JLL Nordic Outlook. Focus: Residential. Autumn 2017

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1 JLL Nordic Outlook Focus: Residential Autumn 7

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3 Content Introduction... Macro...6 Offices Stockholm...8 Gothenburg... Malmö... Uppsala... Retail...6 Logistics...8 Residential... International Outlook...8 Financing Interest and Credit Market... Capital Market... Nordic Office Market Norway... Denmark...6 Finland...8 About JLL...

4 Autumn is approaching and the Nordic real estate market is thriving. Nordic countries are clearly in the midst of an economic boom, as virtually all indicators, both macro and real estate, are pointing up. The lack of a clear inflationary pressure means that interest rates are still low, which, together with increasing interest from foreign investors, further drives the real estate market. The combination of the economic boom, minus interest and a large amount of international political uncertainty, means that the market outlook is uncertain. We think all types of real estate are worth noting. For this reason, the classic JLL report, the Nordic City Report, has changed both its appearance and name. The first edition of JLL Nordic Outlook now includes data and analysis texts on a larger section of the real estate market. The main focus is also on the office rental market in the Nordic capitals. In addition, you will also find information about housing, commercial, warehouse and logistics properties. As the financial aspects of the real estate market are becoming increasingly important, we also have several sections where we give our views on interest, credit and capital markets. Our hope is that this new report better captures the issues that are currently relevant in the industry and can serve to support your business. The feature article in the autumn report is about residential real estate, where the main focus is the classic tenancy. JLL has also, in collaboration with Evidens, produced a new index, the JLL-Evidens Residential Market Index (RMI), which will be published in future reports. The purpose of this index is to describe supply and demand in various local housing markets. Fredrik Kolterjahn Tor Borg

5 JLL Property Clock H 7 London City, Lyon Malmö Cologne Dublin Dusseldorf, Hamburg Copenhagen, Manchester, Prag Budapest, Edinburgh, Frankfurt, Munich, Stuttgart Stockholm, Gothenburg Luxembourg, Paris Rental Growth Slowing Rents Falling Barcelona, Berlin, Madrid Rome Amsterdam, Milan Brussels, Helsinki St. Petersburg Rental Growth Accelerating Rents Bottoming Out London WE Istanbul Lisbon Geneva Oslo Warszaw Athen, Bucharest, Kiev, Moscow, Zürich Nordic Investment Volumes H 7 (meur) Europe Rental Growth Rates Q 6 Q 7 (%) Cross-border Domestic Total 8,7 +7 Stockholm + Gothenburg + Malmö Sweden,67 5, Total,6 Denmark,65,6 Total,5 Norway,6,5 Total,68 Finland, 7 +7 Helsinki + Amsterdam +7 Barcelona + Berlin +9 Brussels + Budapest + Dublin + Dusseldorf + Edinburgh + Copenhagen + Frankfurt + Haag + Hamburg -8 London + Luxembourg + Lyon +8 Madrid +5 Milan + Oslo -6 Moscow + Münich + Paris + Prague + Rotterdam +5 Utrecht - Warsaw 5

6 Macro Context The second quarter saw further consolidation of the global economic recovery, reflected by confidence indicators, activity in the market and trade. Macro This trend is not only visible in the world's more developed countries, but also in developing countries where the recovery of commodity prices has perhaps been most important. As a result, the global economy has also experienced modest positive indications of continued growth during the year. This improvement has taken place against a background of continued political turbulence in the developed world, although it seems these risks are decreasing. In Europe, elections in the Netherlands and France were decisive defeats for populist and eurosceptic parties and instead led to a strong EU. The Eurozone has experienced an economic upturn in the last quarter, which is also reflected in projected growth forecasts across the region, perhaps especially in France and Germany. The UK stands in stark contrast to this. The new elections in June did not produce the expected results, but instead resulted in a seemingly weak minority government. This in turn gives rise to concerns as the UK is now entering the critical period for final exit from the EU. Even before the vote, market demand was doubtful and the election results led to a further decline in growth expectations. The UK appears to have lost ground against the rest of Europe. There has also been some cooling in the US, although forecasts were largely stable during the second quarter. Underlying growth is still good but it seems that much of the earlier upturn in expectations reflected a belief that the new president would provide fiscal stimulus. Given the Trump administration s problem of getting its policies through, further stimuli are unlikely this year, but may come in 8. Under President Trump's leadership in recent months, the US has experienced deteriorating relationships with large sections of the world, particularly with Russia and Europe. It is difficult to determine what this may lead to, but for Europe's part, it is likely that business with Asia will become more common in the coming years. Angela Merkel and Emmanuel Macron are two strong forces for a still-united Europe and both have talked about the fact that neither the US nor the UK (after Brexit) are partners to count on. In Sweden, the political parties have an election year in 8. Rarely has the situation in Swedish politics been so unclear or the parties appearing so fragmented. A recurrent analysis of the economic situation in Europe is still that the greatest threat to continued growth at the moment is political rather than economic. Economy Both Sweden and Finland are experiencing strong economic headwinds and GDP growth for the whole of 7 is expected to end up around and.5 percents for Sweden and Finland respectively. The Swedish National Institute of Economic Research estimates that for Sweden the growth will peak in 8 and then be slightly less in 9. During the year several forecasters in both countries have chosen to adjust their forecast for the current year, as fundamental conditions in terms of strong domestic demand and growth in the rest of the world provide ans increased boost. However, a looming problem on the horizon is the matching problem that characterises the labour market. Companies have difficulty finding the required skills, despite relatively high unemployment, which inhibits growth in the long term. This also affects wage increases, which are not accelerating in the same way as they have historically done. This in turn affects inflation, which has not reached ECB's and Riksbank's target of percent, except during a short term for Sweden. The Japanese economy is growing slightly but has difficulty gaining momentum. In the UK, economic growth has been stagnant. Much of this can be attributed to the decision to leave the EU, which has led to rising inflation, lower private consumption and falling real income. Chinese growth is still strong with a growth rate of almost 7 percent, and in the US, the economy has recovered in the second quarter, largely due to stronger private consumption. Real Estate The 7 real estate year has opened very strongly and at the moment, there is nothing that suggests a slowdown in the near future. Developments in the market are better than what many forecasts predicted and this should continue throughout the year. Activity in the rental market in Europe continues to rise and, combined with a limited supply, this has lead to continued rental rate growth. JLL's forecast for rental rate growth in Europe is. percent in 7. 6

7 Inflation 5. %. %. %. %. %. % -. % Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sweden Norway Finland Denmark GDP growth Source: SCB, SSB, DST, Statistikcentralen.5 %. %.5 %. % %. %.5 %. % Sweden Norway Finland Denmark Source: SEB, OECD Consumer Confidence Indicator, CCI Sweden Norway Finland Denmark 7

8 Stockholm Office market The supply in Stockholm is still very low, despite the vacancy rate in Stockholm having increased. percentage points in the Spring. Vacancy rates in Innerstaden are still around the low levels recorded in the previous period. However, the supply in Närförort and Solna/Sundbyberg has also decreased. Offices Supply Solna/Sundbyberg has been adding a lot of space for a long time, most of which has been leased upon completion. Development has accelerated in Närförort and a lot of space is in the pipeline for both market segments. During the Spring a total of 78, square metres of office space was completed in the market segments of Solna/Sundbyberg and Närförort. In Solna/Sundbyberg, Fabege has completed a total of 57, square metres in two projects in Arenastaden. Most of it,, square metres, consists of the first phase of SEB's new headquarters and the remaining 7, square metres consists of the Uarda 6 project, which includes Siemens as a major tenant. In Närförort, Skanska has completed, square metres in two phases of its project Stockholm New in Hammarby Sjöstad. The Stockholm project is 7, square metres and Stockholm Seaside is, square metres. Of the total 78, square metres completed during the quarter, only,8 square metres were leased upon completion. An additional,5 square metres are planned over the rest of the year, and at mid year these were already 98 percent pre-let. A total of 6, square metres were under construction at mid year, of which 5 percent is on a speculative basis. Demand Demand for office space in Stockholm is still very high, particularly for modern premises with good service and communications. However the very low supply has caused the new rental volume to fall sharply in H 7, compared with the mid year volumes for 5 and 6. New rental volumes are still driven by large project leases, but there have been no leases of over, square metres during the period. Närförort has accounted for the largest leases, which has largely stemmed from the development areas around Hammarby Sjöstad. Närförort and Solna/Sundbyberg, with Hammarby Sjöstad and Arenastaden at the forefront, continue to attract tenants who, for example, were previously located in Övriga Innerstaden. Many of those who choose to move out of Övriga Innerstaden in favour of significantly more modern premises often do so at a much better price. This is further strengthened by the low proportion of speculative space being completed. State-of-the-art facilities in the best locations are still in high demand regardless of the market segment, which is also clearly seen in rental developments where the tenants are willing to pay more for these state-ofthe-art premises. Rental rates Rental rate development has been very strong for a long time in Stockholm and the trend has continued in 7. In the prime rental rates increased by another percent in the Spring, and are now estimated to be around SEK 6,8 per square metre. However, it should be noted that the rates demanded by property owners for the very best premises in the approach SEK 9, per square metre. This strong rental growth in has resulted in a very strong rental rate development in Övriga Innerstaden, as well as Närförort and Solna/Sundbyberg. Rental growth in Övriga Innerstaden was percent in the past year, and 9 percent for Solna/Sundbyberg. In Närförort, rental rate development has been recorded at about percent in the past year. It is still newly built premises driving the rental growth, but the high prices in continue to push tenants into development areas that are relatively less expensive, yet are areas with good communications. Transactions During the Spring of 7, the transaction market remained strong and in Stockholm, a transaction volume of SEK.7 billion was recorded, corresponding to percent of Sweden's total transaction volume. Of Stockholm's total transaction volume, office properties accounted for 7 percent in the first half of the year, or more specifically SEK.5 billion. Office properties continue to be highly sought after in the investor market and the supply is still low. However, the strong development seen in the office rental market, with rising rents and large new production volumes, has added to the investment volume and more transactions for modern office properties expected. The prime yield has been adjusted downward for all market segments except Kista. Närförort has seen very strong development, where Skanska sold a project property in Hammarby Sjöstad (Stockholm ) and another just after mid year (Stockholm Seaside). Market outlook Development in the Stockholm office market has been very strong in recent years. Rental rate development has also been strong and is expected to continue upwards, which is also reflected in the lower yields. The pipeline for new construction in Övriga Innerstaden, Solna/Sundbyberg and Närförort is still strong. The strong development, in both the transaction market and rental market are expected to continue in Solna/ Sundbyberg and especially in Närförort. Development is also expected to continue in, albeit at a slower rate. 8

9 Representative office investments transactions H 7 (msek) Area: sq m Yield: n/a Price/sc m: 6 76 SEK Property: Blekholmen Location: Purchaser: M&G Real Estate Vendor: NIAM 98 (msek) Area: sq m Yield: n/a Price/sc m: 7 SEK Property: Tobaksmonopolet Location: Inner City Purchaser: CBRE GI Vendor: Aberdeen Asset Management (msek) Area: 9 7 sq m Yield:.5 % Price/sc m: SEK Property: Copper Building (Duvan 6) Location: Purchaser: Folksam Vendor: Mengus Representative office leasing transactions H sq m Property: Trikåfabriken 9 Location: Hammarby Sjöstad Tenant: Naturvårdsverket Property owner: Fabege sq m Property: Trollhättan (Urban Escape) Location: Regeringsgatan, Tenant: Netlight Property owner: AMF Fastigheter 7.6 % Property: Apeln 8 Location: Hötorget Tenant: Riksgälden Property owner: Klara Norra Fastigheter (Unionen) Investment volumes (msek) Total H 97 9 Cross-border New office supply % 5.% Adjacent Suburbs 5.% Kista 9.% Solna / Sundbyberg 6.% Prime rent (SEK/sq m) Inner City Adjacent Suburbs Kista Inner City Adjacent Suburbs Kista Solna / Sundbyberg Prime yield Nordic-Market-Outlook-Autumn-7-ENG.indd 9 Short-term forecast Inner City 6 8 Adjacent Suburbs Domestic Vacancy rate Total Est. Completions 7 (sq m) Total Est. Completions 8 (sq m) Total Est. Completions 9 (sq m) Inner City Total 7 H Total vacancy rate sq m Kista Solna/ Sundbyberg.5%.75% Solna / Sundbyberg.75% 5.5%.5% :58

10 Gothenburg Office Market Supply in Gothenburg is still very low and remains unchanged since the beginning of the year. Therefore, the vacancy rate is still estimated at 5.8 percent, which is the lowest vacancy rate for years. Offices Supply Norra Älvstranden still has the lowest supply and the vacancy rate is assessed at. percent after H 7, a decrease of.9 percentage points. In and Övriga Innerstaden, vacancies are estimated at.7 and. percent, which means that the three most central market segments all have a vacancy rate below percent. The new construction rate in Gothenburg remains low and practically all newly built spaces are leased upon completion. In the Spring, the two projects Blenda and Piren, of 7,9 and 7,5 square metres respectively, were completed in Lindholmen. In Mölndal, Hemfosa's extension of Södra Porten by about, square metres was completed. In total 7,8 square metres were added, of which only square metres were vacant upon completion. No further space is planned to be completed over the rest of 7. After mid year, an additional 57, square metres are under construction, of which percent are built on a speculative basis. In addition, 6, square metres of office space are planned for which construction has not yet begun. Demand New letting volumes have increased during the first half of the year compared with the previous period, and are recorded at 7, square metres. The level is above the historical average, indicating continued high demand, though this is hampered by the low supply. The most central market segments continue to be the most sought after, and new letting volumes are driven by large project leases. During the period, three leases accounted for almost 5 percent of the total volume, but the majority of leases were 5 square metres or less. Gothenburg is experiencing a major structural change, with employment decreases in commodity production but increases in service production ("office-intensive industries"). This leads to a continued rise in demand for modern and efficient office areas in central locations. The fierce tug-of-war for skills and talent makes companies' choice of location for their business important for the ability to attract and retain talented employees. However, the low supply means that larger companies wanting to change premises are being relegated to project properties, and companies that want to expand are (potentially) hampered by the low supply. Rental levels In other words, pressure on the office market is still high. However, prime rental rates have only been adjusted upwards in due to the shortage of lettings meeting the criterion that premises must be over 5 square metres in the market segments outside. The prime rent has been adjusted upwards by 7 percent during the first half of the year and is thus recorded at SEK, per square metre. In other market segments, particularly Norra Älvstranden och Övriga Innerstaden, an increase in prime rental rates is also expected. If more large office space is rented in these market segments over the rest of the year, it is likely that a continued upward adjustment of rents will occur. Transactions Interest in property investment in Gothenburg is still strong and the market is primarily driven by domestic investors. During the first half of the year, properties in Gothenburg were transacted for a total of SEK 7. billion, of which only percent were of a cross-border nature. During the period, the strongest segment in the Gothenburg market was office properties, which amounted to SEK.7 billion. The distribution between domestic and cross-border transactions was about 5/5, but international investors were devoted exclusively to sales. The prime yield for offices remains unchanged in all of Gothenburg's sub-markets, where is still expected to have the lowest yield at.5 percent. Market outlook Low vacancy rates are typically seen as a positive market indicator. However, an excessively low vacancy rate may be harmful, as it generates lock in effects. The lack of choice forces tenants to stay in premises that are not optimal for the scope of their business. This in turn affects property owners, because long-term maintenance, usually carried out during relocations, is not done to a sufficient extent. JLL still considers Gothenburg's real estate market to be strong, but sees that macroeconomic indicators such as higher interest rates around the world may adversely affect the market. At present however, the market is liquid and in addition, there is currently a low interest rate environment, which means that real estate provides relatively good rates of return compared with other asset classes. The strong rental market, with expectations of rising rental rates, albeit at a somewhat weaker pace, is also the basis for continued high interest in the investor market.

11 Representative office investments transactions H 7 6 (msek) Area: 7 kvm Yield: n/a Price/sq m: 5 SEK Property: Lindholmen : Location: Norra Älvstranden Purchaser: Atrium Ljungberg Vendor: Blackstone/Areim (msek) Area: 9 kvm Yield: n/a Price/sq m: 5 56 SEK Property: Piren (Lindholmen 9:) Location: Norra Älvstranden Purchaser: Platzer Fastigheter AB Vendor: Skanska (msek) Area: 7 5 kvm Yield: n/a Price/sq m: SEK Property: Stampen 6:7 Location: Inner CIty Purchaser: Folksam Vendor: Elof Hansson Fastigheter AB Representative office leasing transactions H sq m Property: Gamlestaden : Inner City Location: Tenant: Volvo Cars Property owner: Castellum Property: Kopparn Inner CIty Location: Tenant: Trafikverket Property owner: Alecta 5.8 % 7 6 H.7% 5 6 Eastern Gothenburg Hisingen Mölndal Western Gothenburg 5 Norra Älvstranden 5 Norra Älvstranden 99 Total 67 Total Domestic Vacany rate Total Est. Completions 7 (sq m) Total Est. Completions 8 (sq m) Total Est. Completions 9 (sq m) 9 5 Inner City Property: Piren (Lindholmen 9:) Location: Norra Älvstranden Tenant: Zenuity Property owner: Platzer Fastigheter AB 7 H New office supply sq m (msek) Cross-border Nordic-Market-Outlook-Autumn-7-ENG.indd 9 Investment volumes Total vacancy rate sq m Inner City.% Short-term forecast Norra Älvstranden.% Western Gothenburg 7.% Mölndal.% Hisingen Eastern Gothenburg Hisingen Eastern Gothenburg Eastern Gothenburg 6.% 7.8% Prime rent (SEK/sq m) Inner City 6 Norra Älvstranden Western Gothenburg Norra Älvstranden Western Gothenburg Mölndal Hisingen Mölndal Prime yield.5% Inner City.75%.5% % 5.5% 6.% :58

12 Malmö Office Market The supply of office space in Malmö/Lund has risen somewhat since the beginning of the year and at mid year 7, the vacancy rate is estimated at 8. percent, an increase of. percentage points. Offices Supply The only market segment where supply decreased during the period was, where the vacancy rate fell by.6 percentage points. New production volume has fallen in early 7, largely due to high new production volumes seen in 5 and 6. During these two years, more than, square metres were added to the market. These high levels of newly built space have been the basis for the slightly rising vacancy rates seen over the past nine months. During the first half of 7, no office space was added to the market, but 7, square metres are planned for the Autumn. In addition, the amount of office space under production has increased and was recorded at 68,7 square metres during the first half of the year, of which 6 percent is being built on a speculative basis. Nearly half of the area under production is found in. Therefore, in 8 the completed space is expected to increase slightly, so that in 9 it will further increase to levels on par with those seen in 5 and 6. More than, additional square metres of office space are being planned for which construction has not yet begun (though zoning plans exist), most of which are located in suburbs of Malmö and in Lund. Demand After five strong periods, new lettings have fallen slightly to, square metres in the first half of 7. The market segment with the absolute highest demand is, which accounted for half of the new letting volume during the period. The new letting volume was driven by large project leases and the gap between new and old buildings is increasing even more. For example, Wihlborgs has managed to lease 9 percent of its project Sirius, which will be completed by the end of 7. Newly built premises thus continue to attract tenants from older office premises, which are becoming increasingly difficult to let. Although vacancy rates have risen and new rental volumes have fallen, the assessment is that the newly built premises are still attractive. New letting volumes are most likely to rise again when production volumes once again increase. Rental rates Prime rents are expected to remain unchanged in all market segments, except Lund where the level has been adjusted by 5 percent to SEK, per square metre. Lund is also the only market segment where there has been a change on an annual basis. The rental market seems to have reached its absolute peak, but there is a certain amount of room for very minor changes. With the increase in rents in Lund, any changes are likely to lead to a slight increase rather than decrease. When the market in Malmö/Lund is compared with Stockholm and Gothenburg, it is clear that Malmö/Lund's rental development has recently stalled. Although no major adjustments are expected, newly built premises may be rented out at rental rates around the peak, which forms the basis for JLL's assessment that a rental increase will occur sooner than a decrease. Transactions In Malmö/Lund SEK. billion of real estate transactions were conducted. During the period SEK. billion of office properties were traded and offices was the largest segment followed by residential, which amounted to SEK.9 billion. During the period international investors were involved in an office transaction of SEK 5 million, when Steen and Ström sold Emporia Office to Kungsleden. The prime yield has remained unchanged during the period, with Malmö still the lowest at.5 percent. Malmö is the only market segment that has been adjusted downwards on an annual basis (by 5 points). The assessment is that the prime yield for Malmö/Lund has now reached its lowest point and will remain at the current level for the coming year. Market outlook JLL still assesses that the Malmö market is close to the peak of the rental cycle. There is still a large gap between the old buildings and newly built buildings, and demand is mainly directed towards the newly built spaces. This will likely lead to the conversion of most older office properties into housing. Conversion is occurring in all major cities, but is becoming especially pronounced in Malmö/Lund because the new construction rate of offices has been so high. The housing shortage in the Malmö area is further driving this development. Office space under production has increased during the period and the high proportion of space produced on a speculative basis indicates that developers still have high confidence in the market. However there is are a lot of area that has been planned, but where construction has not yet begun. It remains to be seen if this high confidence in the market will remain for the rest of this year and next year, but if the available buildings decrease due to conversions, additional room for new construction will be created.

13 Representative office investments transactions H (msek) Area: Yield: Price/sq m: Property: 5 kvm n/a 8 78 SEK Emporia Office (del av Marknadsplatsen ) Location: Adjacent Suburbs Purchaser: Kungsleden Vendor: Steen & Ström AS 79 (msek) Area: kvm Yield: n/a Price/sq m: 7 7 SEK Property: Stapelbädden & Location: Västra Hamnen Purchaser: Klövern Vendor: Alecta (msek) Area: 5 kvm Yield: n/a Price/sq m: 6 SEK Property: Brännaren 8 Location: Inner City Purchaser: Kungsleden Vendor: Malmö Kommun Representative office leasing transactions H kvm Property: Karin Location: Brandmästaregatan, Övriga Innerstaden Purchaser: Malmö Stad Vendor: Wihlborgs Fastigheter AB kvm Property: Eminent Location: Adjacent Suburbs Purchaser: Boozt Fashion AB Vendor: Castellum 7. % Property: Sirius Location: Purchaser: Tele Vendor: Wihlborgs Fastigheter AB Investment volumes (msek) 7 5 Total 97 7 H 7 Total vacany rate 7 New office supply Total 68 6 H Cross-border Domestic Vacancy rate Total Est. Completions 7 (sq m) Total Est. Completions 8 (sq m) Total Est. Completions 9 (sq m) 7.5% Inner City 6.% Short-term forecast Western Harbour Adjacent Suburbs 5.9% 8.% Western Harbour Adjacent Suburbs Lund.8% Prime rent (SEK/sq m) Inner City Western Harbour Nordic-Market-Outlook-Autumn-7-ENG.indd Adjacent Suburbs Lund Inner City Lund 5 Inner City Western Harbour Adjacent Suburbs Lund Prime yield kvm.5% 5.5% 5.5% 7 8% 5.5% :58

14 Uppsala Office Market The supply of office space in Uppsala is very limited, just as in Sweden's three largest cities. Of the city's three market segments, Central Uppsala has the lowest vacancy rate at. percent. Offices Supply The vacancy rate for Övriga Innerstaden is estimated at. percent and Övriga Uppsala is estimated at 6. percent. Most of the premises that are currently vacant consist of smaller spaces of less than, square metres. Just under,, square metres of office space is available in Uppsala city centre, and development has recently taken off in earnest. There is currently, square metres of office space under construction, of which almost 5 percent is being built on a speculative basis. The largest share of space under construction is in the market segment Övriga Uppsala, where Atrium Ljungberg occupies almost, square metres in Gränby, with plans for an additional 7, square metres. In addition, Vasakronan has two major projects in progress in Uppsala Science Park, which is part of Övriga Uppsala. One of Vasakronan's projects, Hubben, plans to complete,5 square metres of office space by the end of 7., square metres of these premises are currently rented to the County Council of Uppsala County. Vasakronan's other project consists of, square metres of office space and is scheduled to be completed by the end of, when the Swedish National Food Agency will move into its new premises of 8, square metres. Demand Demand in the office rental market is also strong in Uppsala. Modern, space-efficient premises are generally demanded in central locations, as in other market segments in Sweden. Willingness to pay for these modern premises is high, which also means that more and more property owners are choosing to upgrade their existing properties or develop new properties. The supply of larger premises is limited and a large proportion of space under construction is already let, mainly to larger tenants. Thus, there is demand for larger premises, but the low supply limits the market. Demand for office space in Uppsala is considered stable. The proximity to Arlanda Airport and Stockholm is attracting an increasing number of larger companies, but in order to maintain this demand, development of modern office space needs to continue. Rental rates Office rental rates have been very positive over the past ten years. Prime rents are currently estimated at SEK, per square metre in, SEK, per square metre in Övriga Innerstaden and SEK, per square metre in Övriga Uppsala. In Uppsala Science Park however, prime rental rates are around SEK,5 per square metre. One of the most discussed projects in Uppsala's more central region is Skanska's project Juvelen. Here Skanska is adding 7,5 square metres at a price of, SEK per square metre. Castellum's project Kungspassagen in may also reach higher rental rates than the current prime rents. Rental development in Uppsala is most likely to continue to be positive with these new project properties acting as a driving force. Investment market Uppsala's investment market has long been characterised by residential transactions, and Spring 7 was no exception. Residential transactions accounted for a total of SEK.9 billion of the total of SEK.5 billion traded on the market. Though interest in commercial real estate has increased, housing continues to be the absolute strongest segment. During the first half of the year, only one office transaction took place, in connection with Gelba Fastigheter s sale of Boländerna 5: (8,5 square metres) to Hemfosa for SEK 5 million. It is worth mentioning that Lundbergs, despite the positive development in Uppsala last year, sold its last property, Dragarbrunn :, to Skandia and thus chose to leave Uppsala. The city has strong growth, creating huge pressure on the housing segment. Interest in commercial real estate is still strong and interest in office properties is expected to increase. The prime yield for offices in Uppsala is estimated at.75 percent in, 5. percent in Övriga Innerstaden and between percent in Övriga Uppsala. Supply is extremely limited in the more central locations, as only a few property owners own most of the buildings, and these are not likely to be sold. The market is sparse in Övriga Uppsala. Larger office buildings in smaller central locations can be very difficult to sell. They are too large for most real estate investors in a market like Uppsala. Market outlook Uppsala's strong population growth has meant that housing has long been the focus. However, in order to continue attracting companies to Uppsala, the office market must continue to evolve and property owners must look toward modernising their holdings. The office rental market is expected to continue to develop, thanks to the proximity to Stockholm and the proximity to education through Uppsala University and Uppsala University Hospital.

15 UPPSALA CATHEDRAL UPPSALA CENTRAL STATION REST OF INNER CITY REST OF UPPSALA 5. % Demand for offi ce space in Uppsala is considered stable. Total vacancy rate New office supply Total Est. Completions 7 (sq m) Total Est. Completions 8 (sq m) Total Est. Completions 9 (sq m) 6 Vacancy rate Inner City Uppsala.%.% 6.% Prime rent (SEK/sq m) Short-term forecast Inner City Uppsala Prime yield Inner City Uppsala Inner City Uppsala.75% 5.% 6-7.5% 5

16 The retail market in Sweden The Swedish retail sector has undergone major changes in the last year. The main underlying explanation is the increasing digitisation of society and thus changing consumption patterns. Retail 6 In the retail sector, digitisation primarily involves a shift towards increased shopping on line, but also a change in the service and information that can be delivered to customers in the retail environment. As its market share continues to grow, online shopping growth now affects retail trade in a way that has not previously been as visible. Retail trade is adapting to work in symbiosis with online retailers and take advantage of current developments. It is quite unlikely that Swedish shopping centres will suffer the same fate as the horrific examples from the US in particular. On the other hand, retail is undergoing major changes and areas occupied by retail today will not necessarily be so tomorrow. The clearest trend in recent years is that retail premises provide space for restaurants and cafés, but of course, there are also examples of retail venues that did not work and are now occupied by other businesses. However, the shopping centres that have gone bankrupt in the past ten years are few. In the coming years leading up to, plans and projects corresponding to approximately 9, square metres of shopping centres and retail areas will be added in Stockholm, Gothenburg, Malmö and Uppsala, according to SSCD and HUI Research. The majority of this area is expected to be added in the Gothenburg region, where, for example, Överby Köpcenter Centre and Handelskvarteret Kulan are being developed. This only takes in to account entirely new space. At the same time, a lot of existing space is being refurbished to meet the new demands of retail. Rental rates Prime rental rates for all retail segments, except for retail units on the best shopping street in Stockholm, have remained unchanged in the first half of this year. However, prime rental rates for retail units on the best shopping street in Stockholm have increased by SEK 5 per square metre, corresponding to. percent during the first half of the year, and now amount to SEK, per square metre. This type of retail property has had the strongest rental increase on an annual basis, 9.5 percent. The corresponding rental rates for retail units on the best shopping street in Gothenburg have risen by 8.9 percent to SEK,, and for the best regional shopping centres in Stockholm, by. percent to SEK 9,8 on an annual basis. Prime rents for retail units on the best shopping street in Malmö, as well as so called out of town volume retail in Stockholm, which applies to units of more than, square metres, have remained unchanged on an annual basis. Prime rents for retail units in the best locations in Stockholm are likely to continue to increase in the coming years. However, it is worth noting that this refers to the very best premises in A-locations in the most central parts of Stockholm, which means that these levels do not represent retail units as a whole. Out of town volume retail is unlikely to experience rising rental rates in the short term, largely because this type of retail is no longer seen as equally attractive and e-commerce affects sales growth for the type of goods normally sold there. However, regional shopping centres are still relatively strong and attractive and here we can expect continued rental growth, perhaps mainly outside the metropolitan areas. Investment market During the first half of the year, SEK 9. billion of retail property transactions took place, corresponding to percent of Sweden's total transaction volume. SEK.7 billion of the transaction volume for retail properties was allocated to Stockholm, SEK million to Malmö/Lund, and only one property of SEK 7 million in Gothenburg. The rest of the transaction volume for retail properties was spread throughout the country. Of the SEK 9. billion traded in the retail segment, SEK 5.8 billion was of a cross-border nature, corresponding to 6 percent. During the period, foreign investors were net buyers of almost SEK million.retail properties have long been an attractive segment for foreign investors. Now however, we can see that more and more foreign investors choose to sell instead of buying. This may be due to the prevailing low supply of prime products, while at the same time e-commerce creates some scepticism. The prime yield has been adjusted downwards for two retail segments during the Spring. The prime yield for retail units on the best shopping street in Stockholm has been adjusted down by 5 points and is now estimated at.5 percent. The prime yield for outdoor shopping centres has also been adjusted down by 5 points and is now estimated to be. percent. The prime yield for out of town volume retail remains at 5.5 percent. Market outlook Retail turnover has increased at a relatively good pace during the year and sales growth in the first half of the year was.7 percent compared with the previous year. On the other hand, trends are showing a slowdown in retail sales. This is partly because other consumption sectors have had stronger growth than retail. The restaurant industry and the car industry have both experienced stronger growth than retail after a long period in which retail had taken market shares in the consumption market. The HUI Research forecast for retail turnover growth in the current year was adjusted down at the beginning of the Summer for the reasons above. The updated forecast is that retail turnover will grow by.5 percent during the year at current prices. It remains to be seen whether this slowdown is temporary or if it reflects a reduced consumption of retail goods. If this is the case, rental growth and transaction volume for retail properties will also be adversely affected in coming years.

17 Retail market revenue growth 99 6, estimated 7 (%) P Source: HUI Research Investment volumes Investment volumes per segment (msek) H 7 (%) Total 99 Total 5 % H Cross-border % H Domestic % 8 % Retail warehouse Shopping centre Retail warehouse park Supermarket Prime rent (SEK/sq m) Retail warehouse Stockholm 5 External shopping centre Sweden Unit shop Stockholm Unit shop Gothenburg Unit shop Malmö External shopping centre Sweden Unit shop Stockholm Unit shop Gothenburg Unit shop Malmö Prime yield Retail warehouse Stockholm 5.5%.% Nordic-Market-Outlook-Autumn-7-ENG.indd 7.5%.5%.5% :59

18 The logistics market in Sweden The logistics market can be divided into two market segments: The market for existing premises, where the rent level is controlled by supply versus demand, and the market for newly built premises where the rent level is controlled by production costs and the developer's required rate of return. Logistics 8 In Sweden, the total available logistics area is estimated at around.5 million square metres, but the total available area of older warehouse and industrial premises is considerably larger. The definition of a logistics facility is a facility for goods storage that has a size of at least, square metres, free ceiling height of at least metres, about loading dock per, square metres and external areas to handle a flow of -metre trucks. Terminals deviate from the above definition, primarily due to a lower ceiling height. However, because terminals have an important function in the distribution flow, these premises are also counted as logistics premises Supply The vacancy rate of logistics premises is estimated to be lower than percent. Logistics premises started to be built about years ago and the majority were built with lease agreements of at least years, which were often extended, which is why many of the tenants still occupy their premises. Therefore, most of the annual volume of space let consists of newly built premises, on average about 65, square metres per year. The five counties representing the largest volume in quare metres of logistics premises are Västra Götaland, Stockholm, Skåne, Jönköping and Halland. Demand In 6, about 8, square metres were built, which is about percent higher than average. The largest share was found in Stockholm County, divided into six projects where the largest premises were built by NREP for Aditro Logistics in Nykvarn. In 7, the volume is expected to be more typical at about 5, square metres, where Västra Götaland accounts for the largest share. Interestingly, the high demand in Gothenburg has led to 6, square metres being built on speculation. The largest project was developed by Prologis, which completed two facilities of approximately 6, square metres, of which about, square metres were rented to Logent, as early as 9 months before completion. Note that about percent of the total newly constructed volume has the owner of the property as the user. This type of property is usually governed by market access and land prices, which is why most of these have taken place in municipalities with good land availability a less competitive market with lower prices. Rents Rents in the logistics market have been relatively stable with a slight annual increase over time. Availability of existing premises, with the possibility of higher rental rates for a shorter agreement, has been limited and new construction still reflects the stable average rental rate in the market. While demand is very high, which usually yields a rental increase, property owners and developers' required rates of return are at a record low, which neutralises the rise in rental rates for new construction. Rental rates vary across the country, governed by the respective micro-market prices and land conditions. Investment market Recently, the logistics market has been characterized by increased demand, both from domestic and foreign players. Transaction volume within the logistics segment in the first half of 7 amounted to SEK.8 billion, corresponding to 6 percent of Sweden's total volume of transactions. Compared with H 6, the transaction volume for logistics properties has increased by 6 percent and compared to H 6 it has increased by 67 percent. Foreign players were involved in three of the total of twelve transactions carried out in H 7, which were also the three largest transactions. Foreign players represented SEK.9 billion on the sales side and SEK 6 million on the purchase side. The largest logistics business during the first half year was Invesco Real Estate's sale of a portfolio of, square meters to Bråviken Logistics for SEK,5 billion (SEK 8,7 per square meter). The portfolio consists of three fully let logistics properties in Nyköping, Norrköping and Jönköping. Bråviken Logistik AB is a newly formed company of Pareto Securities. In connection with the transaction, Pareto acquired SEK 55m in equity from Nordic institutional investors and private investors. The second largest business was DSV Road's sale of the property Örja : of, square meters in Landskrona to Logistea AB. The property was sold for SEK 685 million (SEK 7, per square meter) and in connection with the sale DSV signed a long lease in the property. The company Logistea AB is a so-called single property vehicle formed by Catella Bank in order to offer customers attractive returns. At the time of the acquisition of the company, approximately new shareholders were added to the company. Market overview/trends The logistics market has been stable for a long time and the new construction volume has been 6, square metres per year over the last five years, which is 7 percent higher than the average over a longer period. Third party logistics and retail account for about 66 percent of the volume over the same period, which is consistent with over a longer period. E-commerce On-line shopping continues to develop, with both third party logistics and retail positively affected.

19 Rent map 5 SEK/sq m 675 SEK/sq m SEK/sq m 65 5 SEK/sq m SEK/sq m Borås Gothenburg SEK/sq m SEK/sq m Jönköping Örebro Eskilstuna Norrköping Stockholm 5 SEK/sq m Helsingborg Malmö 6 SEK/sq m New logistics supply (sq m) BTS: Built to suit Own: User owns property Spec: Built on speculation BTS Own Spec Prime yield 8.5% 8.% 7.5% 7.% 6.5% 6.% 5.5% 5.%.5%.% Q-7 Q-6 Q-5 Q- Q- Q- Q- Q- Q-9 Stockholm Gothenburg Jönköping Skåne 9

20 Column The housing market in Sweden author Svante Jonsson, Regional Director JLL Capital Markets The housing market is a market everyone is part of and understands, but still feels unsure of. There are many problems that need to be solved, but it's a slow progress. The housing crisis is a hot potato and the question is whether it has to be solved. If so, by who and how is it best done, is the supply or demand to be affected? Right in the middle of the housing market is the tenancy agreement the real estate owner's best friend. What is often repeated as a truth tends not to be true. The mantra in the housing market is: We need to build a lot of homes and fast. Preferably cheap rental homes. Analyses of the actual supply and demand out in the market are overshadowed by politician's PR. Approximately, new homes were officially completed last year. However, when the available supply of housing is measured, it seems that the number increased by almost twice as much, to 79, ), by changing property types and conversions into housing. If the current rate persists, nearly 8, new homes may begin to be built this year. This last happened in 99 and before that in the glory days of the Million Programme. How much did the supply really have to do with the property crisis that followed? The key is who is demanding the supply. Is that not the key political issue, to ensure that there is demand so that producers can match the demand with supply? Certainly, we agree that this is a job for the market and only the market can actually handle it? The number of people in Swedish households has decreased since the 96s, but in recent years, the trend has reversed. Is it due to a housing shortage or to changing living habits that we are sharing homes to a greater extent? In the spirit of sustainability and distribution economics, we increasingly see people who choose to share housing and form families later in life. There are mini-collectives, to be sure. There are currently a lot of three-room apartments that can only be demanded if households grow. In Europe, young people live at home until they are 6 in Sweden we are when we leave home. Will we adapt to Europe or vice versa? The answers to these questions will affect the demand. Also, keep in mind that population forecasts are a volatile matter. The official statistics (SCB) for the nation's population growth by have decreased by, people between the 5 publication and today's publication. JLL and Evidens have studied the supply in a number of locations to create a supply and demand analysis. Our goal is to present the relevant Market and Demand Index (Residential Market Index, RMI) for these locations. When analysing income levels and the number of households that can and want new construction, a picture is emerging that signals that several markets are in balance or are showing signs of overheating. All project developers should make their analysis carefully. The tenancy then, the "cheap" tenancy? Why do people think you create a cheap form of housing by financing someone else's rate of return and paying for -hour service? Tenancy is great for those who need it, the problem is just that most households do not. HSB and Riksbyggen were created by the then-current rental movement, where the idea of building and living at self-sufficiency was a supportive argument. Politicians should perhaps consider increasing this kind of demand and not reducing it? If you are staying long-term in your home, all available statistics show that the owned property is the most economically advantageous one. Now, mortgage ceilings, amortisation requirements, debt ratio ceilings and possibly interest-rate restrictions have been introduced. Can there be alternatives and additions that strengthen long-term stable demand? This is politically sensitive so sensitive that we allow it to take seven to ten years to put a new home on the market. This will not persist, the market will become wiser. The right supply is a good supply for everyone, and everyone is able to ask if the incentives are right. Property owners and asset managers should love tenancies because it essentially stands for one thing, namely to create a stable and portfolio-oriented risk-adjusted return. This is an asset that will not coincide with the stock market's development and which offers inflation-guaranteed revenue flow that increases over time, as revenue significantly exceeds the cost. Plus, it's eligible for refinancing. The tenancy is a perfect asset for those who can manage it or who let others do the job. Everyone with tenancies: Remember to be thankful for all the rules introduced to the market right now. ) By making leasing residences permanent and e.g. industry properties and offices being converted into housing (Source: Nordea Markets and Macrobond)

21 The housing crisis is a hot potato and the question is whether it has to be solved.

22 JLL-Evidens Residential Market Index, RMI Too few homes have been built in Sweden to meet the need that has arisen after many years of good economic growth, rapid urbanisation and population growth. However, need and demand are not the same thing. The demand for housing also includes a household's ability to pay for newly constructed housing, either in the form of newly constructed residential for rent or in the form of prices. Residential Higher risk profile Due to a supply deficit, new construction has been able to increase over a number of years, and investors and builders have quickly been able to sell or rent new housing projects. In practice, the market risks have been on the demand side, primarily in the form of the risk of a weaker economic climate. However, in 5 and 6 an increase in new construction, as well as ever increasing volumes in many markets in the first half of 7, has meant that the risk profile also includes the supply side. In many local markets, there is an increasing supply of newly built housing, often in the same physical environment, which increases competition between different projects. If the supply in a local market becomes too large in relation to the number of households with sufficient ability and willingness to pay, sales times will be longer, with the risk of downward price pressure. Rental units are becoming more difficult to let. A supply and demand index in the housing market Residential Market Index (RMI) JLL-Evidens' Residential Market Index (RMI) is an index describing supply and demand in various local residential markets. On the supply side, the index is based on the number of home starts per quarter, according to statistics from SCB. As it takes an average of about 6-8 quarters to complete homes, a delay factor is used in the calculation of the index. The supply is then weighed against the demand. The demand is measured by calculating how many households can demand new construction without the household's expenditure share for housing exceeding percent of disposable income. The total sample of households is reduced in the next step using Evidens' data on 'preferences for new construction with various forms of tenancy', as a household can always choose an older, used home instead of new construction. The calculations use national data on average mortgages and interest rates for mortgages. Calculations are made for households consisting of both single occupants and cohabitants. The index is then created by allocating the supply in relation to the estimated market depth for estimated average housing sizes, prices and rental rates in each municipality. Index levels Index levels below. indicate that the supply of new construction can grow without significant restrictions for households with sufficient ability to pay. Below this level, the risks primarily remain cyclical. Index levels around. indicate that the supply of new construction is at a level motivated by the number of households with sufficient ability to pay, which at the same time have preferences for new construction. Index levels above. present a risk that the supply of new housing is too large in relation to purchasing power, which may mean extended sales times, price pressure and high turnover of tenants. In the case of major cities, supply risk is generally somewhat lower at high index levels than for regional cities. The explanation is that the supply in these municipalities largely also refers to households in the rest of the region, i.e. the market depth is greater than indicated by the data from the municipality's own population. Index levels and the change in the index are shown in adjacent graphs for the three metropolitan municipalities, some district municipalities and a selection of regional cities.

23 JLL-Evidens' Residential Market Index (RMI) is an index describing supply and demand in various local residential markets Housing expenditure new construction Residences under construction Relocation rate Household disposable income Relocation rate Preferences for new construction Supply JLL / Evidens Residential Market Index (RMI) Demand

24 Stockholm area Järfälla. Täby.5 Lidingö. Stockholm. Nacka.7 Huddinge.9 In Järfälla, housing production has risen sharply during the later part of the study period. At the same time, households' incomes or the number of households have not grown to the same extent, which means that the equilibrium index has risen sharply, especially in 6. Huddinge also shows a similar pattern, but as the number of new projects declined in the last year, the index has also fallen back down from a high level. In the city of Stockholm, housing construction has seen relatively high demand throughout the period. Development RMI-index 7: Huddinge Nacka Järfälla Stockholm Lidingö Täby : : : : : : : : : : : : 5: 5: 5: 5: 6: 6: 6: 6: 7: : : : : : : : : : : : : 5: 5: 5: 5: 6: 6: 6: 6: 7: Source: JLL, Evidens

25 Gothenburg area Kungälv.6 Göteborg. Borås. Mölndal.8 Kungsbacka.7 In the Gothenburg area, it is mainly Mölndal that stands out, which is because the number of project launches has increased sharply since 6, mainly in the central parts of the municipality. It is obvious that the construction rate in Gothenburg in particular has the potential to be significantly higher. Even in the other municipalities, the index shows opportunities for increasing the new construction rate. Development RMI-index 7: Borås Kungälv Gothenburg Mölndal Kungsbacka : : : : : : : : : : : : 5: 5: 5: 5: 6: 6: 6: 6: 7: : : : : : : : : : : : : 5: 5: 5: 5: 6: 6: 6: 6: 7: Source: JLL, Evidens 5

26 Malmö area Helsingborg. Lomma.5 Lund. Malmö. Ystad. In the Malmö area, no municipalities show particularly high index figures, although both Lomma and Lund, during certain periods, have had a construction rate slightly higher than the level of demand that is expected to be possible for these municipalities in the long term. As housing prices have risen in Malmö, a number of projects have also been started, which means that the Malmö index has increased, especially in 6, and we are seeing a continued increase in the beginning of 7. Development RMI-index 7: Helsingborg Lomma Malmö Ystad Lund : : : : : : : : : : : : 5: 5: 5: 5: 6: 6: 6: 6: 7: : : : : : : : : : : : : 5: 5: 5: 5: 6: 6: 6: 6: 7: Source: JLL, Evidens 6

27 Regional cities Umeå.9 Västerås.7 Uppsala.8 Örebro.6 Linköping. Many of the regional cities currently have high index values. Uppsala is the local market that stands out most clearly. New construction has increased rapidly in recent years, which has led to a sharp rise in RMI over a period. Even Örebro's value is currently high, while indexes decreased slightly in Linköping and Umeå. Development RMI-index 7: Örebro Umeå Västerås Linköping Uppsala : : : : : : : : : : : : 5: 5: 5: 5: 6: 6: 6: 6: 7: : : : : : : : : : : : : 5: 5: 5: 5: 6: 6: 6: 6: 7: Source: JLL, Evidens 7

28 Germany and the Netherlands push Europe ahead A strong second quarter saw European investment volumes edge up and combined with a similarly positive start to the first quarter, activity in H 7 is up 7% from H 6 at US$ billion. Volumes in Europe s growth engine Germany jumped by 5% to their second highest recorded level in the first half of the year, while a robust Q helped volumes in the Netherlands climb to reach their third highest first half. H gains in Spain (+5%), Russia (+%) and Finland (+%) were balanced by dips in France (-6%) and Sweden (-7%). In the UK, markets continued to shrug off political uncertainty as H 7 investment activity rose by 8% to its third highest level on record in local currency terms. Some of the largest falls over the past year have been recorded in the Dutch cities. Amsterdam has seen vacancy fall by onethird over the past year. The German cities of Berlin, Munich and Hamburg continue to register reductions in supply. In London the vacancy rate now sits at 5%, the highest rate since but still below the long-run average. Stockholm standing out The European Office Rental Index rose by.% y-o-y in H 7, nearly double the -year average of.%. Rental uplifts have been recorded across a broad range of European markets. Stockholm is catching the headlines as the standout market, but solid growth is also a feature of the Benelux (Brussels, Amsterdam and Utrecht), Southern Europe (Rome, Barcelona, Madrid and Milan) and Germany (Stuttgart, Hamburg and Munich). In London, prime rents remained unchanged in the end of H 7. Further yield compression The weighted European office yield tightened by 9 bp y-o-y to.9% and has now moved well beyond the previous cyclical peak of H 7 (.%). Institutional investment remains robust in continental Europe and demand pushing yields to record lows in the Netherlands, while the UK institutional investment market continues to expand rapidly. Further prime office yield compression was recorded in Amsterdam (-5 bp), Brussels (-5 bp), Stockholm (-5 bp), Budapest (-5 bp) and Milan (-5 bp). With yields now at record lows in many markets, JLL expect stabilisation in the near-term. Western Europe outperforms Eastern and Central Europe Total take-up across Europe in H 7 is now % higher than a year ago, and is 8% higher in Western Europe. By contrast, take-up in Central and Eastern Europe has fallen by %. Germany has seen volumes increase a further 5% (year-to-date). Take-up in Germany is expected to remain healthy for the remainder of the year. In Paris the volume is up % compared with a year ago and JLL predict the continued strengthening of employment growth and corporate sentiment to push take-up further for the full-year 7. Volumes in London in H are % higher than a year ago. The serviced office sector has accounted for around 5% of London s take-up in response to increasing requirements for flexible space. Europe has witnessed a further fall in vacancy to 7.8%, and is likely to stay below 8% for the rest of 7. Vacancy rates in Europe are expected to carry on edging downwards through the second half of 7, which is boosting rents. Looking ahead, solid occupier activity and limited development will continue to restrict the availability of high-quality space, driving up rents across Europe as a result. Prime office rental growth is expected to total around % per year in 7 and 8, with Barcelona, Stockholm and Amsterdam projected to record the strongest uplifts. Top Prime Office Rents in Europe /sq m per annum 6-8.% 8 6 London WE. % London City Prime Rent London commands Europe s highest prime office rents. %. %. % +7. % -6.%. %. % +. % Geneva Paris Zürich Stockholm Moscow Dublin East London Luxembourg Rental Growth y-o-y (local currency) 8