Fastigheter

Pareto PF

Portfolio deal

Hemfosa Fastigheter


~ 700 785 ~ 670 ~ 1 375

*Refers to the estimated property value of the Norwegian share of the portfolio

Key facts real estate

Advertised office volume in Oslo (m²)

Commercial Real Estate PER FEB. 2015

PER FEB. 2014

Prime yield*

4.50 %

5.00 %

700 000

Normal yield*

6.25 %

6.75 %

600 000

5 yr swap rate (per Feb. 10th)**

1.33 %

2.46 %

Average of 15 % highest rents in Oslo*** (Q4)

3 350 NOK/m²/yr.

3 130 NOK/m²/yr.

Office contracts signed (Oslo)*** (Q4)

144 070 m²

213 660 m²

Largest office contract (Oslo)*** (Q4)

10 011 m²

27 180 m²

5.1 yrs.

5.3 yrs.

1 000 000 900 000 800 000

500 000 400 000 300 000 200 000 100 000

Office letting market •

The office supply in the defined office clusters declined from 12.0 % in December to 11.6 % in January. Of this share, approximately 28 % is new office projects.

The total volume of signed lease agreements in 2014 was 510 000 m². This is down 200 000 m² from 2013, and is the lowest volume in Arealstatistikk’s register (which covers the time period from 2008).

Campus Kristiania is looking for a new location. They demand between 3 500 and 4 000 m², and wish to relocate in 2015. Synnøve Finden is looking for a logistics property along the main road E6. They demand between 2 500 and 3 000 m², and wish to relocate before October.

Bydel St. Hanshaugen has signed a lease contract in Holberg Terrasse (about 3 500 m²) in the inner city. The relocation is scheduled to occur this summer.

Following Skatt Øst’s contract signing in Sandvika, the first construction phase of Sandvika Business Center is initiated. Of the 10 000 m² that is constructed in the first phase, Skatt Øst will lease 3 000 m² from November 2016.

Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q1 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015*


< 5 000 m²

> 5 000 m²

*Per January 15th 2015

Source: & Co

Avg. contract length (Oslo)*** (Q4)

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 Q4 2014

Office rents in Oslo (NOK/m²/yr)

Transaction volume (>50 MNOK)


PER FEB. 2015 Prime / normal*

PER FEB. 2014 Prime / normal*

CBD (Vika/Aker Brygge/Tjuvholmen)

4800 / 2800-3200

4500 / 2600-3200


3300 / 2100-2400

3000 / 2100-2400

Central Oslo

3500 / 2000-2400

3200 / 2000-2400


3500 / 2700-3000

3500 / 2700-3000


2350 / 1600-1800

2350 / 1600-1800


2150 / 1500-1700

2100 / 1400-1600



2200 / 1500-1700

2200 / 1500-1700



2200 / 1000-1500

1900 / 1400-1600


2200 / 1550-1750

1950 / 1550-1750

*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

70 60

Billion NOK

50 40 30

0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Registered


Topic of the month: A reflection on the 2014 commercial real estate market “In order to understand the future, we need to understand the past” a saying goes. We have therefore devoted this “topic of the month” to a summary of the past year. 2014 was characterized by an active transaction market. Basically all the “usual suspects” were present in the market: Property companies, investment syndicates, funds as well as life and pension funds all contributed to an eight-year high transaction volume of 57 billion NOK. The office segment was – as always – the most attractive segment to invest in while logistics properties experienced the surge in attractiveness seen in Europe over the last few years. 2014 also marked the year the foreign investors’ entry: Their share of the buyers side in the transaction market is now greater than one fourth. It seems reasonable to assume that the foreign investors will manifest their position in the Norwegian market further in the coming time, now that they have overcome the obstacles the lack of knowledge about the market represents. This reasoning is supported by the participants at the Nordic Meeting hosted by Malling & Co in the early days of February. Here, the main message was that foreign investors are eager to increase their presence in the Norwegian market. In addition to the already established foreign investors, some new faces were present at the conference, representing this steadily increasing interest for Norwegian commercial real estate. In sum, it seems “everybody” wants commercial real estate. However, some challenges are present in the transaction market. First, the supply of prime properties is fairly low, which might result in more deals being conducted off the market. Second, the worsened economic outlook has taken its toll on the optimism in the market. In particular, the rental market, which was anticipated to be weak last year, seems to be more fragile now. As mentioned, the activity in the rental market was low last year. This was anticipated due to the expiry structure of the existing lease contracts. The unanticipated factor was the declining oil prices, which led to a significant number of tenants subletting (parts of) their locations. This will probably affect rents in the coming time, but so far we have not seen the full effect. We should bear in mind that prices have increased rapidly over the last few years: From 2010, rental prices in real terms have increased by about 20 % in Oslo’s office market. Furthermore, the supply in the Oslo region has increased, but only moderately. This, accompanied by low construction activity in 2016 and 2017, might result in another period of growth in rental rates. Eiendomshuset Malling & Co Dronning Mauds gate 10, Postboks 1883 Vika, NO-0124 Oslo, Norway T: +47 24 02 80 00 – F: +47 24 02 80 01 – E: –

Transaction market

Source: Malling & Co

So far in 2015, we have registered a transaction volume of approximately 8 billion NOK divided into 17 transactions.

Although conclusions should be drawn cautiously at this early stage of the year, it seems as if the trend of increased foreign presence in the Norwegian market is continuing. Hemfosa Fastigheter, a Swedish property company, has spent approximately 2 billion NOK in the Norwegian market so far. We have, however, registered a somewhat more cautious approach from some foreign investors.

We estimate the prime yield to be 4.50 %, down 25 basis points since the last update in December 2014. Schweigaardsgate 21-23 was acquired at a yield close to 4.75 % last autumn, and we know of investors who are willing to price prime properties even sharper.

Concerning the normal yield, we have adjusted this down from 6.50 % to 6.25 %. Due to the scarcity of prime properties, we expect the normal yield to fall further.

The investment syndicates are as active as the funding costs are low: Platou Real Estate recently bought Haslevangen 45/47 on a yield of 7.5 %.

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