Malling & co market update july 2015

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MARKET UPDATE JULY 2015 SUNDTKVARTALET

Latest figures – Norway

Manpower has signed a lease agreement of 4 200 m² in the new project Sundtkvartalet starting early 2017. Malling & Co Næringsmegling advised Entra and Skanska in the letting process. This new office and retail building in central Oslo is currently being erected. 12 500 m² office space is occupied and approximately 17 000 m² is still available.

GDP: Mainland Norway vs. Eurozone

Labour market

6,00%

5,0 %

4,00%

4,0 % 3,0 %

2,00%

The central bank of Norway cut the interest rate by 25 basis points to record low 1 % in June. The bank signaled another cut may come as soon as September.

The Norwegian PMI-index released 1 July showed that the weakening of Norwegian industry is accelerating. The overall index ended at 44.0 in June, the lowest noted since October 2009.

In the estimates released 4 June, Statistics Norway estimates that the mainland GDP growth will be 1.2 % in 2015, 2.4 % in 2016 and 3.2 % in 2017.

The latest numbers from the Norwegian Labour and Welfare Administration released 3 July showed an increase in the unemployment rate (register based) from 2.7 % in June 2014 to 2.8 % in June 2015. The strongest increase is seen in areas with high employment within Oil & Gas.

7 July Statistics Norway released latest numbers for Norwegian industrial production which showed a 0.1 % decrease for the combined results of last three months (March - May) compared to the previous three months period

The inflation rate is running close to the central bank’s target of 2.5 %. In May, the CPI and the CPI-ATE were 2.1 % and 2.4 % respectively.

Fueled by interest-rate decrease, housing prices keep rising, and the latest numbers released 3 July showed an increase of 0.1 % the last month for Norway. Financial Supervisory Authority has now implemented stricter guidelines for residential mortgage lending practices.

2,0 % 0,00% 1,0 % -2,00% 0,0 % -4,00%

-1,0 %

-6,00%

-2,0 %

Mainland-Norway

Unemployment rate

Eurozone

Employment growth

Source: Statistic Norway/IMF

Source: Statistics Norway

Nydalen/ Sandaker

SUPPLY* IN OFFICE CLUSTERS IN GREATER-OSLO Majorstuen

0-5% Skøyen

10 - 15 %

Inner city

Lysaker

Bryn/Helsfyr CBD Kvadraturen

Sandvika

Bjørvika Fornebu

Address

Cluster

Size (m²)

Verkstedveien 1

Skøyen

~ 7 600

Securitas

Hasle Linje

Økern

~ 7 000

Statens Legemiddelverk

Strømsveien 96

Bryn/Helsfyr

6 500

Skattedirektoratet

Fredrik Selmers vei 4

Bryn/Helsfyr

~ 3 700

P.A. Consulting

Verkstedveien 1

Skøyen

~ 1 250

(e-helse)

5 - 10 %

> 15 %

Latest lease contracts

Økern/ Tenant Løren/ Risløkka Helsedirektoratet

Latest transactions

Billingstad

Address/property

Buyer

Seller

Sektor Gruppen

Price (NOK mill.)

Citycon

Several

Aberdeen Norge II Portfolio

KLP

Aberdeen Eiendomsfond

~ 12 320 ~ 3 600

Statoil HQ Forus

Colony Capital

Statoil

~ 2 500

Citypassasjen

KLP

Berner Gruppen

~ 850

Munkedamsveien 62

DEKA

Ragde Eiendom

~ 550

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 JUL. 2015

PER JUL. 2014

900 000

Prime yield*

4.40 %

5.00 %

800 000

Normal yield*

6.25 %

6.75 %

5 yr swap rate (per 8 July)**

1.63 %

2.09 %

3 220 NOK/m²/yr.

3 100 NOK/m²/yr.

Office contracts signed (Oslo)*** (Q2)

141 590 m²

109 750 m²

Largest office contract (Oslo)*** (Q2)

10 555 m²

11 984 m²

5.0 yrs.

4.9 yrs.

700 000 600 000

Office letting market •

The office supply in the defined office clusters was 12.2 % in June, while the vacancy rate (within 12 months) was 8.1 %. The average supply rate over the last 12 months is 11.9 %, while the average vacancy rate is 8.2 %.

Office rents have fallen somewhat recently, according to Arealstatistikk’s register. The average rent of lease contracts signed in Q2 2015 is approximately 5 % lower than in Q2 2014.

The vacancy in the western fringe zone has increased significantly over the past months. An important reason for this is subletting.

The number of tenants subletting parts of their premises is still increasing, especially in the oil related industry. Statoil is subletting up to 8 000 m² of its office space at Fornebu. We expect the subletting to be an increasingly important part of the supply ahead.

The expected construction volume to be finalized in 2016 and 2017 is still low. The first and most important reason for this is that few large tenants are moving in the coming years. The second reason is the weaker economic outlook that affects the labour market and tenant’s motivation to enter into a costly relocation process.

500 000

Average of 15 % highest rents in Oslo*** (Q2)

400 000 300 000 200 000 100 000

< 5 000 m²

Q2 2015

Q1 2015

Q4 2014

Q3 2014

Q2 2014

Q1 2014

Q4 2013

Q3 2013

Q2 2013

Q1 2013

Q4 2012

Q3 2012

Q1 2012

Q1 2012

Q4 2011

Q3 2011

Q2 2011

Q1 2011

0

> 5 000 m²

Avg. contract length (Oslo)*** (Q2)

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 contract. *Source: Malling & Co **Source: Kommunalbanken ***Source: Arealstatistikk Q2 2015

Source: FINN.no/Malling & Co

Office rents in Oslo (NOK/m²/yr)

Transaction volume (>50 MNOK)

OFFICE CLUSTER

PER JUL. 2015 Prime / normal*

PER JUL. 2014 Prime / normal*

80

CBD (Vika/Aker Brygge/Tjuvholmen)

4800 / 2800-3200

4700 / 2700-3300

70

Skøyen

3300 / 2100-2400

3300 / 2100-2400

Central Oslo

3500 / 2010-2500

3500 / 2000-2400

Bjørvika

3500 / 2700-3000

3500 / 2700-3000

Lysaker

2350 / 1800-2000

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

60

Bill. NOK

50 40 30 20 10 0 2006

*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

2007

2008

2009

2010

Registered

2011

2012

2013

2014

2015

Estimate Source: Malling & Co

Transaction market

Topic of the month: Norway has matured to an international CRE-market Only a few years ago, we anticipated that the share of international investors would increase significantly in the Norwegian CRE-market. Now, we can conclude that our predictions have become evident in the transaction statistics. According to our latest counting from first half of 2015, the share of international investors have reached almost 50 %, and we know several deals with foreign investors are in pipeline for the next quarter. We believe there are two main reasons for the increasing interest from foreign investors. Firstly, the Norwegian CRE-market has become more professionalized and open for foreign investors, and secondly, the European CRE-market in general has become very attractive for investors all over the world, and natural consequence is that parts of the money-wave also hits Norway. We believe that this trend is a permanent shift in the market, and that international investors will have a significant share of the transaction market also in the future. So far, we have seen little interest from Asian-based investors. We believe that an increasing number of Asian investors will invest in Norway in the future.

So far in 2015, we have registered a transaction volume of more than 52 billion NOK divided into 88 transactions. We expect the total transaction volume in 2015 to end around 75 billion NOK. An even larger volume is considered highly plausible.

9 of the transactions are above 1 billion NOK, which is mostly due to several portfolio sales (e.g. Sektor Gruppen, Aberdeen Norge II, Bulk portfolio). We also see that the so-called “cashflow” properties are attractive to investors (e.g. Statoil’s HQ in Stavanger/Forus).

We estimate the prime office yield to be 4.40 %. We have seen a few transactions below 4.50 % the last months supporting a further yield decrease from 4.50 %

The normal yield is estimated to be around 6.25 %. It is noteworthy that the gap between prime and normal seems quite robust.

The more pessimistic economic outlook has not yet dampened the desire for Norwegian Comercial Real Estate. We believe that the strong market will continue towards the end of 2015, although banks seem to have become a bit more restrictive on providing financing the last few weeks.

Transaction Volume, share of international investors (buy side only) 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2011

2012

2013

*Per 3 July 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

2014

2015* Source: Malling & Co


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