UNION Market Report AUTUMN 2017

Transcription

1 M2 UNION Market Report AUTUMN 2017

2 We create value from property

3 4 M2 AUTUMN M2 Summary OFFICE YIELD LOGISTICS YIELD RETAIL YIELD The transaction market is booming, and we have registered more deals so far this year than at any previous time. This dynamism is supported by a wellfunctioning financial market and by many players who are eagerly taking gains with one hand while participating in bidding rounds with the other Jo W Gullhaugen, head of research Prime yield in Oslo has continued its descent during 2017, and is currently about 15 bps below its level at the beginning of the year. The secondary yield has fallen slightly more and is estimated to be 5.40 per cent. We expect prime yield to remain at its present level for the next two years, while the secondary yield is likely to fall a little further before flattening out at 5.25 per cent. Prime yield for logistics property has declined by a further 25 bps this year. Interest in strategically located property on long leases is strong, and has helped to drive yield down to record-low levels. However, the risk premium compared with prime office remains high in historical terms. Prime yield for high street retail property and shopping centres in Oslo has been stable at 3.75 and 4.25 per cent respectively since 1 January. Yield for good big-box stores in strategic locations is typically around 5.75 per cent. Pricing of such premises has been relatively stable over the past year. BERGEN Office vacancy: 10.5% Trends: Rents Vacancy TRANSACTION VOLUME STAVANGER Office vacancy: 10.9% Trends: Rents Vacancy TRONDHEIM Office vacancy: 8.8% Trends: Rents Vacancy OSLO Office vacancy: 7.5% Trends: Rents Vacancy Figures in NOK billion. Only transactions with a value over NOK 50 million are included. Source: UNION after DNB Næringsmegling for earlier years.

4 7 M2 Contents Summary 4 Contents 7 Leader 9 2/ Macro Macro 12 Labour market 14 3/ Transaction market 18 4/ Segments Office 22 Retail 24 Logistics 26 Hotel 28 Residential 30 5/ Areas Bergen 34 Trondheim 36 Stavanger 38 6/ Office rental market in Oslo Supply 42 Demand 44 Rents 46 Rental growth forecast 48 Office areas 50

5 Leader 9 M2 Jo W Gullhaugen Head of research UNION Gruppen Differentials widening in rental market The transaction market is booming, and we have registered more deals so far this year than at any previous time. This dynamism is supported by a well-functioning lending market and by many players who are eagerly taking gains with one hand while participating in bidding rounds with the other. Reasons why investors are now stretching ever further in the bidding rounds for centrally located office properties include expectations of good rent growth in the time to come. We are sticking with our forecast from last year s autumn report, which shows an overall growth of about 20 per cent for rents in Oslo during However, it is worth noting that the preconditions for rent growth vary between different office areas. In general terms, the office market in Oslo can be said to be well positioned. The Norwegian economy has begun recovering from a cyclical downturn, while office vacancy is moderate and the supply of new office space low in the short term. In addition, rents in Oslo can be described as moderate in relation to comparable cities. Some observers would also point out that more efficient buildings and changed working patterns mean tenants can manage with fewer square metres and can thereby pay more for each of them. All these considerations indicate that the potential for rent growth is substantial. For this potential to be realised, however, the sub-market must be sufficiently tight. A tenant s ability to pay more is of little significance if a number of landlords are queuing up to secure their signature. This is the position in a number of office areas east and west of the city centre, where vacancy lies well above 10 per cent and a long queue of potential new construction projects are hunting for anchor tenants. A more relevant question in such circumstances is how far the landlord can go. Where developers planning or in the process of constructing new buildings are concerned, the steadily declining yield has created the space to accept relatively low rents without threatening the profitability of the project overmuch. Combined with growing desperation among landlords who have held vacant premises for some time, that limits the potential for rent growth in these areas. A general shift in mood, with a sharp rise in city-centre rents, will naturally benefit these areas as well, so that the price trend becomes positive. But really strong rent growth will primarily be seen in the central areas. Vacancy there is very low, the supply side is restricted and interest is growing.

6 2/ Macro "Predictions of a faster expansion in jobs are supported by strong figures from various expectation surveys in recent weeks"

7 Macro 12 M2 AUTUMN 2017 Macro 13 M2 Macro Upswing gathers pace Key figures for the Norwegian economy Annual change, % E 2018E 2019E 2020E GDP (mainland) GDP CPI Private consumption Public consumption Oil investments (3.2) (12.2) (16.9) (0.3) Traditional exports (1.8) Employment Unemployment (level) LFS Source: Statistics Norway, September 2017 The Norwegian economy is showing clear signs of having bottomed out after the oil price slump slowed it down from GDP has grown significantly faster in 2017 to date than over the two previous years. It rose by 0.7 per cent for mainland Norway in both first and second quarters, while the increase for the full year is likely to be around two per cent.* This upswing is expected to continue as the negative contribution from oil investment gradually dissipates while growth in consumption and capital spending by companies accelerates. Low interest rates, increased demand from Norway s trading partners and a persistently weak krone are expected to support the upturn. Statistics Norway (SSB) forecasts GDP growth of 2.1 per cent in 2018 and 2.4 per cent in both 2019 and Looking ahead, however, the contribution from the two most important shock absorbers during the oil slump housing investment and expansionary fiscal policy will decline. The sharp growth in house construction has offset the contraction in the oil sector, and the share of housing investment in GDP is at its highest level since the 1988 banking crisis. Slower population growth and a cooler housing market are expected to produce a slowdown in housebuilding investment. At the same time, the latitude available to the government over fiscal policy will become significantly more restricted than in recent years. SSB has increased its forecast for employment growth in 2017 to one per cent, up by 0.4 percentage points since the first quarter, and expects growth over the coming three years to lie between 0.8 and one per cent. Predictions of a faster expansion in jobs are supported by strong figures from various expectation surveys in recent weeks. Companies included in Norges Bank s regional network report, for example, indicate that the rise in employment will outstrip forecast trend growth for the Norwegian economy, while the expectation survey from the same source shows that company plans to increase hiring in the next 12 months have firmed up considerably over the past two years. Thirty-six per cent of companies expect to expand their workforce over the coming 12 months, while 19 per cent predict a reduction. The net figure is thereby at its highest level since the second quarter of 2013 and slightly above the average since The improvement in the labour market has also had an impact on the number of redundancy and layoff notices received by the Labour and Welfare Administration (NAV). That figure has halved so far this year compared with the same period of The fall has been steepest in Rogaland county, down from last year to Office jobs have increased faster than overall employment in recent decades. We believe a structural change is taking place here. Looking ahead, we expect many typical office sectors to be characterised by digitalisation and therefore to have lower staffing requirements than before. *Source: Statistics Norway Annual change in registered unemployment 10,000 5, ,000-10,000-15, The figures show year-on-year change in registered unemployment as of August Source: Norwegian Labour and Welfare Administration (NAV), September 2017 Southern / western Norway Mid- / northern Norway Eastern Norway Oslo / Akershus

8 Macro 14 M2 AUTUMN 2017 Macro 15 M2 Financing Good access to finance and stable margin trend Bank margin and credit spread 5-year bank bonds Bank margin Credit spread 5-year bank bonds After long interest rates rose substantially last autumn, their level has stabilised and fallen a little again in recent months. The consensus is that long rates will climb gradually in the future, but that the rise is likely to be modest. DNB Markets expects the 10-year swap rate to be about 60 basis points (bps) higher than today in four years time. The monetary policy meeting at Norges Bank on 21 September kept the key policy rate unchanged at 0.5 per cent, but lifted the interest rate path a little. The latter indicates not only that the first increase in interest rates could come in the summer of 2019, but also that the probability of a rise as early as late 2018 has increased. UNION s bank survey for the third quarter shows that bank margins continue to be virtually flatlining. The average margin for a new fiveyear loan with 65 per cent loan-to-value (LTV) rose by one bps to 2.43 percentage points, which is thereby 78 bps above the low point in the second quarter of The lowest margin offered over the past three months for loans of at least three years is 150 bps. Since long interest rates have fallen over the past three months, the total financing rate for new five-year loans has declined by 15 bps to 3.83 per cent. Margin differentials between the banks have been high over the past two years. The highest and lowest bank margins for five-year loans in the standard case have been no less than 80 bps apart. This differential widened markedly after the Financial Supervisory Authority of Norway tightened capital requirements for the banks in the autumn of The spread between the highest and lowest margins in averaged 34 bps. Certain banks have sought to rein in their lending growth after the tighter requirements were introduced, and have thereby competed less actively on price. That has meant less intensive competition in the bank market, and is the principal reason why bank margins have not matched the fall in bank funding margins and bond premiums during recent quarters. The average reported funding margin for the banks has continued to decline, and currently stands at 52 bps. That puts it 50 bps below 1 January 2016, the lowest level we have registered since our bank survey began in At the same time, the bank margin is about 40 bps above the average since A continuing decline in both the borrowing margin for banks and the credit spread on property bonds is positive. Bonds are looking ever more attractive compared with bank financing, since the credit spread in the bond market is contracting while bank margins remain high. Activity in the bond market is high, and property bonds totalling some NOK 18bn have been issued this far in In other words, last year s record issue volume of NOK 24bn appears to be within reach. We see that access to financing is good for virtually all projects, but pricing in the property market means that the banks are demanding a substantially higher equity ratio than they did a few years ago. The average minimum equity requirement has risen from 24 per cent in 2010 to 38 today. Sources: UNION and DNB Markets Lending rate 5-year bank loan 6% 5% 4% 3% 2% 1% 0% Applies for new 5-year loans to finance centrally located office properties in Oslo, with full interest rate hedging, 65% LTV and a remaining lease duration of 7 years. Source: UNION Bank margin 5-year swap rate

9 3/ Transaction market "Syndicators are working to take profit in the wake of the yield decline with one hand, while searching for new opportunities with the other"

10 Transaction market 18 M2 AUTUMN 2017 Transaction market 19 M2 Transaction market Record-strong transaction activity Purchase and sales volumes in 2017 International investors Norwegian funds Club deals Others and confidential Insurance and pension funds Property users Private investors Purchases Real estate companies Sales Figures in NOK billion (September). Investors are arranged in descending order based on net purchase volume. Source: UNION The year 2017 looks like setting another record for Norwegian commercial property. Totalling 199 at 30 September, the number of transactions is the highest we have ever registered. The comparable figure at the same point in 2016 and 2015 was 139 and 126 respectively. A number of players are also utilising the good market to sell property which falls outside their core strategy or where the player has finished making their moves and has taken the property down to a yield range which does not match the required return and core expertise. Transaction volume at 30 September Amounting to NOK 60bn so far this year, the transaction volume is also very high. We registered NOK 39bn at the same point in The volume for the full year amounted to NOK 81bn after a very active fourth quarter. We expect the overall figure for 2017 to exceed last year s total and end up somewhere between NOK bn. That would be the second-highest turnover ever. The market can be characterised as exceptionally dynamic, with a well-functioning financing market and big interest among both buyers and sellers. We are seeing more objects for sale this year than in 2015 and 2016, which were characterised by few available objects in relation to the enormous demand. A lot of companies still want to increase their exposure to property and hardly anyone is selling down, but many are taking gains while hunting for new opportunities. That applies particularly to players and structures with defined lifetimes and success fees. The great interest being shown by syndicators in both sale and purchase transactions has boosted turnover for typical syndicate properties. We have recently seen many examples of properties sold more than twice within a few years, with a very good return for everyone involved despite the short hold time. International investors are behind about 23 per cent of the transaction volume this year. Although that percentage is higher than in 2016, it is worth noting that a large share of this reflects a few major transactions. The purchase of DNB s head office in Bjørvika by Sweden s Samhällsbyggnadsbolaget, Ivar Tollefsen s sale of his Norwegian residential portfolio to Heimstaden Bostad (where foreign shareholders have a stake) and DCC Energy s acquisition of 142 service stations from Esso account for twothirds of purchases by foreigners so far this year Figures in NOK billion Source: UNION Deal size 1,000 mill ,000 mill mill mill.

11 4/ Segments "As market expectations for rental price growth change and interest rates start increasing, yields are likely to increase"

12 Segments 22 M2 AUTUMN 2017 Segments 23 M2 Office Rent expectations contribute to record low yield Office transactions in Norway NOK billion Number of transactions (right axis) * The strong interest in property as an investment object and expectations of future rent growth have continued to depress office yield. Both prime and secondary properties have experienced further yield compression this far in We estimate that the secondary yield in Oslo has declined from 6.25 to 5.40 per cent over the past two years, while the contraction for the most expensive properties over the same period has been from 4.00 to 3.60 per cent. At the same time, the total financing rate for new five-year loans has risen by an average of 72 bps to 3.83 percentage points. In other words, the current return on equity (equity yield) has fallen substantially. It was admittedly high two years ago, after interest rates and bank margins had declined faster than yield, but the return is now at its lowest level since the summer of One reason why investors are accepting a lower equity yield is their conviction that strong growth in rents will lift returns in the future. We are seeing that the market increasingly shares our view that rents in central districts will rise sharply over the next few years as the market balance tightens and office vacancy falls. Increased demand combined with a very low net growth in the inventory of office buildings lays the basis for a decrease in office vacancy over the short term. An important question is then what will happen when prospects for rent growth normalise in line with rising new construction and a slower pace of conversions from 2019, and with long interest rates expected to rise somewhat from today s level. We expect the outlook for rent growth in a couple of years to be significantly less positive than at present. Changing market expectations and rising interest rates will begin to have an effect on yield. However, we believe it will take some time to reverse the powerful momentum which can be seen in the market unless something unexpected happens to trigger a reaction. Property remains an attractive asset class and, even though the yield gap in Norway is narrow compared with many other countries, we see that interest from international investors is still strong. We estimate prime yield in the office market to be 3.60 per cent, and expect it to remain at this level until 2020 before starting to move up again. The secondary yield in Oslo is put at 5.40 per cent after a decline of 35 bps this year. Access to financing has been better than expected, and has had less of an influence on the broader market than we expected in our previous report. We expect the secondary yield to fall further to 5.25 per cent before levelling off. In today s strong transaction market with a record-low prime yield, it is natural for the differential between prime and secondary properties to contract somewhat as investors move up the risk curve in order to secure an adequate return. In addition, willingness to accept risk generally increases as economic growth picks up. * The 2017 figures are to 30 September Source: UNION Prime and secondary yield development 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% E Source: UNION Secondary yield Prime yield Spread: Secondary vs prime 10-year swap

13 Segments 24 M2 AUTUMN 2017 Segments 25 M2 Retail Rigged for growth Retail sales index % 110 5% 100 0% 12-month growth rate (r.a.) Index (Jan 2007 = 100) Transaction market Despite the long-predicted structural changes in consumer shopping habits, retail property remains a popular segment. We have registered 35 transactions so far this year, with a total volume of about NOK 8bn. Several trends characterise activity in the market. We see, for example, that a number of the players who specialise in this segment want to concentrate their portfolios and are selling off non-strategic properties. Buyers of the latter have so far typically been local property companies with a greater appetite for risk. At the same time, a great many properties with long and secure cash flows have been sold to syndicates. More than half of all retail properties sold this year have had leases running for more than 10 years. Many retail properties are currently for sale. However, many of the assets for sale fall outside the scope of the largest retail focused real estate companies, and require too much management to appeal to syndicates. That probably helps to explain why we have not seen a yield compression in retail properties as we have in other property segments. Rental market After several years of stagnation in retailing, we have seen a marked positive shift so far this year. According to figures from SSB, private consumption grew 1.2 per cent during the second quarter, while many of the physical retail stores have seen a rise in turnover. This undoubtedly relates closely to a level of optimism among Norwegian consumers not seen since before 2007, according to figures from Opinion. Adjusted for working days, retail sales increased by 2.7 per cent in January-July. The corresponding rise for shopping centres was 2.4 per cent. Growth has only been 1.9 per cent if we also correct for space changes. If we look at developments over the past four months, growth has been about three per cent, so the trend is unquestionably in the right direction. Of the segments which performed well in the first half, electrical goods stood out perhaps somewhat surprisingly as growth winners among the physical stores, with an increase of 8.9 per cent compared with the same period of last year. Kvarud Analyse identifies the launch of the Power chain, with a consequent pressure on prices, as the main reason for the sharp growth in turnover. Otherwise, pharmacies are continuing to maintain the solid increase they have displayed in recent years. Retail segments related to home improvement have experienced above-average growth. In the shopping centres, restaurants and cafes are still increasing their share of turnover. Footware, handbags and clothing stores as well as goldsmiths and cosmetics stores stand out as the segments under the greatest pressure, with fairly substantial nominal falls in sales. Grocery stores have seen a nominal growth of 1.9 per cent so far this year. Online shopping continues to take market share from the physical stores and has had a rise of 13 per cent in turnover. 90-5% Seasonally adjusted retail sales excluding motor vehicles. Source: Statistics Norway, August 2017 Nominal revenue growth for various retail segments Annual growth rate, % E 2018E Sports equipment Home improvement Others Groceries / Convenience Clothes Shoes Furniture Electronics Total retail Source: Virke the Enterprise Federation of Norway, September 2017

14 Segments 26 M2 AUTUMN 2017 Segments 27 M2 Prime logistics yield 9% 8% 7% Logistics Consumer growth and e-commerce provide good operating parameters 6% 5% 4% 3% 2% 1% 0% Prime logistics yield Prime office yield 10-year swap Source: UNION Transaction market The transaction volume for warehousing, logistics and industrial property comes to NOK 7bn so far this year. That is NOK 0.3bn higher than we registered at the same point in Property companies and syndicators are unquestionably the most active players. These two investor segments have accounted for about 70 per cent of the purchase volume, with net acquisitions of almost NOK 2bn in warehousing and industrial property this far in Great interest is being shown in good logistics properties with long leases. The current return is attractive and predictable, and the narrowing credit spread in recent months has helped to make financing a little cheaper in a number of cases. Since many logistics deals represent a financial play, where substantial borrowing and low interest rates drive return on equity, the market is sensitive to developments in interest rates and credit spreads. Good investor interest has helped to drive yield even further down since last winter. We know of no less than seven warehousing and combined properties which have been sold with a yield in the per cent interval since our previous report was published. We estimate that prime yield has fallen to five per cent, which is down 25 bps from last winter and 50 from a year ago. Rental market Several factors look positive for the logistic rental market. Fundamental and structural trends should contribute to rising demand for space in the future, while disciplined developers help to keep speculative new construction to a minimum. Demand for space is primarily being driven by three factors. First, demand for groceries and consumer goods is rising steadily as a result of population growth. Second, demand for capital goods such as furniture, electronics and building materials is cyclical, and their consumption normally rises when the economy expands. The Norwegian economy is heading into a cyclical upturn, with SSB forecasting that annual growth in private consumption will increase from 1.5 per cent in 2016 to 2.4 per cent this year and close to three per cent towards At the same time, SSB expects imports of traditional commodities to rise by three-four per cent annually in Capital goods consume a lot of space, since they are typically large and have a lower inventory turnover. Space requirements will very probably rise with increased consumption of such products. The third driver is structural. Strong growth in online shopping affects the supply chain, with a positive impact on the logistics market. Online shopping is not only expanding much faster than traditional retailing, but typically utilises three times the logistics space of the latter. Nothing suggests that e-commerce will not continue to grow rapidly. Shopping habits are constantly shifting in this direction and, with a millennial generation which is now reaching prime consumer age, the high rate of e-commerce growth is very likely to be maintained for many years before the market matures. HØNEFOSS E16 Billingstad E18 Lier DRAMMEN E18 Source: UNION Rud X Gardermoen E6 Berger Gjelleråsen/ Skytta Hvam Groruddalen OSLO Lørenskog Kolbotn/ Mastemyr Langhus Vinterbro E18 E6 Vestby E16 Rents (NOK/sqm/year) Normal/high Prime rent** standard* 800-1,000 1, , , * Ceiling height below 6 metres ** Top standard with ceiling height above 6 metres

15 Segments 28 M2 AUTUMN 2017 Segments 29 M2 Hotel Income boost ahead of new hotel rooms Revenue per available room (NOK) Transaction market The year has been fairly quiet for hotel transactions so far. While 17 hotel properties were sold last year, the total registered for 2017 to date is five. The hotel market in Norway is highly specialised and consolidated among both owners and operators, which gives the various constellations a great deal of bargaining power. In other words, market dynamics can be rather different here than in the broader segments. A player who has been an active buyer in recent years is Sweden s Midstar, which has made its fifth investment in Norway with the acquisition of Hotel Entry Mastemyr south of Oslo. Although relatively few hotels have been sold, we have witnessed several cases of properties being turned into such establishments. Sparebank1 has decided to convert Sjølyst Plass 4 at Skøyen to a hotel after a long period of vacancy for the office premises. Acquiring the adjacent building to Britannia Hotel in Trondheim will allow EC Dahls Eiendom to expand capacity. As many as seven different office buildings in Bergen are being wholly or partly converted to hotels, according to Kyte Eiendom. Rental market On a national basis, the hotel market has seen a boost in revenue per available room (RevPAR) this far in The rise is about seven per cent from the corresponding period of last year. Overnight stays have been rather weaker than expected, with a flat trajectory so far this year. The most important reasons for the earnings boost are that room prices have risen by almost five per cent and occupancy is up from 54 to 55.2 per cent. According to SSB, the supply of hotel rooms has fallen for the first time since That primarily reflects a number of major refurbishment projects in the biggest cities, which have temporarily removed considerable capacity from the market. This space will be back on the market in 2018 and 2019, and thereby help to shift the competitive position in a negative direction. Much new space is also entering the market in Oslo and Bergen. In Oslo, Royal Christiania and Thon Hotel Europa have shut for refurbishment. That temporarily reduces room capacity in the capital by about six per cent. At the same time, overall turnover in Oslo has risen more than eight per cent and thereby boosted RevPAR by over 11 per cent. The position in Bergen is very different, with a massive expansion in supply so far this year. Room capacity in Hordaland county (including Bergen) is up by about seven per cent this far in 2017, partly through the opening of Hotel Zander K, Comfort Hotel Bergen Airport, Scandic Flesland Airport and Bergen Børs. With turnover up by just under five per cent and a reduction in occupancy, the result has been a three per cent decline in RevPAR. In Stavanger, the decline in turnover appears to have flattened out. After falling by more than 25 per cent in Rogaland county (including Stavanger) since the 2013 peak, turnover is down by just two per cent so far this year. Partly as a result of the refurbishment of Radisson Blu Atlantic, which has temporarily reduced the room capacity in the city, occupancy has risen for the first time since the oil price slump and thereby boosted RevPAR by roughly five per cent. RevPAR in Sør-Trøndelag county (including Trondheim) is up about 10 per cent, with a price rise of seven per cent and an increase in occupancy from 54.2 to 55.7 per cent. The growth in room occupancy undoubtedly reflects the fact that Britannia Hotel is being refurbished Change in revenue per available room in Norway 15% 10% 5% 0% -5% -10% -15% The numbers show the year-to-date development in RevPAR (January July) in each year Source: Statistics Norway, September The graph displays the annualised change in the year-to-date figures for each year (January July) Source: Statistics Norway, September 2017 Oslo Hordaland (Bergen) Sør-Trøndelag (Trondheim) Rogaland (Stavanger) Price Occupancy rate RevPAR

16 Segments 30 M2 AUTUMN 2017 Segments 31 M2 Residential Prices squeezed by tougher mortgage rules and oversupply House price index (2003 = 100) After an extremely strong performance in 2016, the housing market has cooled considerably. House prices in Oslo, which led the way last year with a growth of 23.3 per cent, have fallen by more than seven per cent from the peak reached in the first quarter of Falling interest rates have made a big contribution to the very strong price rise seen in recent years. Average interest rates for residential mortgages fell from 3.9 per cent in 2014 to 3.2 per cent in 2015 and 2.6 per cent last year*. In addition to making it easier to finance house purchases, this decline has helped to make direct returns in the housing market attractive compared with the rate of interest on deposits. However, the effect of the interest rate decline has now probably been absorbed. The government s temporary mortgage restrictions, which came into force on 1 January 2017 and which gradually took effect as housebuyers had to renew their proof of financing during the winter, have unquestionably helped to cool down the housing market. In particular, the requirement that borrowers cannot exceed five times their income in overall debt has helped to reduce the ability of many buyers to pay. Stricter requirements for equity when buying secondary homes have also reduced demand from small investors and parents buying flats for their children. For a long time, the consensus view was that too few homes were being built in Oslo to meet the rapid growth in its population. The indications are that this was true in light of the figures for new construction and population expansion a little while back. However, the balance between supply and demand has changed dramatically over the past couple of years. The rate of population growth in Oslo has roughly halved since 2014, while construction of new homes has risen to record levels. Sales of new homes rose drastically from mid-2014 to the end of 2016, both in the Oslo region and nationally. This has contributed to a steep rise in the rate of housing starts since Planning permission has been given for no less than new residential units in Oslo and Akershus county over the past 12 months, up by 34 per cent from the same point last year and no less than 135 per cent higher than at 31 December New housing starts are at an all-time high for these two counties as a whole. While new construction is reaching record levels, the rise in population has been slowing. The 12-month growth figure for Oslo was one per cent at 30 June, compared with 2.1 per cent at 31 December Fortunately, growth has proved more resilient in Akershus since a decline in net immigration has been largely offset by an increase in inward migration from the rest of Norway. The number of second-hand homes for sale in Oslo has risen very substantially in recent months. If this primarily reflects a change in mood, with people in the short term seeking to sell a residence before buying another, the second-hand home balance is likely to stabilise in the next phase (because those who have sold will need to buy). Matters will be worse if the accumulation of second-hand homes on the market is a consequence of the many new homes sold last year approaching completion, so that a number of those selling second-hand are not intending to buy. In that case, we can expect a further increase in second-hand homes for sale. On the positive side, consumers are optimistic and growth in the Norwegian economy is gathering pace. These factors help to reduce risk in the housing market. Since the effect of declining interest rates has been absorbed, house construction is record-high and population growth is lower, we expect the housing market in the Oslo region to continue making weak progress in the time to come. Overall, this contributes to our expectation that house prices have a little further to fall in Oslo before stabilising per cent below the peak of the first quarter of However, that assumes the Norwegian economy continues its positive trend, the pace of new housing starts slows and interest rates to do not rise significantly. *Source: Statistics Norway Supply and demand for housing in Oslo and Akershus 14,000 12,000 10,000 8,000 6,000 4,000 2, Source: Real Estate Norway, September 2017 Q Q Source: Statistics Norway, August 2017 Q Q Q New housing needs are estimated based on population growth. Q Q Q Q Q Oslo Stavanger Norway Building starts last 12 months Estimated new housing needs

17 5/ Areas "The business trends survey shows that optimism is picking up in Rogaland, Hordaland and Agder. Companies in south-west Norway predict more hiring, greater turnover and increased workloads"

18 Areas 34 M2 AUTUMN 2017 Areas 35 M2 Transactions Bergen Is Bergen finally getting the attention it deserves? * Number of transactions (right axis) NOK billion *The 2017 figures are to 30 September Source: UNION E39 Transaction market Bergen is set to see another active transaction year. We have so far registered 19 deals with a combined volume of about NOK 4bn. Liquidity in this market has increased sharply over the past three years, with volume more than doubling compared with the three preceding years. We know of properties with a combined value of NOK 1 bn in the market, which provides a solid foundation for an active fourth quarter. The Bergen market has long been dominated by local players, but the proportion of out-of-town buyers has risen steadily over the past three years. Locals have only been behind a third of acquisitions so far this year, while both national and international players are increasing their exposure in the city. That has helped to drive yield further down, and we put prime yield in Bergen at 4.6 per cent. Office rental market The business trends survey for September shows that optimism is picking up in Hordaland. Results from the past two quarters reveal that a clear majority of companies in the county expect an increase in hiring.* Growing optimism for the future is also reflected in the labour market figures. Registered unemployment for Hordaland in August was three per cent, down by 0.5 percentage points or about people from a year earlier. Office vacancy in Bergen is 10.5 per cent, up by about 0.5 percentage points over the past year.** Because both supply and demand are developing in the right direction, we expect vacancy to peak this year before starting to fall gradually in 2018 and After several years with much new construction, supply-side growth is declining sharply. The pace of new construction is slow and the market is getting good help from the conversion of a number of office buildings to hotels and homes. Office space is expected to show a net contraction in 2018 and 2019, viewed as a whole. At the same time, demand for office premises is likely to increase because the Norwegian economy is experiencing cyclical growth and companies in the Bergen area are taking a more optimistic view of the future. Despite expectations of a reduction in office vacancy, it will take time before the market balance tips in favour of the landlords. Viewed overall, we expect rents to flatline in Bergen during At the same time, we believe the relatively sharp division of the Bergen market will continue. Good premises in the city centre and south towards Minde are in demand and could see rents rise in line with inflation, while areas at Sandsli and Kokstad will remain challenging in *Source: Sparebank1 SR Bank **Source: Kyte Eiendom ASKØY LITLESOTRA LODDEFJORD 557 Kokstad FLESLAND ÅSANE E16 E39 INDRE ARNA City centre Marineholmen/ Solheimsviken E39 Fyllingsdalen NESTTUN Sandsli E39 Office rents (NOK/sqm/year) Normal/high standard Prime rent 1,400-2,200 2,800 1,400-1,900 2,350 1,100-1,600 1,950 1,100-1,400 1,600 Source: Kyte Eiendom/UNION

19 Areas 36 M2 AUTUMN 2017 Areas 37 M2 Transactions Trondheim Record high new construction Number of transactions (right axis) * NOK billion *The 2017 figures are to 30 September Source: UNION Lade Transaction market With 19 transactions registered to date in Trondheim, 2017 is only a few deals short of being the most active year ever. Property worth NOK 3bn has changed hands. Local investors continue to account for a slim majority of purchases in Trondheim, but an ever growing number of national players are looking towards the city. We have registered six newly established syndicates and three purchases by housing developers in the region, while the remaining 10 properties have ended in local hands. With a broader range of investors who have Trondheim on their radar, the city has seen yields fall fairly substantially over the past year. We estimate that prime properties can achieve yields slightly below five per cent. Office rental market The labour market in central Norway appears to be developing positively. According to Manpower s labour market survey, companies in this region are the most positive in terms of workforce expansion for the coming quarter. Registered unemployment in Sør-Trøndelag is only two per cent, down by almost 0.3 percentage points or about 400 people from a year ago. Office vacancy in Trondheim was 8.8 per cent at 1 January.* A record m 2 of new office space is due to be completed this year. That probably exceeds the market s absorption capacity in the short term, and we accordingly expect vacancy to increase to roughly 10 per cent by 31 December. The pace of new construction will normalise next year, so that m 2 will be completed. Since we also see some office space being converted to other purposes, the net increase will probably be about m 2. Expectations for rising employment mean absorption is likely to be sufficiently high for vacancy to stabilise. An office vacancy of roughly 10 per cent is normally too high to put pressure on rent levels, and we expect rents will primarily increase in line with inflation during Unlike Stavanger or Bergen, no sharp division can be seen in the Trondheim market. *Source: Norion Næringsmegling Heimdal ILA BYÅSEN E6 City centre TYHOLT Lerkendal MOHOLT Sluppen TILLER Tunga DRAGVOLL Ranheim E6 Office rents (NOK/sqm/year) Normal/high standard Source: Norion Prime rent 1,500-2,000 2,400 1,400-1,850 1,950 1,300-1,600 1,800 1,300-1,500 1,800

20 Areas 38 M2 AUTUMN 2017 Areas 39 M2 Transactions Stavanger Investors take positions in Stavanger Number of transactions (right axis) * NOK billion *The 2017 figures are to 30 September Source: UNION Transaction market Optimism has returned to the oil city, and the positive mood has infected a number of investors who are now taking active positions in the region. Nordea Liv, UNION and Camar are among players with more than one acquisition over the past 12 months. Asset Buyout Partners has made another investment in oil-related infrastructure property in the region through the purchase of Vetco Gray s main base in Dusavika. So far this year, we have registered 14 transactions with a combined volume of roughly NOK 4.7bn, which falls just short of NOK 1bn below the all-time high. Nobody appears at the moment to be exploiting the weak market at Forus to take a position in the office segment, but a number of properties have been sold in other segments typically with longer contracts. Two syndicates have been established this year, for example, to acquire properties used for car sales on 15-year leases. In central Stavanger, we have seen a further fall in prime yield and estimate that this is now 5.15 per cent. Office rental market The business trends survey for September shows that optimism is picking up in Rogaland. Results from the past two quarters reveal that a clear majority of companies in the county predict more hiring, greater turnover and increased workloads.* Rising optimism for the future is also reflected in the labour market figures. Registered unemployment in Rogaland for August was 3.8 per cent, down by 0.7 percentage points or about people from a year earlier. After declining by 0.3 percentage points since last autumn, office vacancy in Stavanger is 10.9 per cent.** However, we expect vacancy to jump next year because Statoil has decided to vacate two buildings at Forus covering a combined m 2 when the lease expires in the spring of It is difficult to see how this volume can be absorbed in the short term even though optimism is returning to the region. Statoil s decision means it will take a long time before the market at Forus returns to a normal level. At the same time, we believe this will have little or no effect on the downtown market. Experience in the wake of the oil crisis has been that these areas represent two markets which attract different tenants and compete with each other to only a limited extent. With SR Bank s new headquarters at Bjergsted as the only office building under construction, supply-side growth will remain low in the time to come. Increasing faith in the future and accelerating economic growth make it likely that absorption will increase cautiously in the future, so that the market can slowly begin to eat into vacant space. *Source: Sparebank1 SR Bank **Source: EiendomsMegler1 Næringseiendom E39 RANDABERG 509 TANANGER 509 SOLA E39 Forus E39 Hinna City centre Sandnes 13 Office rents (NOK/sqm/year) Normal/high standard Prime rent 1,700-2,300 2,600 1,400-1,700 1,900 1,200-1,600 1,900 1,100-1,300 1,500 Sources: EiendomsMegler1/UNION

21 6/ Office rental market in Oslo "The signs are accordingly that the rent differential between the most central areas and the rest of Oslo will continue to increase"

22 Office rental market in Oslo 42 M2 AUTUMN 2017 Office rental market in Oslo 43 M2 New construction and conversion of office space (1000 m 2 ) Supply City centre soon saturated Average gross supply Conversion Net new supply 0 Office vacancy in Oslo* is 7.5 per cent, down by 0.2 percentage points from last winter and 0.4 from the same time in This decline is as expected, but the pace has been rather slower than we had earlier assumed. The main reason for this leisurely downwards drift is that space absorption has been weaker than expected (see page 44). At the same time, we see that rent increases are stronger than expected, which could indicate that the market is tighter than vacancy alone might suggests. Two factors in particular are noteworthy. First, the city centre is starting to become cramped. Vacancy in the central area including the central business district (CBD) and the inner districts is now 5.5 per cent. It will soon have been below six per cent for a year, the longest continuous period since before the financial crisis. Second, many large premises and a significant share of the vacant space, can be related to buildings which are quite simply difficult to regard as competitive. This is primarily because their location does not appeal to the 2017 tenant. A growing number of players are taking the risk of starting new construction without tenants. Since 1 January 2016, Skanska, OBOS, NCC, Bane NOR, Watrium, Olav Thon, Schage, Fram and Oslo S Utvikling, for example, have initiated the construction of more than m 2 on a speculative basis. A number of developers undoubtedly regard the prospects for the rental market as good, and have observed that many big tenants have leases which expire in 2019 and However, our forecasts for new construction are virtually unchanged from those in our previous report. Some m 2 of new offices will come on the market in 2018, while we forecast m 2 and m 2 for 2019 and 2020 respectively. In other words, we expect the list of new construction projects to lengthen substantially over the next 18 months. Of the 28 new office buildings which are sure to be completed in , 11 are cases where the property being vacated by the tenant will either (a) be converted or (b) occupy a location so unattractive as to be scarcely competitive. Examples include TV 2, and Sophies Minde Ortopedi, which are moving from Karl Johans gate 14 and Trondheimsveien 235 respectively. The first of these properties will be converted to retail. While the future use of Trondheimsveien 235 remains uncertain, it is unlikely to enter the competition for office space. This illustrates how the growth in supply is lower than the level of new construction would suggest. The strong housing market is clearly an important reason why a number of properties have become profitable objects for conversion. Since this market has weakened, the conversion volume might therefore be expected to decline. We nevertheless believe that the cooling-off in housing demand has little significance for the market balance in the short term. In most cases, it is very unlikely that developers who have acquired sites with a view to providing residential accommodation will switch to offices. These properties are almost entirely outdated for office purposes in any event and, even with a correction in the housing market, prices per square metre will remain high. However, we expect conversions to decline substantially as 2020 approaches because less low-hanging fruit will be available. With a moderate pace of new construction and much conversion in the short term, the supply side is unlikely to see a proper boost before We therefore believe vacancy will fall further and bottom out at 6.5 per cent in *Including Asker and Bærum E 2020E Net new supply = gross construction conversion Source: UNION New office projects under construction Adress City district m 2 to construction Vacancy prior Source: UNION Expected completion Developer Tenants Cort Adelers gate 33 Inner City West 6, Winta & Canica Steenstrup Stordrange Vahls gate 4 Inner City East 27,500 16, Entra & Skanska Skanska/Manpower/IBM Nydalsveien 18 Nydalen 13,000 6, Avantor Elkjøp Ulvenveien 90 Økern 8,000 5, OBOS Forretningsbygg A-bygg, kiwi Nils Hansens vei 25 Bryn/Helsfyr 14,000 4, Pecunia Kripos Dronning Eufemias gate 6B Bjørvika 4,000 4, Watrium Eiendom Entercard Torggata 15 City Centre 5,000 5, Industri Energi/Entra None Nydalsveien 24 Nydalen 7,000 6, Avantor Kemneren Diagonale Bjørvika 15,000 9, HAV & Olav Thon TV 2/Vinmonopolet Hagaløkkveien 26 Asker/Bærum 14,000 7, Ferd Indra Navia Bøkkerveien 5 Økern 12,000 6, Höegh & AF Gruppen Securitas Philip Pedersensvei 11 Lysaker 6,300 1, NCC Nemko Drammensveien 149 Skøyen 19, Orkla Orkla Vitaminveien 4 Nydalen 20,000 20, Skanska Helsedirektoratet Schweigaards gate 33 Bjørvika 22,300 22, Bane Nor Eiendom None Grenseveien 80 Bryn/Helsfyr 6, BundeEiendom Omsorgsbygg Strømsveien 110 Bryn/Helsfyr 5,000 5, NCC None Eufemia Bjørvika 21,000 12, OSU PwC & Microsoft Østensjøveien 16 Bryn/Helsfyr 11,000 6, Ferd Eiendom Sophies Minde Ortoped Drammensveien Skøyen 21,000 21, Schage Eiendom None Freserveien 1 Inner City East 10,000 10, OBOS None Fyrstikkalléen 1 Bryn/Helsfyr 35,000 10, Ugland, Otterlei & Vedal AVdir & Lånekassen Harbitzalléen 7 Skøyen 30,000 19, Møller Eiendom Hafslund Gross construction

23 Office rental market in Oslo 44 M2 AUTUMN 2017 Office rental market in Oslo 45 M2 Demand Slower progress than expected for demand Net new construction, absorption and vacancy 350 9% 300 8% 250 7% 200 6% 150 5% 100 4% E 2018E 2019E 2020E 3% 2% 1% 0% Net new construction (1000 m 2 ) Net absorption (1000 m 2 ) Office vacancy (r.a.) After a weak period with overall space absorption of only m 2 in , our expectation has been faster growth in demand from the present year. Economic recovery, rising employment and growing business optimism should have led to a substantial increase in net take up. Nevertheless, 2017 is set to be another weak year, with an absorption of roughly m 2. We believe several factors explain this weak growth. First, we see that many big tenants are reducing the space they occupy when they move. Increased awareness that many offices remain empty for much of the day, combined with activity-based solutions, are probably contributing to a reduced need for room. At the same time, some of the big locomotives in the Norwegian business community appear to be downsizing. Norges Bank s expectations survey for the third quarter indicates that companies with fewer than 50 employees are far more optimistic about workforce growth over the coming 12 months than companies with more than 50. Second, it is not unlikely that many companies have good elbow room, giving them considerable capacity to grow into. This could, for example, be a result of many companies leasing too much space before the oil crisis, which they can now utilise. Third, many outdated office buildings are being converted to housing and other purposes. These are being replaced to a great extent by new facilities which are more space-efficient. This process has naturally been under way for a great many years, but its effect is reinforced in a period with a high reconstruction volume. A fourth possible explanation could be that the share of office jobs in total employment is declining. No indications of this appear for the moment in the labour market statistics. On the contrary, the latest available figures from SSB show that typical office sectors were growing faster than overall jobs in Oslo during Looking at projections of demand for labour in different occupational categories, however, it is unlikely that office jobs will grow faster than general employment in the future. The growth in net absorption is expected to be weaker than during pervious upturns due to tenants giving ever more preference to space efficient solutions and moderate growth in the traditional office industries. The overall net space absorption in is estimated to around m 2. While absorption is making slow progress, the gross take up is high. This is almost entirely because the number of square metres in expiring leases shows a rising trend. Leases with an overall volume of m 2 were signed in the second quarter.* By comparison, the average level in this period has historically been about m 2. The volume on a 12-monthly basis is m 2, which is eight per cent above the historical average. *Arealstatistikk Source: UNION Gross take-up (1000 m 2 ) Q Q Q Q Q Q Q Q Q Source: Arealstatistikk Volume per quarter 12-month rolling (r.a.)

24 Office rental market in Oslo 46 M2 AUTUMN 2017 Office rental market in Oslo 47 M2 Rents Growing differentials in the rental market Office rents and vacancy 12% 10% 2,400 2,000 8% 1,600 6% 1,200 4% 800 2% 0% E 2020E 400 Office vacancy Nominal rent (r.a.) Source: UNION The office market in Oslo is well positioned for the future, with the Norwegian economy recovering from a cyclical downturn while office vacancy is moderate and supply-side growth low. This favourable trend is reflected in a strong performance by the letting market. If Oslo rents maintain their pace of growth to the end of the year, as we expect, average rent will rise by about eight per cent during With office vacancy declining, we expect rents to continue rising by the same order of magnitude through next year before growth gradually normalises in 2019 and 2020 as new construction increases. added to the market approaching The potential for new construction is also substantial in several of the districts on the outskirts of Oslo, particularly to the east. Some observers would also point out that more efficient buildings and changed working patterns mean tenants can manage with fewer square metres and can accordingly pay more for each of them. The fact that rents in central Oslo are also moderate relative to comparable cities supports the view that the potential for rising rents is substantial. Real rents for centrally located high-standard offices in Oslo 3, % 3,000 2, % +40% 2,000 However, it is worth noting that substantial differentials exist in the development of rents in different areas. Rent growth in the city centre will probably reach per cent this year. By comparison, increases for several office clusters outside the city centre are in line with the consumer price index (CPI), or close to five per cent for the best buildings. We expect this division by and large to persist in Vacancy in the areas east and west of the city centre is still relatively high. At Skøyen and Bryn/Helsfyr approximately m 2 will be For this potential to be realised, however, the sub-market must be sufficiently tight. A tenant s ability to pay more is of little significance if a number of landlords are queuing up to secure their signature. This is the position in a number of office areas east and west of the city centre, where vacancy lies well above 10 per cent and a long queue of potential new construction projects are hunting for anchor tenants. So it is very likely that the rent differential between the most central areas and the rest of Oslo will continue to widen. 1,500-29% -48% 1, E Sourcees: Dagens Næringsliv/UNION Average Real rents adjusted to 2016 levels

25 Office rental market in Oslo 48 M2 AUTUMN 2017 Office rental market in Oslo 49 M2 Rental growth forecast Nominal change in market rents in 2018 Outer west Nydalen Inner City North Outer North/East Skøyen Økern, Hasle, Løren & Ulven Asker/Bærum Lysaker Inner City West City Centre Bryn/Helsfyr Inner City East CBD Fornebu Bjørvika Outer South 0 to 4% 4 to 7% 7 to 10% 10 to 15%

26 Office rental market in Oslo 50 M2 AUTUMN 2017 Office rental market in Oslo 51 M2 Office areas Office vacancy in the CBD is 8.2 per cent. Roughly half of this lies in the boundary area with the rest of the city centre, between Tordenskiolds gate and Nedre Vollgate. In other words, the choice of prestige premises is relatively limited. And since the boundary between the centre and the CBD is rather fluid in practice, vacancy is low for all practical purposes because the overall proportion in these two areas is 5.5 per cent. demolished the corner site adjacent to Folketeatret. A new building is being erected there with retail space on the ground floor and 4 600m 2 of offices, which are fully let. Close to Oslo s central station and an attractive cultural life, this is an area which will probably draw the attention of a number of office users. A little further down the road, work on Regjeringskvartalet will naturally play a large part in determining further development of this area. Some 4 500m 2 remains vacant at Kronprinsesse Märthas Plass 1 after Wikborg Rein moved to Dronning Mauds gate 11. Since our previous market report, it has become clear that Aspelin Ramm will take an equity stake in Ruseløkkveien 26. The building is to be demolished, with Storebrand and Aspelin Ramm jointly developing some m 2 of offices and m 2 of retail space. Oslo City Centre is approaching saturation, with a vacancy of only 4.4 per cent after a fall of 1.2 percentage points since last winter. Ignoring Rådhusgata 5 and Kongens gate 21, which will not be ready for occupation until late 2018 and 2019 respectively, only six premises offer more than 3 000m 2. A positive trend can be seen in Kvadraturen and around Youngstorget. In addition to benefitting from the development of Bjørvika and the upgrading of Prinsens gate and Tollbugata, Kvadraturen has many buildings which are being completely refurbished. Examples include Kongens gate 21, Rådhusgata 2, and Tollbugata 8 and 7. The last of these is moreover being converted into a hotel and integrated with the neighbouring property operated by Citybox. The Norwegian Union of Industry and Energy Workers is constructing a new office block of 5 000m 2 at Torggata 15 on Youngstorget in association with existing buildings, while Thon has A growing number of tenants want a central location, which is contributing to pressure on rents. Low vacancy, little potential for new construction, and a high level of demand create a good basis for further rent growth. Ever more space-efficient solutions also help to reduce rent per employee, so that the ability to pay will probably increase over time. This makes a positive contribution in those areas where shortage of space is most acute. We therefore expect rents in the city centre and CBD to rise by per cent in Vacancy in Bjørvika is 5.6 per cent. A substantial risk exists for rising vacancy from next year because Bane Nor Eiendom has started construction of a m 2 office block at Schweigaards gate 33 on a speculative basis. We also know that Dronning Eufemias gate 8 will become vacant when PwC moves out in Nevertheless, we believe the area to be so attractive that there is little danger of such vacancy taking a firm hold. The row of office blocks along Dronning Eufemias gate will be completed when the new Diagonale and Eufemia buildings are completed in 2018 and 2019 respectively. Some office development admittedly remains on Fiskebrygga alongside Havnelageret and in Grønlia, but new construction capacity has unquestionably been reduced. Bjørvika is changing from a building site to a functioning urban district. In other words, a good basis exists for rent growth in line with the rest of the city centre. Rent level per area Rent level (NOK/m 2 /year) Prime High standard Moderate standard Vacancy vacancy 6 months Vika, Aker Brygge & Tjuvholmen 4,800 4,000-3,500 2, % Bjørvika 3,400 2,900-2,500 2, % City Centre 3,400 3,000-2,500 1, % Inner City West 3,100 2,600-2,000 1, % Inner City North 2,200 1,900-1,700 1, % Inner City East 2,700 2,000-1,700 1, % Skøyen 3,300 2,700-2,300 1, % Lysaker 2,250 1,800-1,600 1, % Fornebu 1,900 1,600-1,300 1, % Nydalen 2,400 2,200-1,800 1, % Bryn / Helsfyr 2,250 1,900-1,600 1, % Økern, Hasle, Løren, Ulven 2,250 1,700-1,500 1, % Outer West 1,800 1,600-1,400 1, % Outer North/East 1,700 1,600-1,350 1, % Outer South 1,700 1,550-1,300 1, % Asker & Bærum 1,900 1,600-1,400 1, % Source: UNION

27 Office rental market in Oslo 52 M2 AUTUMN 2017 Office rental market in Oslo 53 M2 Office vacancy in Inner City East has declined dramatically as Entra fills up Sundtkvartalet. At 30 September, no large spaces were available and office vacancy was a mere 1.8 per cent. OBOS Forretningsbygg has initiated the construction of a new office building in Kværnerbyen. This speculative project covers about m 2 in all, but the first phase will probably involve only m 2 with completion towards the end of In Inner City West, vacancy is only 3.3 per cent. Tenants needing a lot of space have very little to choose between in this area, which includes the Majorstuen and Solli plass office clusters. Inner City North stands out among the central districts with a strong increase in vacancy. This has risen by no less than 7.2 percentage points over the past year and is now 10.7 per cent. Reasons include much more space becoming available in Holberg Terrasse. Close to 8 000m 2 in the Pilestredet Park 7 office and health services property is due to be vacated by 31 December. Both these properties probably have the strongest appeal to public-sector tenants in such sectors as health and education. Relatively few large leases have been signed in the central areas this year. Progress here naturally occurs to some extent in short bursts because the number of large tenants is after all limited. But it might well be that this partly reflects a lack of large modern premises, and that public-sector players looking for a lot of space and a good standard are being forced to choose other locations because the city centre has become too expensive. Office vacancy at Skøyen has declined to 6.9 per cent. Rents have made weaker progress here than in the central districts during recent quarters, but we see that activity in the area is rising and that the trend is positive. However, the potential for a sharp rise in rents is limited to some extent by the fact that a number of new construction projects are scheduled for coming years. Møller Eiendom s project for m 2 of office space in Harbitzalléen is starting up after Hafslund leased m 2 before the summer. In addition, Schage Eiendom has decided to start construction of a new office block of more than m 2 at Drammensveien 147. After a search process, Visma decided to renegotiate its lease with Fram at Karenslyst Allé 56 and has signed up for a further 10 years. Verisure signed a 15-year lease with Realkapital Investor for 5 000m 2 in the Stenshagen building at Drammensveien 211 between Skøyen and Vækerø earlier this year. Just over 3 000m 2 of office space is vacant at Sjølyst plass 4, but Sparebank 1 has secured outline planning permission to convert this building to hotel accommodation and combine it with the adjacent Scandic hotel at Sjølyst plass 5. At Lysaker, office vacancy has become entrenched around 15 per cent. The oil price slump is still affecting the market and has contributed to the presence of a relatively large number of unoccupied premises larger than 5 000m 2. These vacancies include just under m 2 in the Storebrand building at Professor Kohts vei and a total of about m 2 in the buildings around Hydro s offices at Vækerø. The buildings at Vækerø are right on the edge of the office area in Lysaker, and compete to only a limited extent with the most centrally located premises in this district. In addition, 7 500m 2 at Philip Pedersens vei 20 has come back on the market after serving as a reception centre for asylum-seekers. At Lysaker Torg 25, Storebrand has leased some 3 500m 2 to Idemitsu, who is moving from the same landlord s building at Filipstad Brygge this year. Just over the road at Lysaker Torg 45, 8 700m 2 is now being marketed after Microsoft decided to move to Bjørvika when its lease expires in We see that activity at Lysaker is rising, but the substantial vacancy there and in the immediate vicinity will help to moderate rent growth in the short term. The market at Fornebu is still affected by the after-effects of the oil price slump and the increased supply arising from the development of Fornebuporten. Vacancy has crawled down a little over the past half-year, but is still around 14 per cent. Large amounts of space are on offer, including in the Telenor building at Snarøyveien 30 and at Technopolis in IT Fornebu. In addition, more than 6 000m 2 is vacant in both Fornebuporten and Telenor Arena. The market at Fornebu remains difficult, and we expect that it will take a little time before above-inflation rent growth can be seen in this area. Outer West covers a relatively large geographical area and includes such districts as Smestad and Ullern. Vacancy here has been low in recent years, and remains stable at about three per cent. The only premises we have registered with more than 2 000m 2 vacant is Sørkedalsveien by Gardeleiren, where about 5 000m 2 is currently being marketed. The new building constructed by Selvaag in Silurveien at Ullern in 2015 is now fully let. Office vacancy in Asker and Bærum*has risen a couple of percentage points over the past three years after a number of large premises have become vacant. Tenants requiring more than 5 000m 2 can choose between 10 locations, while a further 12 buildings have more than 1 000m 2 available. A number of these buildings have been unoccupied for several years so that, even if eight per cent office vacancy does not appear particularly alarming, this represents a challenging letting market. Nydalen has experienced good rent growth in recent years, and the district has established itself at a higher rent level than either Økern or Helsfyr. The key is that players there have developed an urban centre in the office cluster with attractive outdoor areas and a broader range of services than in the other clusters, which come across as more fragmented. Vacancy in Nydalen has fallen to about four per cent, and few large premises are available. Torgbygget still has two vacant floors totalling 3 000m 2, while 2 500m 2 is unoccupied at Gjerdrums vei 10. Skanska s new building in Vitaminveien is still more than a year away from completion. About m 2 remains to be let. Otherwise, only four buildings have spare office space exceeding 1 000m 2. New construction activity in both Helsfyr and Bryn is starting to take off. At Helsfyr, NCC has decided to begin speculative construction of a new office block, while J B Ugland, Vedal Entreprenør and Otterlei have signed up both the Labour and Welfare Administration and the Norwegian State Educational Loan Fund for the new building at Fyrstikkalléen 1. At Bryn, the first construction stage of the new head office for the National Criminal Investigation Service will soon be completed, while Ferd has secured Sophies Minde Ortopedi as anchor tenant for Østensjøveien 16. Despite the area s popularity, we do not expect any sharp boost in rents since the large number of vacant premises and many more potential new buildings will help to reduce pressure on them. Vacancy in the area has risen a few percentage points in recent years and is now around 10 per cent. Økern** is perhaps the most exciting area for office development in Oslo at the moment, even though a final clarification of the planning position remains to be achieved. In particular, the joint Storebrand and Steen & Strøm project needs to fall into place, since this property straddles the metro station and will play a key role in developing the area. Directly south of the station, KLP, Bane NOR and Hesselberg Eiendom are working to secure planning permission for a large site, while OBOS is pressing to develop its 30-hectare property at Ulven a little further to the east. On the northern side, the City of Oslo owns a big site which is slated for development. Meanwhile, a number of property owners to the north-east along Østre Aker vei are keen to participate in developing the area. It will undoubtedly take time for the new area to establish itself and for the market to absorb all the potential square metres. Despite a high level of vacancy and the substantial potential for new construction, however, Höegh Eiendom has demonstrated with HasleLinje that attractive tenants can be secured on competitive terms. Few signs suggest that Outer North/East is likely to experience any particular boost in rents over and above the CPI. This area surrounds the more established office clusters in eastern Oslo and extends up Groruddalen. Small and medium-sized users can find many buildings offering as-is at moderate rates, while big players have many potential new blocks in the market seeking anchor tenants. Office vacancy has been stable at a higher level than the Oslo average for as far back as we have statistics covering the various districts, and is currently around nine per cent. The office market in Outer South is very fragmented and has a varied building inventory in terms of technical standard. Few large premises are being actively advertised today, and a good deal of concealed vacancy is likely to exist in a number of the old singletenant buildings which have had to concentrate on small companies with a local affiliation. In Mastemyr, IBM is moving out of its premises at Rosenholm Campus, which already has a good deal of vacancy, while Orkla will be leaving a large office building when it co-locates to Skøyen. In Skullerud Business Park, Indra Navia is vacating considerable space on moving to a new building in Asker. OBOS was in the market until recently with a potential new building at Ryen, but the project seems to have been shelved. *Asker and Bærum, excluding Lysaker and Fornebu **Including Økern, Hasle, Løren and Ulven

28 Refences Lease Refences Sales Lease Eskalator Østensjøveien 44, Bryn On behalf of Pecunia Area: about m2 Lease Transperia Rådhusgata 5, Kvadraturen On behalf of Fram Area: about 8 000m2 Sale Tollbugata 7 UNION handled the sale on behalf of Wahl Eiendom Area: 4 350m2 Sale Kongens gate 8 / Kirkegata 9 UNION handled the sale on behalf of Telenor Eiendom Holding Area: m2