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MARKET UPDATE May 2014 Macro

Malling & Co Corporate Real Estate is handling the sale of Entra’s Tollboden in Stavanger.

Norway

Illustration: Henning Larsen Architects

GDP: Mainland Norway vs. Eurozone

Domestic vs. foreign currency last 5 years

6.00%

11.00

4.00%

10.00

2.00%

9.00

0.00%

8.00

-2.00%

7.00

-4.00%

6.00

-6.00%

5.00

Mainland-Norway

GBP/NOK

Eurozone

EUR/NOK

USD/NOK

The production growth is moderate. The Mainland GDP is expected to grow with 1.9 % in 2014. Statistics Norway expects the Mainland GDP to be back on trend growth by 2016 (just below 2.5 %).

The Norwegian Krone (NOK) weakened through 2013, but has appreciated since the start of February 2014.

The key policy rate was not changed at the interest rate meeting on May 8th, and is expected to be stable at 1.5 % until the summer of 2015.

The savings rate has increased over the past years, and is now at a high level. Despite the high income and low interest rates, the growth in household consumptions has been moderate.

The unemployment rate increased slightly throughout 2013, but has been stable around 3.5 % the past 12 months. The unemployment rate is expected to increase slightly to 3.9 % towards 2016.

The housing market has evolved stronger than previously expected. The housing prices increased by 1.3 % from March to April. The seasonally adjusted prices are at an all time high.

The total volume of bonds traded on Oslo Stock Exchange has doubled since 2005. Especially foreign issuers are active in Oslo.

Source: DNB Markets

Source: IMF/Statistics Norway

Labour market

Inflation last 5 years

4.50%

2800

4.00%

2700

3.50%

2600

3.00%

2500

2.50%

2400

2.00%

2300

Global

4.00% 3.50%

Continued moderate growth among important trading partners, as earlier projected by the Norwegian Central Bank. The Central Bank predicts their total growth to pick up from 1.25 % in 2013 to 2.25 % in 2014.

The moderate economic recovery continues in the industrialized countries, the growth is expected to increase further.

The US is experiencing growth in consumer demand and a recovery in the housing market, but is still struggling with weak growth in the labour market.

The growth in emerging economies has declined somewhat. Several countries has been affected by capital outflow and currency depreciation at the start of 2014.

The inflation in the Euro-zone is lower than ECB earlier predicted, IMF is expecting an inflation of 1.2 % in 2014.

3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00%

Unemployment rate (L.axis) Labour force (in 1 000 people) (R.axis) Employed work force (R.axis)

CPI

Source: Statistics Norway (AKU)

Source: Statistics Norway

Economic figures (as per COB May 9th 2014)

Economic figures, Norway (growth in %) Statistics Norway (MAR-14) Privat spending Public spending

2013 2.1 1.6

2014E 2.1 2.3

2015E 3.4 2.3

Gross investments in capital goods

8.7

1.2

1.4

- in mainland-Norway

4.7

0.9

2.5

- in oil

18.0

2.5

Exports - oil & gas - traditional goods Imports GDP

-3.9 -7.3 0.8 2.5 0.6

GDP Mainland-Norway

2.0

Household real income Operating balance (Bn. NOK.)

CPI-ATE

LATEST FIGURES 1.50 % 1.80 %

12 MTHS. AGO 1.50 % 1.79 %

10 yr gvt. bond yield

2.76 %

1.99 %

10 yr swap rate

3.08 %

2.94 %

-0.7

CPI

2.00 %

1.40 %

2.9 3.1 1.3 3.5 2.1

1.6 0.0 3.0 3.5 1.8

CPI - ATE Unemployment rate USD/NOK EUR/NOK GBP/NOK

2.60 % 3.50 % 5.91 8.14 9.96

0.90 % 3.60 % 5.76 7.54 8.93

1.9

2.4

SEK/NOK

90.14

88.38

Oslo Stock Exchange BX

589.37

488.16

House price index (12 mth. ∆)

0.12 %

6.11 %

3.2

2.6

3.5

319.5

340.5

293.7

Key policy rate 3m Nibor

Number formatting: SI style (English version)


Key facts real estate 2014 Q1

Advertised office volume in Oslo (m²) 1,000,000 900,000 800,000

Commercial Real Estate

Prime yield*

5.00 %

Normal yield*

6.75 %

5-yr swap rate (per COB May. 9th)

2.49 %

Office letting market •

Advertised office space in greater-Oslo as of April 15th is approx. 11.2 % of the total building mass. This rate includes potential new office projects (approx. 3.5 %).

The vacancy rate (available within 12 months) is approx. 7.7 %. Average vacancy rate has been 7.4 % in 2014, while average vacancy rate in 2013 was 7.8 %.

15 premises larger than 10 000 m² and 34 premises above 5 000 m² are advertised as of April 15th.

There are several large office projects that will be released in the market shortly, such as Dronning Mauds gate 11 in CBD, Sundtkvartalet in the city centre and Økern senter at Økern.

Eureka Pumps is moving from Lysaker and into 3 000 m² at Fornebuporten. The building will be completed in the summer of 2015.

The Ministry of Foreign Affairs is moving into 7 000 m² in Kronprinsens gate 9 in central Oslo. The lease contract is 12 years.

The petroleum company BP (13 - 15 000 m²) and the telecommunication company Telenor (3 500 - 4 000 m²) are looking for new locations in Stavanger. They both received over 40 offers in the process.

700,000 600,000 500,000 400,000

Average of 15 % highest rents in Oslo**

3 300 NOK/m²/yr.

300,000 200,000

Office contracts signed** (Oslo)

137 490 m²

Largest office contract** (Oslo)

15 290 m²

100,000

> 5 000 sq.m

Q1 2014

Q2 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

Avg. contract length** (Oslo)

*Source: Malling & Co **Source: Arealstatistikk Q1 2014

*April 2014

Source: FINN.no/Malling Co

Prime rents in Oslo (NOK/m²/yr) OFFICE CLUSTER

5.2 yrs.

< 5 000 sq.m

Yield development last 5 years

RENT

Δ 12 MTHS.

CBD (Vika/Aker Brygge/Tjuvholmen)

4 700

4%

Skøyen

3 500

17 %

Central Oslo

3 500

9%

Bjørvika

3 500

-

8.00%

7.00%

6.00%

5.00% Lysaker

2 350

-

Fornebu

2 150

2%

Nydalen/Sandaker

2 100

-5 %

Økern/Løren/Risløkka

2 100

11 %

4.00%

3.00% Apr-09

Apr-10

Apr-11

Apr-12

10 yr swap Bryn/Helsfyr

2 100

8%

Apr-13

Apr-14

Prime property

Normal property

Source: Malling & Co

Source: Malling & Co / Nordea

Transaction market •

So far in 2014, we have registered NOK 10 billion in transaction volume, divided into 40 transactions.

The transaction activity started somewhat slow in 2014, but has increased throughout recent months. We expect the activity to boost further throughout the year.

A healthy letting market, supported by a strong economy, available funding and less risk averse investors are key drivers for this.

International investors have been expected to increase their exposure towards Norwegian commercial real estate. So far in 2014, their stake of the investment volume is 19 %.

International investors are represented in 3 of the 7 largest transactions so far in 2014.

Prime office yield is estimated at 5 %. Secondary assets are still sought after, but financing is tighter, if available.

7 transactions have taken place at Økern/Løren/Risløkka so far this year. This is an up-and-coming neighboorhood, both in terms of residentials and commercial real estate. Investors are positioning.

Topic of the Month: Online shopping beats traditional shopping A total number of 677 retail stores bankrupted in 2013, an increase of 30 % since 2012. An important reason for this is probably the increasing use of online shopping services. Statistics Norway’s recent numbers show an overall retail growth of 2 % from 2012 to 2013, while the online shopping sales alone increased with 8.4 % in the same period. It is becoming increasingly easier to shop online, and the prices are often lower than in stores. New technology makes it possible to make online orders through new platforms like smartphones and tablets. Increased online shopping may be a serious threat for the need for large retail space. Expecting this trend to continue, we may see alternative use of retail space, i.e. where customers can try products and then order online. This trend may also create an increased demand for centrally located distribution warehouses. Nevertheless, the high street retail properties still remain highly attractive among tenants as these locations catch people where they live, work and travel. Retail sales index incl. online shopping (except sales of motor vehicles) vs. the online shopping index – 12 mth. : 30% 25% 20% 15% 10% 5% 0% -5% -10% 2010M01

2010M07

2011M01

2011M07 Total turnover

2012M01

2012M07

2013M01

2013M07

2014M01

Online shopping Source: Statistics Norway

Eiendomshuset Malling & Co Dronning Mauds gate 10, Postboks 1883 Vika, NO-0124 Oslo T: 24 02 80 00 – F: 24 02 80 01 – E: post@malling.no – www.malling.no


Malling & co market update may 2014