Nordic City Report Autumn 2012

Transcription

1 Nordic Office Markets August 212 Nordic City Report Autumn 212 Economies: The Nordics have remained resilient to the continuing financial instability in the euro zone. Office Markets: Office rental markets have remained strong in Oslo and Stockholm but are slowing in Helsinki and Copenhagen. Investment Markets: Transaction volumes have been stable, with prime assets still the most in demand.

2 2 On Point Nordic City Report Autumn 212 Contents Executive Summary... 3 Stockholm Office Market... 4 Gothenburg Office Market... 6 Malmö/Lund Office Market... 8 Oslo Office Market... 1 Copenhagen Office Market Helsinki Office Market New tax regulations create uncertainty on the Swedish real estate market Transaction Data About Jones Lang LaSalle Economic Key Data Sweden Norway Denmark Finland EU GDP growth 211 (%, change p.a.) GDP growth 212(F) (%, change p.a.) Inflation 211 (%, change p.a.) Inflation 212(F) (%, change p.a.) Employment growth 211 (%, change p.a.) Employment growth 212(F) (%, change p.a.) Unemployment rate (%, seasonally adj.) Exchange rates (SEK/NOK/DKK per )* Typical lease length (years) Property tax (%) Capital gains tax (%) VAT (%) Stamp duty (%) /1.6 - Corporation tax rate (%) *Exchange rates from Source: European Central Bank, European Commission, Eurostat, IHS Global Insight, Ministry of Finance, National Statistics Definitions CBD Prime rent Prime yield Net-absorption Cross-border Vacancy rate Take-up Grade A property Grade B property Grade C property Central Business District. Represents the top open-market annual rent per sq m that can be expected for a notional office unit of the highest quality and specification in the best location in a market. All prime rents are effective, representing face rent. The rent quoted normally reflects prime units of over 5 sq m in size. Represents the best (i.e. mid point) yield estimated to be achievable for a notional office property of the highest quality and specification in the best location in a market. Net absorption represents the change in the occupied stock within a market. Cross-border describes investment flows from or into a country, including cross border - cross-border transactions. Vacancy rate represents finished floor space offered on the open market for leasing within three months. Take-up represents floor space acquired within a market for occupation during the survey period (normally three months). Real estate for which the rental level is above average for the submarket in question (e.g. CBD and near suburbs). Real estate for which the rental level is average for the submarket in question. Real estate for which the rental level is lower than the average for the submarket in question.

3 On Point Nordic City Report Autumn Executive Summary Despite the continuing financial instability in the euro zone, the Nordic countries have remained resilient. Trends have varied slightly for each of the countries, with Norway forecasting a strong GDP growth in 212, whereas GDP growth in the other Nordic countries is expected to be considerably weaker, albeit outperforming the European average. Demand for office space in the Nordic capital cities has remained strong in H Take-up is on a par with results in H2 211 and has even strengthened in several markets. However, it should be noted that decision-making processes have become increasingly slow, which reflects a more cautious approach on the occupier side. There has also been a steady focus on prime office space in central locations, in spite of the increase in new construction in more peripheral areas. In the aftermath of the financial crisis, a certain degree of price sensitivity has also been evident, and if there is too great a differential between rent levels in the CBDs and in less central locations, occupiers will prioritize cost benefits over location. With the exception of Oslo, where prime rents have increased as a result of a positive trend in the employment rate in conjunction with limited supply, rental growth for prime office space in the CBDs has slowed despite the limited supply. A major reason for the stable rental market in the Nordics has been the minimal amount of new construction reaching the market. However, construction activity is currently rising in both Oslo and Helsinki, although this is not expected to impact on rents in Oslo, but it may affect rents in Helsinki. Transaction volumes have remained stable in all markets despite the continuing austerity, restricted access to capital and increasing risk aversion among both banks and investors. Prime assets are still the most in demand, which has placed downward pressure on prime yields in several markets. In contrast, prices have declined for secondary assets and interest from investors has been very slow. Change in prime rent Q Q2 212 Europe: Rental Growth Rates % Oslo Europe: Office Property Clock Q2 212 Amsterdam, Zurich Paris CBD Geneva London City, London West End Helsinki, Oslo, Stuttgart Berlin, Düsseldorf, Moscow, Warsaw Copenhagen, Hamburg, Stockholm, Lyon Munich Gothenburg Lyon, Stuttgart Source: Jones Lang LaSalle Source: Jones Lang LaSalle IP Note: Short-term rental cycle Nordics: Direct Property Investment Volumes Million 4, 3,5 3, Paris Cologne Gothenburg Stockholm Berlin Helsinki Luxembourg St. Petersburg Manchester Budapest Copenhagen Frankfurt Rental growth slowing Rental growth accelerating London Moscow Warsaw Edinburgh Malmö Rents falling Lisbon Rents bottoming out Barcelona Rome Athens Lisbon, Madrid Madrid Brussels Barcelona, Brussels, Budapest Dublin Bucharest, Edinburgh, Frankfurt, Istanbul, Kiev, Malmö, Milan, Prague, Rome This issue of the NCR also features an article by Wistrand, the law firm, on the Swedish government s ongoing proposal to restrict tax deductions, so-called interest loops. The proposal is causing uncertainty in the property market and many investors have chosen to defer their decisions, at least until more beneficial investment conditions can be ensured. Total investment volume in H ,5 2, 1,5 1, 5 Sweden Norway Finland Denmark Domestic Cross-border Source: Jones Lang LaSalle Note: Corporate deals and transactions < 4 million not included Residential and land not included

4 4 On Point Nordic City Report Autumn 212 Stockholm Office Market The total vacancy rate in Stockholm has increased slightly during H1 212, but demand for office space has remained high. The financial instability in the euro zone has had little impact on the Stockholm market, where the proportion of international investors has risen. Nevertheless, the crisis has led to increasing investor caution with only a limited amount of speculative space under construction. Prime rents have remained stable in all submarkets with the exception of the Stockholm CBD and Adjacent Suburbs, where they have increased. Economy Growth is slowing The sovereign debt crisis in the euro zone is still ongoing. Growth in Europe will remain weak due to the austere economic policies that debtor nations have been obliged to implement. Since the euro zone is Sweden s largest export market, this austerity has had a negative impact on the Swedish economy this year. In the first six months of 212, there was a reduction in the level of investment in the Swedish market and Swedish households have tightened their belts. The Swedish economy is still relatively resilient due to the political reforms that have been introduced as well as the healthier labour market of recent years, and an annual average GDP growth of 3 to 5 percent has been forecast between 213 and 216. According to the National Institute of Economic Research (NIER), GDP growth will drop to.7 percent during 212, but it is expected to recover slightly to 2.3 percent in 213. Due to the poor economic climate, employers no longer need to recruit new labour quickly. Unemployment in Sweden currently stands at 7.5 percent, but as economic demand picks up, this rate is expected to decrease steadily to 6.4 percent in 216. More specifically, the unemployment rate in the Stockholm region is expected to be at 6.5 percent by the end of 212. Supply Limited new supply, more is expected During H1 212, the total vacancy rate in Stockholm showed an increase of.6 percentage points to 1.3 percent from 9.7 percent, while in the Adjacent Suburbs and Kista, rates rose to 16.9 percent and 14.9 percent respectively in the same period. However, in Solna/Sundbyberg the rate dropped by.7 percentage points to 1.4 percent. The construction of Arenastaden, which is gradually emerging around the new national arena, has enhanced the attractiveness of this area. In the Stockholm CBD, the vacancy rate rose to 4.3 percent, an increase of 1.1 percent since the end of 211. In contrast, Rest of Inner City, where the vacancy rate finished at 4.6 percent, recorded the most significant vacancy decrease during H1 212, a drop of 1. percent and the lowest recorded rate for this submarket since 21. During H1 212 only 3, sq m of new office space was completed in Stockholm, and for Alvik E18 Solna Centrum Sundbybergs Centrum Kista Bromma Adjacent Suburbs E2 E4 E4 Solna/ Sundbyberg Marievik Frösunda University KTH Rest of Inner City Globen CBD Nacka Strand Nacka the year as a whole a total of 19, sq m is scheduled for completion, of which only 13 percent is speculative. Demand Less focus on the CBD Demand for office space in Stockholm has been robust during H The total take-up for H1 was 229, sq m, compared with 295, sq m for the same period last year. Nonetheless, this is the second largest half-yearly take-up since H1 28, just prior to the escalation of the financial crisis. H1 212 has seen less focus on central locations such as the CBD and more office space leased throughout the other submarkets in Stockholm. The most active submarket during H1 212 was Rest of Inner City, which recorded a take-up of 58, sq m, followed by Solna/Sundbyberg with a take-up of 5, sq m. One of the largest transactions during H1 was Skatteverket s decision to lease 29, sq m of office space in Solna/Sundbyberg. Rents Slowing rental growth The most significant increase in the prime rent level was recorded in the Adjacent Suburbs, where it rose by 12.5 percent during the first half of 212. Prime rent in this area is now SEK 2,25 per sq m, the highest recorded level since year-end 21. In the Stockholm CBD, prime rent rose to SEK 4,3 per sq m, which is an increase of 2.4 percent for the half. Prime rents in the other submarkets remained unchanged during H The property clock for the Stockholm market has been set at slowing rental growth. Investment Market Office properties have dominated During H1 212, transaction volumes totalled SEK 21 billion in Stockholm, which is an increase of 12 percent compared to H The largest single transaction during H1 was Humlegården s acquisition of a portfolio of office properties in Solna/Sundbyberg for SEK 4 billion. The proportion of cross-border transactions in Stockholm during H1 212 was 23 percent, and for the first time in many

5 On Point Nordic City Report Autumn years a majority of international investors acted as buyers in these transactions. Sweden is one of the countries that has been least affected by the ongoing financial instability in the euro zone, hence it is an attractive market. Office properties, which accounted for 72 percent of the total transaction volume, have continued to dominate demand in Stockholm, followed by residential and retail properties with 2 percent and 3.5 percent of the total respectively. Prime yield has decreased by 25 basis points in the Stockholm CBD, Rest of Inner City and Kista submarkets. Prime yield in the other submarkets has remained unchanged. Yield levels are forecast to remain relatively stable during the rest of 212. Market Outlook Rents are forecast to remain stable During H1 212, only 3, sq m of new office space was completed in Stockholm, although during H2 212 several new projects are scheduled for completion, which will add over 1, sq m of space to the Stockholm market. Only 13 percent of this new space is speculative, hence it will have little impact on the Stockholm vacancy rate. Fewer developers are choosing to construct based on speculation due to the austere financial climate caused by the sovereign debt crisis in the euro zone. During H1 212, the vacancy rate in Rest of Inner City dropped while the vacancy rate in the CBD increased slightly. A major factor in this trend has been companies choosing locations in Rest of Inner City, where rents are lower and supply greater than in the CBD. The rental growth in Stockholm is now slowing due to the reduction in pressure on space in the CBD and the current instability in the financial world. Jones Lang LaSalle is forecasting that rental levels in Stockholm will remain relatively stable going forward. Prime Yield / Inflation Prime Yield Inflation % % (F) Prime Yield (LHS) Inflation (RHS) Source: Jones Lang LaSalle, Eurostat Prime Rent / Vacancy Rate Prime Rent Vacancy Rate SEK/sq m/p.a. % 6, 2 5,5 15 5, 4,5 1 4, 5 3, (F) CBD Prime Rent (LHS) Total Vacancy Rate (RHS) Source: Jones Lang LaSalle Office Properties CBD Rest of Adjacent Kista Solna/ Total* Q2 212 Inner City Suburbs Sundbyberg Office Stock Q2 212 (sq m) 1,744,46 3,412,1 1,744,3 872, 1,614,4 11,26,26 Total Est. Completions 212 (sq m) 2,6-12,7 27, 67, 19,3 Total Est. Completions 213 (sq m) - 29, , 45, Total Est. Completions 214 (sq m) 15, 55, 19,3 26, - 115,3 Vacancy Rate (%) Short-term forecast ( ) - Prime Rent (SEK/ /sq m/p.a.) 4,3 3,3 2,25 2,1 2,2 - Short-term forecast ( ) - Prime Yield (%) * Also including submarkets not presented Source: Jones Lang LaSalle

6 6 On Point Nordic City Report Autumn 212 Gothenburg Office Market The office market in Gothenburg has been consistently strong during H1, with low vacancy rates in central locations and the highest half-yearly take-up since 28. The investment market has remained resilient with office properties dominating investment demand. Only a limited amount of new office space has so far reached the Gothenburg market during 212, and of the new space scheduled for completion during the remainder of the year only 1 percent is speculative. Economy Optimism is still high The economic turmoil in Europe is currently impacting Sweden, which has resulted in a weak national GDP growth during the first six months of 212. Nonetheless, optimism is still very high in the Gothenburg office market. Unemployment in the region has decreased by 1 percentage point since the end of 211 and currently stands at 7 percent, which is lower than the national average. Among all the urban regions of Sweden, Gothenburg has experienced the fastest employment growth and there are no indications that this trend will change going forward. Supply Low vacancies in the city centre The total vacancy rate in Gothenburg has dropped by.7 percentage points to 7.2 percent, which is on a par with the rates recorded before the financial crisis of 28. High absorption in the CBD, Rest of Inner City and Norra Älvstranden caused vacancy rates to fall in these submarkets, with the one percentage point drop in Norra Älvstranden since the end of 211 the most notable. In the Gothenburg CBD, the vacancy rate has dropped by.4 percentage points to 4.1 percent since H In Rest of Inner City, a vacancy rate as low as the current 4.5 percent has not been recorded since H1 23. In the less central locations such as Mölndal and Western Gothenburg, vacancy rates increased slightly to 1.4 percent and 15.6 percent respectively. The low vacancy rate in Gothenburg can partly be explained by the minimal amount of new office space entering the market during the first six months of 212. Only 5, sq m has been completed so far this year, Hufvudstaden s extension of Femmanhuset in the CBD, which upon completion had little vacant office space available. A total of 21,3 sq m of office space will reach the market in 212, of which only 1 percent is speculative. This indicates that the new supply will have little impact on vacant space in the market. Demand High activity in Rest of Inner City Total take-up in Gothenburg during H1 212 was 6,2 sq m, which is the highest half-yearly take-up since H1 28. This also confirms that take-up has recovered to the same level as it was before the escalation of the financial crisis in 28. The highest activity occurred Western Gothenburg Hisingen Lindholmen Gullbergsvass Science park Norra Älvstranden Gårda CBD Gothenburg Business School Rest of Inner City Chalmers University of Technology Sahlgrenska University E6 Hospital E2 Mölndal Kålltorp Eastern Gothenburg 2 km in Rest of Inner City, where take-up during H1 represented 38 percent of the total in Gothenburg. The largest leasing transaction during H1 212 was PEAB s decision to occupy 4,2 sq m in their own Lyckholms Fabriker construction project. Another notable transaction was JB Grundskola s agreement to rent 2,9 sq m of space for school activities in newly-constructed Pedagogen Park in Mölndal. The most active sectors during H1 were public administration, health and education with 17 percent of the total take-up, followed by technology and telecom with 9 percent. Rents Prime rents stable but expected to increase Prime rents during H1 212 have shown moderate growth, with prime rents in all submarkets remaining unchanged except for one. Recently signed rental contracts in Norra Älvstranden indicate an increase in rents in this submarket and prime rent rose by 5. percent to SEK 2,1 per sq m. Jones Lang LaSalle is forecasting that prime rent is likely to increase in Gothenburg CBD and Rest of Inner City later in 212 if the strong demand for office space in these submarkets continues. Investment Market High transaction activity During H1 212, the total transaction volume in Gothenburg was SEK 5.2 billion, which is twice the volume of H The single largest transaction was the portfolio of office properties acquired from Diligentia by Vasakronan for SEK 2.1 billion, all of which are situated in central Gothenburg. The second largest investor was Platzer, which in Q2 acquired two portfolios of office properties situated in Mölndal and central Gothenburg from Vasakronan and Wallenstam totalling SEK 1.5 billion. In fact, the Gothenburg investment market has been dominated by domestic purchasers, and of the total 21 transactions that took place during H1, only three were cross-border and only one of these involved an international purchaser. Gothenburg has a strong local investment climate and the sovereign debt crisis in the euro zone has resulted in caution

7 On Point Nordic City Report Autumn among international investors, with most of the investment activity in the capital cities. Office properties have dominated demand in Gothenburg and accounted for 83 percent of the total transaction volume during H1. Prime yields remained unchanged during H1 212 in all submarkets except for Rest of Inner City and Mölndal where prime yields decreased by 25 basis points to 5.75 percent and 6.75 percent respectively. Prime Yield / Inflation Prime Yield % Inflation % Market outlook Demand expected to increase The first six months of 212 indicate a strong demand for office space in Gothenburg. The total volume of new office space entering the market in 212 will be 21,3 sq m. About 1 percent of this space is currently speculative. The positive trend in the labour market combined with the limited amount of new office space indicates a higher demand for office space and lower vacancies going forward. Several new speculative projects are scheduled to begin in the next 12 months, which is likely to cause vacancy rates to rise in the long term as the supply of office space increases. A trend that is expected to continue is the high demand for modern, space-efficient buildings that enable companies to minimize their rental costs per employee. As a result, vacancies in Western Gothenburg and the peripheral parts of Mölndal are expected to increase since the majority of properties in these submarkets are older. Norra Älvstranden and Rest of Inner City, where properties are more modern and there is a considerable amount of new space under construction, are becoming more attractive to potential tenants (F) Prime Yield (LHS) Inflation (RHS) Source: Jones Lang LaSalle, Eurostat Prime Rent / Vacancy Rate Prime Rent Vacancy Rate SEK/sq m/p.a. % 2, ,5 1 2,25 2, 5 1, (F) CBD Prime Rent (LHS) Total Vacancy Rate (RHS) Source: Jones Lang LaSalle Office Market Data CBD Rest of Norra Hisingen Mölndal Western Eastern Total* Q2 212 Inner City Älvstranden Gothenburg Gothenburg Office Stock Q2 212 (sq m) 863,9 712,6 248,7 424, 36,6 325,3 246,6 3,176,7 Total Est. Completions 212 (sq m) 7,3 14, ,3 Total Est. Completions 213 (sq m) 11, 8,1 9,5-12, - - 4,6 Total Est. Completions 214 (sq m) Vacancy Rate (%) Short-term forecast ( ) Prime Rent (SEK/ /sq m/p.a.) 2,4 2, 2,1 1, 1,5 1,15 1,1 - Short-term forecast ( ) - Prime Yield (%) *Also including submarkets not presented Source: Jones Lang LaSalle

8 8 On Point Nordic City Report Autumn 212 Malmö/Lund Office Market The total vacancy rate in the Malmö/Lund market has risen during H Prime rents have remained unchanged in all submarkets except for the Malmö CBD, where they declined. Prime yields have remained consistently stable throughout H1 despite the fact that transaction volumes have increased significantly. A minimal amount of new office space was completed during H1 212, though a large upcoming supply is expected in H Economy Decreasing unemployment rate GDP growth has decreased to.7 percent during 212 and forecasts from the National Institute of Economic Research (NIER) indicate that economic growth in Sweden will remain weak during 212, with a recovery not expected until 213. Between 213 and 216, the Swedish economy is expected to grow by an average of 3 to 5 percent annually. The unemployment rate in the Skåne region was estimated at 9.9 percent at the end of H1, and although it is still higher than the Swedish average, this represents a decrease of.4 percentage points since the end of 211. Supply More speculative space entering the market The total vacancy rate in the Malmö/Lund area has increased by 1.5 percentage points from 5.9 percent to 7.4 percent since yearend 211. With the exception of Rest of Inner City, where the vacancy rate dropped by.1 percentage points to 7.9 percent, vacancy rates in all submarkets of Malmö/Lund increased during H In Lund Pålsjö the vacancy rate increased from 4.9 percent at year-end 211 to 8.3 percent at the end of H In the Malmö CBD, the vacancy rate finished at 5.5 percent, an increase of 1.3 percentage points since H The vacancy rate in Västra Hamnen also increased during H1 212 and finished at 1.2 percent, which is an increase of 2.7 percentage points and the highest rate in this submarket since Q1 26. During 212 a total of 62, sq m of new office space is scheduled for completion in Malmö/Lund. The only project completed during H1 was Wihlborgs Media Evolution City with 7,5 sq m of office space. The entire building had already been leased before completion, in other words no vacant space reached the market. Of the 62, sq m of new space expected to reach the market in 212, 39 percent is speculative. This indicates that there will be an increase in vacancy rates by year-end 212, especially in the submarket of Västra Hamnen, where 48 percent of the construction space due for completion this year is speculative. Västra Hamnen Universitetsholmen Gamla Staden CBD Rest of Inner City Limhamn Malmö Stadion Hyllie Hamnen Möllevången 25 km Demand High take-up levels The total office take-up for Malmö/Lund has been estimated at 44,6 sq m for H1 212, which is an increase of 28 percent compared to H One of the reasons for this increase has been the number of major leasing transactions in the Malmö/Lund area, where the three largest accounted for 37 percent of the total take-up. The largest transaction was ÅF s lease of 6, sq m in the Wihlborgs Fören project in Västra Hamnen. Wihlborgs were also involved in the second largest transaction during H1 when they agreed to lease 5,6 sq m in the Boplatsen 3 property in Eastern Malmö to Lantmännen. The bulk of the take-up during H1 212 has consisted of lease agreements signed for the Malmö CBD, where take-up has been estimated at 17,5 sq m. The sectors that have been most active during H1 have been wholesale and retail, followed by finance and insurance. Rents Prime rents have remained stable Prime rents have continued to remain stable and unchanged in all submarkets during H1 212 with the exception of Malmö CBD. Recorded rental levels in the CBD did not achieve current prime rent levels during H1, hence prime rent in the CBD decreased to SEK 2, per sq m, a drop of SEK 5 per sq m. Large volumes of new, modern office space have been constructed in the Malmö/ Lund area, but these new, modern properties are competing with older properties, which are often located in central districts, and this may be one reason for the prime rent decrease in the CBD. The property clock has been set on stable rents, which is in line with unchanged prime rents in most submarkets. Investment Market Transaction volumes increasing The total transaction volume for Malmö/Lund during H1 212 was E22 Rosengård Bulltofta Inre Ringvägen

9 8, 7, 6, 5, 4, 3, 2, 1,, On Point Nordic City Report Autumn SEK 4.2 billion, an increase of 9 percent compared to H2 211, which indicates that the transaction market is recovering well. The largest single transaction during H1 was AFA s acquisition of the Malmö Kongress hotel project from Skanska for SEK 9 million. Hotels are the property type that has accounted for the bulk of the transaction volume in H1, 37 percent of the total, followed by office and residential assets. This is the first time since 21 that resi - dential properties have not dominated transaction volumes in Malmö/ Lund, which reflects a similar trend in Stockholm and Gothenburg, where commercial properties have dominated the market in recent years. Only 3 of the 15 transactions that took place in Malmö Lund during H1 were cross-border, and only one of these involved an international purchaser. Prime yields in all submarkets in Malmö/Lund have remained stable and unchanged for the past 18 months. Prime Yield / Inflation Prime Yield Inflation % % (F) Prime Yield (LHS) Inflation (RHS) Source: Jones Lang LaSalle, Eurostat Market outlook Large construction volumes indicate optimism The Malmö/Lund area is expanding rapidly and major new con struction volumes are scheduled for completion in 212 and 213. As a result, the total office stock in Malmö/Lund is expected to increase by 3.1 percent during 212. Corresponding levels in Stockholm and Gothen burg are 1. percent and.7 percent respectively. In addition, 24,6 sq m of office space is scheduled for completion in 213 and more projects are scheduled to start in the next few years. Approximately 41 percent of this construction volume is speculative, which reflects the optimism and high expectations in the Malmö/Lund market. Nonetheless, economic growth has been slow and vacancy rates can be expected to rise as new office space is completed. Prime Rent / Vacancy Rate Prime Rent Vacancy Rate SEK/sq m/p.a. % 2,5 15 2,25 2, 1 1,75 1,5 1,25 5 1, (F) CBD Prime Rent (LHS) Total Vacancy Rate (RHS) Source: Jones Lang LaSalle Office Market Data CBD Rest of Västra Lund Research Park Lund Other Total for Q2 211 Inner City Hamnen Inner City in Lund Malmö/Lund* Office Stock Q2 212(sq m) 66, 34,7 174,5 54,4 247,3 24,2 1,997,3 Total Est. Completions 212 (sq m) 18,4-2,2-9, - 62, Total Est. Completions 213 (sq m) 9,6-15, - 8,3-24,6 Total Est. Completions 214 (sq m) Vacancy Rate (%) Short-term forecast ( ) Prime Rent (SEK/ /sq m/p.a.) 2, 1,35 2,1 1,7 1,9 1,6 - Short-term forecast ( ) - Prime Yield (%) *Also including submarkets not presented Source: Jones Lang LaSalle

10 1 On Point Nordic City Report Autumn 212 Oslo Office Market Rent levels in the CBD are currently experiencing growth as demand has been absorbing the large supply. The transaction market has also been active, though it is becoming more selective and challenging. Economy Moderate upturn going forward Strong domestic demand has continued to offset the low rate of growth internationally. The petroleum sector has been the key growth driver for growth and this is expected to continue in the short to medium term. GDP growth for 212 has been revised upwards from a modest 1.4 percent in 211 to 3.1 percent, according to Statistics Norway. The employment rate trended positively during 211 and this significant increase is expected to continue during 212, while at the same time the labour force is expanding as a result of a rise in the population and an increasing work ethic. Overall, unemployment is expected to remain stable at just above 3 percent. The key policy rate has been cut by 75 basis points over the last 6 months, and currently stands at 1.5 percent. Supply Strong supply and positive employment growth 3, sq m of new office space is scheduled for completion in 212, while figures for 213 have been revised upwards to 2, sq m. However, a significant number of old office buildings in challenging locations are being converted into residential units, so the net effect has been limited. The few speculative projects that were initiated without tenants in place are now starting to fill, which confirms a trend of robust demand for modern and efficient office space. The strong supply is not expected to impact vacancy and rent levels significantly due to the fact that strong employment growth is expected to absorb much of the secondary effects of tenant relocation. The overall vacancy rate currently stands at a moderate 7 percent and our current projections are for vacancies to remain at this level in the medium term. Demand Demand remains strong in top locations The healthy demand for office space from last year has continued into H So far in 212, total take-up has reached 278, sq m, distributed over 428 contracts. One current trend is for large corporations to co-locate their subdivisions into a single large office facility and we expect this to continue. The Fornebu area confirmed its standing as an attractive technology hub when Accenture signed a ten-year lease for office space totalling 5, sq m. In addition, the Norwegian Public Service Pension Fund has signed a twelve-year lease for 9,2 sq m at Skøyen. Demand has been strongest for central locations such as the CBD, Skøyen and Fornebu, while the Stabekk Outer City West Fornebu E18 Lysaker Holmenkollen Skøyen Bygdøy Nydalen Outer City East/ North/South Rest of Inner City CBD Tøyen E18 Økern Helsfyr Ryen Bryn 3 km E6 Oppsal Eastern fringe areas are experiencing a more challenging situation with vacancy levels in the 1 to 15 percent range. Rents Rent levels rising in the CBD, but at a slower rate High-standard CBD and Skøyen locations have recorded a rental growth of 1 percent in 211, while prime properties have shown growth greater than 15 percent. In contrast, the rent level trend in remaining fringe areas has remained rather flat. Vacancy levels in the CBD areas have fluctuated around 5 percent, while many fringe areas are recording vacancy levels as high as 1 percent. One would expect this trend to normalize as price-conscious tenants opt to relocate to more affordable locations. However, several new projects have reached the market and a significant amount of space will become vacant in the coming year, which will ensure a consistently healthy supply in the fringe areas. Going forward, we are forecasting an overall growth of 5 percent for the CBD areas in 212, while remaining areas are expected to remain unchanged. Investment Market Investment market in an uncertain state The transaction market began 212 in strong fashion with total volumes of NOK 15 billion in Q1. However, a resurgence of the concerns over sovereign debt in the euro zone and the solvency of European banks has intensified market caution in Q2. Overall, a total transaction volume of approximately NOK 24.5 billion has been recorded during the first half of 212. Banks are still willing to finance sound investments, but most are more restrictive with regards to secondary products. To a certain extent, interest rates, which are close to all-time lows, have continued to outweigh the mark-up on borrowing costs. Prime office yield is still estimated at 5.25 percent, but the number of properties that can achieve these prices is limited. The estimate for B-location properties is 5-1 basis points higher.

11 On Point Nordic City Report Autumn Market Outlook Vacancies are forecast to remain stable Despite the healthy construction volumes for 212 and 213, we believe that Oslo office vacancies will remain stable as demand for centrally-located office premises remains strong due to the faster growth in the Norwegian economy than in the rest of Europe. During the rent-level peak of 27 and 28, several governmental and municipal institutions relocated to fringe areas where rents are lower. If rents in the CBD continue rising, this may well occur again. Despite the high bank margins and the fact that banks are restricting their property loan activities, investment volumes reached NOK 24.5 billion in the first half of the year, and it is our view that total volumes will achieve NOK 5 billion (6.7 billion Euros) by year-end. Thus our forecasts are largely unchanged from the Spring report because the market remains strong without the negative euro zone trends impacting it unduly. Prime Yield / Inflation Prime Yield Inflation % % Prime Rent / Vacancy Rate Prime Rent Vacancy Rate NOK/sq m/p.a. % 6, 15 5,5 5, 4,5 1 4, 3,5 3, 5 2,5 2, (F) Prime Yield (LHS) Inflation (RHS) Source: Jones Lang LaSalle, Akershus Eiendom AS, Eurostat % % 212(F) CBD Prime Rent (LHS) Total Vacancy Rate (RHS) Source: Jones Lang LaSalle, Akershus Eiendom AS Office Market Data CBD Rest of Outer City Outer City Total Q2 212 Inner City West East/North/South Office Stock Q1 212 (sq m) 3,, 1,2, 1,6, 2,2, 8,, Total Est. Completions 212 (sq m) , Total Est. Completions 213 (sq m) , Total Est. Completions 214 (sq m) Vacancy Rate (%) Short-term forecast ( ) Prime Rent (NOK/ /sq m/p.a.) 4, 2,9 2,7 1,8 - Short-term forecast ( ) Rent Grade B properties 2,4 1,8 1,45 1,3 - (NOK/ /sq m/p.a.) Short-term forecast ( ) Prime Yield (%) Yield Grade B properties (%) Source: Jones Lang LaSalle, Akershus Eiendom AS

12 12 On Point Nordic City Report Autumn 212 Copenhagen Office Market The level of activity and volume of transactions in the Danish office letting and investment market has been healthy and stable in the prime segment. There is a current flight-to-quality trend that is placing secondary suburban office buildings under additional pressure, which has resulted in an increase in the vacancy rate. Economy Slow growth The Danish economy appears to have become mired in the same crisis-like state since the financial crisis began in 28. Growth in Denmark will remain very low in the coming years, despite the significant easing in economic policies this year and a less austere climate expected in 213 than was previously forecast. The prospect of a full recovery from the crisis appears to be further away than originally estimated. GDP growth was.8 percent in 211 and is expected to remain less than 1 percent for 212, despite the government s socalled kick-start stimulus package. The low GDP growth rate can be explained by the weak outlook for the euro zone economies, which is placing downward pressure on the export rate. Furthermore, private consumption is still very weak, despite the release of early retirement scheme contributions and extremely low interest rates. However, in contrast to many other countries in Europe, Denmark still holds an AAA rating. Supply Increasing vacancies Some degree of optimism still prevails for the outlook for office vacancy rates in Copenhagen due to the moderate level of new construction activity. However, growth in the economy and employment rate has been so weak that it has dampened the demand for new office space somewhat, and an actual decline in office vacancy rates is still unlikely. H1 212 has seen an increase in the vacancy rate, which currently stands at 9 percent, up from 7.7 percent in Q4 211, mainly as a result of the current economic situation. There is still a major differential between the prime and secondary segments. Occupier demand for prime property remains robust while the secondary segment is experiencing a decline. Low construction activity during the past 3 years has contributed to the reduced growth in supply, and we are expecting the vacancy rate to trend stably for the rest of 212. Construction activity continues to be slow, but there are several projects in the pipeline. Demand Increasing activity Despite the increasing vacancy rates, it has also been evident that letting activity has been picking up. Following the aftermath of the financial crisis, when businesses tended to wait in the wings due to Lyngby Greater Copenhagen Ballerup Skovlunde Gladsaxe Hellerup Tuborg North Harbour Bronshoj New CBD (Waterfront) Frederiksberg CBD Old Glostrup South Harbour Ørestad Kastrup the uncertain market conditions and when the public sector was just about the only source of office occupier demand, we are sensing a renewed resolve in the business sector. Nevertheless, very many businesses still appear to be relocating to smaller, often more spaceefficient, premises. The prime segment has consistently recorded the highest demand, whereas the secondary segment is still suffering. The 31, sq m occupied by Haldor Topsøe in Kongens Lyngby was one of the major leases in Copenhagen in H Rents Rent levels stable Office rent levels have remained relatively stable, albeit with an increasing price differential between up-to-date, space-efficient office premises and older, inefficient or inflexible office premises. In addition, rent levels in several older and secondary office locations have been coming under pressure, and it is quite likely that vacancies will become structural in some of these areas as they also suffer from relatively poor infrastructure. Prime rents in the CBD currently stand at DKK 1,35-1,65 per sq m p.a., exclusive of taxes and operating costs, with top rents of DKK 1,8 per sq m p.a. Office rents in more secondary CBD locations are currently in the DKK 1,1-1,3 per sq m p.a. range. Investment Market Healthy investor interest for prime properties Investor interest in prime office properties in H1 212 has remained stable. In particular, low interest rates and a limited choice of alternative investments has fuelled investment interest among institutions and property companies, and international investors have also been active. One of the impacts of the sovereign debt crisis has been the rise of real estate investments as an attractive option for well-capitalized investors, at least as regards prime properties. Investor demand has been quite robust for properties in good locations with strong tenants on long lease terms. The yield for prime office properties in the CBD has remained stable at 5 percent, with the secondary CBD segment

13 On Point Nordic City Report Autumn also stable at 5.75 percent. The yield for prime office property outside the CBD has declined by 25 basis points and currently stands at 5 percent, while the secondary segment outside CBD has risen by 25 basis points to 7.5 percent. Prime Yield / Inflation Prime Yield % Inflation Market Outlook Positive outlook for prime properties The outlook for the prime office market remains positive, while the investment market is also quite strong with a healthy demand, particularly from institutions. It cannot be ruled out that the substantial capital inflow into Denmark and the exceptionally low interest rates could serve to drive net initial yield requirements on prime investment properties down, motivated by a surge demand for index-adjusted cash flows. This is likely to apply especially to properties let to very strong tenants, including public sector tenants, on leases with very long non-cancellation periods. The outlook for the secondary office market remains uncertain. Vacancy rates will continue their upward trend, and rents are expected to decrease F) Prime Yield (LHS) Inflation (RHS) Source: Jones Lang LaSalle, Sadolin & Albæk A/S, Eurostat Prime Rent / Vacancy Rate Prime Rent Vacancy Rate DKK/sq m/p.a. % 2,5 12 2,25 1 2, 1,75 1,5 1, (F) CBD Prime Rent (LHS) Total Vacancy Rate (RHS) Source: Jones Lang LaSalle, Sadolin & Albæk A/S Office Market Data Old CBD New CBD Rest of Ørestad Greater Q2 212 (City) (Waterfront) Copenhagen Copenhagen* Office Stock (sq m) - 5,5, 19, 1,7, Total Est. Completions 212 (sq m) 25, - 5, - 115, Total Est. Completions 213 (sq m) - 8, 5, 15, 165, Total Est. Completions 214 (sq m) 35, 5, 2, 4, 175, Vacancy Rate (%) , 9. - Short-term forecast ( ) Prime Rent (DKK/ /sq m/p.a.) 1,35-1,65 1,8 1,-1,65 1,25 - Short-term forecast ( ) - Rent Grade B properties 1,5-1,2 1,35 6-1,1 9 - (DKK/ /sq m/p.a.) Short-term forecast ( ) - Prime Yield (%) Yield Grade B properties (%) *Also including submarkets not presented Source: Jones Lang LaSalle, Sadolin & Albæk A/S

14 14 On Point Nordic City Report Autumn 212 Helsinki Office Market Like the other euro zone countries, Finland is still struggling to cope with the persistent sovereign debt crisis. The vacancy rate in the Helsinki office market picked up slightly while rental levels remained stable. Along with the significant development pipeline, the outlook for the remainder of 212 is also challenging. The investment market is witnessing continuing interest in prime assets but secondary yields are facing continuing upward pressure. Espoo Vantaa Aviapolis Malmi Rest of Helsinki Leppävaara Pitäjänmäki Itäkeskus Tapiola Pasila Herttoniemi Keilaniemi CBD Ruoholahti Economy Expanded euro zone crisis is increasing uncertainty Regardless of the persistently unstable economic situation in the euro zone, the Finnish economy has exceeded most forecasts with a GDP growth of 1.7 percent (y-on-y) in Q1 212, and an estimate for the full year of approximately 1 percent, which outperforms the euro zone average. Since Finland s export-driven economy has been negatively impacted by the weakening global prospects in recent years, growth has mainly been reliant on domestic demand. However, the long period of growth in household purchasing power is expected to slow going forward. In June 212, the Finnish unemployment rate was 7.9 percent, which was.5 percent lower than in June 211. It is expected to decrease in mid-term as growth in the labour force drops off, but remain stable or increase slightly due to the sluggish economic outlook. Supply New developments still launched despite increasing vacancy rate The slight downward trend in the vacancy rate in H2 211 reversed in H However, although the vacancy rate in Helsinki CBD also increased slightly, the differential between the more attractive areas and those that are less popular has remained high, which clearly reflects the problems that grade B/C stock is experiencing outside prime locations. In addition, modern stock in areas such as Ruoholahti has also been hit due to the restructuring and relocation decisions of several major occupiers. At the same time, new office space is still under development, and despite weakening market prospects, new projects have also reached the market, in the Aviapolis area for example. Nevertheless, the amount of new space entering the market will decline from almost 15, sq m this year to approximately 1, sq m in 213 and 7, sq m in 214, while the vacancy rate is forecast to continue increasing in the short term. Demand Decision-making reflects a more cautious approach Occupier activity has remained fairly stable in H1 212, but the speed that decisions are made has become increasing slow, which reflects a more cautious approach on the occupier side. With only a small percentage of take-up classed as expansionary, the market has remained focused on replacement. Whilst prime space in the CBD remains most popular with occupiers, availability is limited. Large floor plates are virtually non-existent, which is driving tenants to the business park hubs outside the CBD. New developments in the bay area adjacent to the CBD (Töölönlahti) have also attracted strong tenant interest and all buildings are almost fully-let despite the fact that they are not scheduled for completion until between the end of 212 and 214. A continuing polarization of the market is also evident, with tenants trading up in terms of new space and vacating secondary, out-of-date product that is very unlikely to be let in the current market. Rents Rental growth has also stagnated in the Helsinki CBD Prime rents in the Helsinki CBD remained stable at 3 sq m p.a. in comparison with H At the same time, the potential for rental growth seems minimal in the short term due a combination of worsening economic prospects and an increasing supply due to several large CBD occupiers relocating to the Töölönlahti area. Rental levels have also remained fairly stable outside the CBD. In the Ruoholahti/Salmisaari area, prime rents are averaging approx - imately 228 sq m p.a. and in the more peripheral office districts rents they range from approximately 192 to 24 sq m p.a. However, downward rental pressure outside the CBD may result, particularly if leasing activity declines in the new developments due for completion in the next 12 months. In addition, the level of tenant incentives has remained relatively stable. In the Helsinki CBD, rent-free periods are almost non-existent and outside the CBD, available incentives are typically from two to three months for grade A premises, with more attractive terms only available for grade B/C premises. On the other hand, there are signs of an increase in tenant incentives, for example in new developments, particularly if tenants are willing to sign longer lease agreement than the market practice of 3 to 5 years. Investment Market Strong investment demand supporting prime yields The slow start to H1 212 picked up towards the end of the half and the number of office transactions in the Helsinki metropolitan area,

15 On Point Nordic City Report Autumn as well as the transaction volume of approximately 22 million, has remained at about the same level as H The bulk of these properties have been in secondary locations, and because of a limited investment demand for these assets, the buy-side has been dominated by equity-rich local institutions. International investors have been more selective, focusing on long-term cash flows in good quality buildings. As a consequence of the strong investment demand for prime properties, CBD prime yield has moved slightly in during H At the same time, prime yields in other areas have remained relatively stable or moved slightly out, particularly in more peripheral office hubs with significant development pipelines. Due to the limited investment demand and availability of financing, secondary yields have also experienced upward pressure. Market Outlook The polarisation of the market has continued Despite the sluggish outlook for the Finnish economy, Finland is expected to continue outperforming the euro zone average. Nevertheless, minimal growth prospects will impact the office occupier market, and in conjunction with the notable development pipeline, the vacancy rate is forecast to continue increasing, with rental levels outside the CBD coming under downward pressure. The CBD with its limited supply is still expected to remain the strongest submarket but the potential for rental growth is limited in the short term there as well. The polarization of the investment market also appears to be continuing. Demand for core assets is expected to remain strong as equity-rich investors continue searching for safe havens. At the same time, the availability of debt and financing terms will remain scarce, which will restrict activity particularly in secondary assets. Finally, the fact that the number of potential buyers for these properties is also limited and that they are aware of the buyer s market will place continuing downward pressure on the price of secondary assets. Prime Yield / Inflation Prime Yield Inflation % % (F) Prime Yield (LHS) Inflation (RHS) Source: Jones Lang LaSalle, Eurostat Prime Rent / Vacancy Rate Prime Rent Vacancy Rate /sq m/p.a. % (F) CBD Prime Rent (LHS) Total Vacancy Rate (RHS) Source: Jones Lang LaSalle Office Market Data CBD Rest of Espoo Vantaa Total Q2 212 Helsinki Office Stock (sq m) 1,6, 4,8, 1,715, 88, 8,455, Total Est. Completions 212 (sq m) - 8, 6, 5, 145, Total Est. Completions 213 (sq m) - 4, 3, 35, 15, Total Est. Completions 214 (sq m) - 4, 2, 1, 7, Vacancy Rate (%) Short-term forecast ( ) Prime Rent ( /sq m/p.a.) Short-term forecast ( ) - Rent Grade B properties ( /sq m/p.a.) Short-term forecast ( ) - Prime Yield (%) Yield Grade B properties (%) Source: Jones Lang LaSalle