Nordic Real Estate Review Q1 2012 www.colliers.com
Nordic overview Economic growth Per cent 5 3 1-1 -3-5 -7-9 35 30 25 20 15 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1,000 EURO Denmark Sweden Norway Finland Figur 1: Source Eurostat. 2011 and 2012 numbers are forecasts. Export pr. capita 10 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Denmark Sweden Norway Finland Figur 2: Source Eurostat. 2011 numbers are forecasts. Unemployment Per cent 12 10 8 6 4 2 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Denmark Sweden Norway Finland Figur 3: Source Eurostat. 2011 numbers are forecasts. Economy Denmark, Finland, Norway and Sweden are generally perceived as safe economies. All four countries have AAA ratings from the leading major credit rating agencies: Standard & Poor s, Fitch and Moody s. But of course the economies are and have been affected by the global economic downturn and the recent uncertainty due to the European debt crisis. In 2009 all four countries experienced negative economic growth most significantly in Finland, while in 2010 growth in all four countries returned to a positive level. Growth s for 2011 in Sweden and Finland are forecasted to be quite high between 3 and 4 percent, while the forecast for Norway is 2.4 percent and Denmark 1.2 percent. In 2012 the growth s for Finland, Sweden and Denmark is expected to be 1.4 percent and somewhat higher 2.7 percent in Norway. During the summer of 2011 the uncertainty in the world economy increased again. Share prices decreased and are yet to recover wholly, while worries about a new international economic downturn strengthened. It implies that the forecasts for growth are quite dependent on the handling of the European debt crisis. In all four countries exports fell during the crisis in 2008-9. Since then, however, exports have increased once more. Exports in Finland and Norway are yet to reach precrisis levels. Forecasted exports in Denmark in 2011 are close to 2008 levels and in Sweden the forecasted exports in 2011 exceed that of 2008. The labour market is also influenced by the economic situation. In Denmark especially unemployment has increased since 2008, however, it did increase from a very low level. The unemployment level in 2010 in Denmark was app. 7.5 percent. The lowest unemployment was in Norway (3.5) percent. In both Sweden and Finland the unemployment level was 8.4 percent in 2010. Finland is the only country yet to publish the unemployment level of 2011, which decreased to 7.8 percent. According to Eurostat the Scandinavian countries are among the EU-countries with the smallest budget deficit (ratio to GDP). The deficit number for Denmark in 2010 was 2.6 percent and for Finland 2.5 percent. Sweden had a small surplus of 0.2 percent, while Norway was in a league of their own with a surplus of 10.6 percent. The average deficit in the European Union was 6.6 percent. Looking at the ratio of government debt to GDP the Nordic countries are also in the better end. The average debt ratio in the European Union in 2010 was 80.1 percent of GDP while the numbers for Finland, Denmark and Sweden was 48.3, 43.7 and 39.7 respectively. In Norway the similar number is 44.0, but here the oil reserves give a different and more comfortable situation. While the Danish Krone is pegged to the Euro both the Swedish and the Norwegian Krone are floating and both were weak during the crisis in 2009. Both currencies are back on precrisis levels. Finland has used the Euro since 2002. In all four countries the interest has decreased since the peak in 2007, and as long as the economic situation is unsure it is expected that the interest will remain low. The property market Despite lots of similarities between the Nordic countries there are differences at the property markets. But the global economic uncertainty which increased during 2011 has made the property markets in the Nordic countries more alike. For example in all the Nordic countries a lot of transactions from the fourth quarter of 2011 were postponed to the first quarter of 2012. The property market in Sweden is dominated by a number of professional real estate companies who is either listed or family owned. Furthermore the public sector is very active at the property market. The number of transactions is much higher than in the other Nordic countries. p. 2 Colliers International
Exchange s against Euro for Danish Krone, Swedish Krone and Norwegian Krone Exchange (against EURO) 11 10 9 8 7 6 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Danish kr. Swedish kr. Norwegian kr. Figur 4: Source Eurostat. 2012 numbers accu as of January 24th. Interest s 10 year government bonds 7 6 5 4 3 2 1 In Norway the property market is dominated by high domestic demand partly from wealthy individuals. Also in Finland wealthy individuals and smaller property companies dominates the property market. The property market in Denmark is similar, given that there are a number of wealthy individuals as investors on the real estate market. However the Norwegian and the Finnish real estate market seams to be healthier than the Danish market with fewer bankruptcies among real estate companies and banks. This is due to the fact that they traditionally have oped with larger down payments and smaller mortgaging. The number of crossborder transactions has been increasing during 2011. As Sweden has the most transparent, the largest and the most professional market, it is the primary choice for foreign investors. Norwegian investors are very interested in both Swedish and Danish properties more often than not they end up buying a Swedish property. It is seldom to see foreign investors in Norway, due to the abundance of money in Norway from the oil supply. Only few Finnish investors are investing abroad, but there are foreign investors in Finland, e.g. from Sweden, Germany and Austria. Swedish investors are quite active in Denmark, and have completed several larger transactions during 2011. In today s market it is important to clarify the possibilities for financing. It should happen early in the process in order to avoid that potential buyers waste their time or pull out of the deal. Foreign investors will often get first priority financing in the country where the property is located, while second priority financing will sometimes be obtained in the investor s home country or possibly by equity capital. Sweden has a strong bank sector but has experienced strong increases in the fees during second half of 2011. Also in Norway the fees have increased in that period and several banks only give loans to existing clients. This is due to increased funding costs for the banks. Denmark has a unique mortgage credit system which implies a low interest at the moment. But since the mortgage credit system is different from the bank system it implies that counselling is necessary for foreign investors. At the same time Denmark probably has the most frozen financial system in the Nordic countries. 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Denmark Sweden Norway Finland Figur 5: Source: Danmarks Nationalbank. 2011 numbers accu as of August 31st. for modern, core office properties winter 2012 Per cent 10 9 8 7 6 for high street retail properties winter 2012 Per cent 10 9 8 7 6 for modern logistics properties winter 2012 Percent 10 9 8 7 6 5 5 5 4 Stockholm Copenhagen Gothenburg Olso Helsinki Aarhus Malmö Odense Aalborg Vejle Tampere Turku Oulu 4 Copenhagen Stockholm Aarhus Gothenburg Odense Vejle Helsinki Aalborg Malmö Oslo Tampere Turku Oulu 4 Olso Stockholm Gothenburg Malmö Copenhagen Aarhus Helsinki Vejle Odense Aalborg Tampere Oulu Turku Colliers International p. 3
Denmark Economy Despite a basically sound economy, numbers for Danish GDP showed a decrease in the Danish economy in the third quarter of 2011. The numbers stress that after a period with quite high optimism, Denmark is still embraced by the crisis that hit the world in 2008. Economic prognoses does not expect a prolonged recession, instead slow growth is expected in the coming years. In 2011 the growth is estimated to be app. 1.1 percent, while the growth is expected to be app. 1 percent in 2012 and 2013. The growth is slowed by low exports, limited private consumption and not too many investments. The private consumption has been modest since the financial crisis. Private consumption is influenced by the unsure housing market, unemployment higher than the Danes are used to, but still lower than the European average, and general uncertainty on the economic situation Denmark Capital Population (2011) Number of employees (2011, Q3) Figur 9: Source: Eurostat Copenhagen 5.6 mil. 2.4 mil. There are, however, also factors which push the activity in the economy. This is true for the initiatives from the new government elected in fall 2011, which among others moves forward a number of public investments. Investment Even though the volume of transactions are still substantially below the level before the crisis in 2008 the activity is sound especially for core properties, which have almost kept the value from before the crisis. This is opposed to secondary located properties as their values have gone down. Examples af recent transactions > March 2010: 2,000 sqm offices in Copenhagen city sold for 61 mill. DKK at yield 5.4 percent to a private investor. > March 2010: 4,000 sqm. offices in Copenhagen city for sold for 59 mill. DKK at yield 7.0 percent. The buyer was a property company. > July 2010: 9,000 sqm. offices south of Copenhagen sold for 170 mill. DKK at yield 6.25 percent. > december 2010: 4,500 sqm. residential in Aarhus sold for 71 mill. DKK, at yield 6.0 percent. > March 2011: 4,100 sqm. mixed retail/offices in Aarhus city sold for 100 mill. DKK at yield 4.75 percent. Please note that the yield in the transactions mentioned may differ from the stated yields in the market barometer since the characteristics of the properties may differ from the standard. The buyers have robust financial situations otherwise it is not possible to obtain financing. For larger properties the buyers are mostly institutional investors or consolidated property companies. For smaller properties there are still a number of private investors who want to invest in the property market. The Danish market is favoured by a unique mortgage credit system which implies a low interest at the moment (less than 2 percent including contributions). The yield gap is at a historical high level. Foreign investors are quite interested in Denmark. Recently Swedish Niam has bought 646 owner occupied dwellings, while another Swedish property company, Balder, has bought properties with 523 dwellings from the stateowned company Finansiel Stabilitet which was established in 2008 to secure financial stability in Denmark. During fourth quarter of 2011 a large transaction was carried out outside the capital region, when an institutional investor bought four court rooms in different cities with a total size of 24,000 sqm. During the same transaction the pension fund sold a property in Northern Jutland to the contractor who will build the four courtrooms. In Copenhagen a consortium bought the office project FN-byen and supplying building rights in probably the largest deal in 2011 in Denmark. For offices the demand for centrally located premises in Copenhagen and the other large cities is high. There are only few vacant offices of a certain size centrally located despite the fact that the vacancy has been increasing for the last couple of years. At secondary locations there is less activity there is a gap between primary and secondary locations. Average vacancy is according to latest numbers 9.0 percent for Denmark as a whole, and 9.4 in Copenhagen and 12.0 in the suburbs of Copenhagen. In Copenhagen Ørestad located close to the airport is an alternative to Copenhagen CBD. Ørestad p. 4 Colliers International
has been under development since mid 90 es and has had some vacancy which has caused the market rent to be under pressure. The traditional suburbs around Copenhagen experience declining demand partly due to the fact that they have mostly older offices (30-40 years), which have not been updated. The new area in focus is Nordhavnen where development will occur over the next years including the above mentioned FN-byen. Copenhagen 229 5.25 % 9.40 % Aarhus 168 5.50 % 12.00 % Odense 128 6.00 % 7.60 % Aalborg 148 6.00 % 8.10 % Vejle 141 6.00 % 8.30 % and Oline-Lokalebørs Statistikken Copenhagen 2,421 4.50 % 2.30 % Aarhus 740 4.75 % 6.00 % Odense 673 5.25 % 5.50 % Aalborg 538 5.50 % 8.10 % Vejle 430 5.25 % 7.20 % and Oline-Lokalebørs Statistikken Industrial Copenhagen 61 7.00 % 5.50 % Aarhus 50 7.25 % 6.30 % Odense 37 7.75 % 6.50 % Aalborg 40 7.75 % 2.40 % Vejle 40 7.50 % 3.50 % and Oline-Lokalebørs Statistikken In Aarhus there are a number of development areas close to the city centre. So far the supply of newer office premises has been quite low in Aarhus. In Odense a new science park is being established, which will include business, research and dwellings. Aalborg has experienced large demand from the University, and has only few vacant offices in the city centre. In general most active at the market right now is different public offices and institutions as well as educational institutions. There are also new leases to the private sector, mostly to lawyers, accountants etc. which are less influenced by the economic uncertainty. The consumer confidence has decreased every month during the second half of 2011. From the beginning of 2010 until the middle of 2011 it was quite stable. In January 2012 it increased a bit. The latest numbers for retail sales from November 2011 shows a stable, but very low level. Indicators from the Christmas sale 2011 were a bit more positive. Due to the low consumer confidence the outlook for 2012 is not the best. For the retail property market the situation is quite stable: hardly any vacancy and stable market rent at good locations. In some cases there is also key money if the premises have the right characteristics concerning size, width, depth, interior etc. At the secondary locations on the other hand there are challenges with vacancy and decreasing market rent, and no key money. The retail chains can be picky due to the decreased demand and they are. In average the vacancy for retail premises is 5.6 percent. It has been quite stable since the end of 2010, following a quite steep increase starting early 2008 where the level was app. 2 percent. The general trend is that the Danes prefer shopping centres. Most shopping centres are successful but few of them experience challenges due to unsuccessful composition of the shops or unfortunate interior. During the last couple of years factory outlets have popped up at several locations in Denmark. Industrial and logistics There are quite good activity at the market for industrial and logistics premises. It s primarily small and middlesized firms that relocates, which means that it is premises of limited size that are rented out. The large firms do not move right now instead they wait and see. When the economic situation becomes more stable it is expected that there will be quite a lot of activity in this segment. According to latest numbers for vacancy for industrial and logistics 4.3 percent of the premises are vacant. The level has been quite constant since mid 2010, but the level is significantly higher than in the years up to 2008 where the vacancy began to rise due to the financial crisis. During the last quarter of 2011 there were some transactions as well. The price level for premises away from central areas is under strong pressure. If a firm is ready to choose a peripheral location, it is possible to buy a premise very cheap especially if it has been vacant for a while or if it is not up-to-date. For some of the properties it can be difficult to find buyers at all. Foreign investors still show good interest for large logistic properties in Denmark. In general they demand long fixed contracts, even though some of them are flexible. Colliers International p. 5
Norway Economy The depth crisis in the Euro zone is contributing to a tense situation globally and how this challenge is solved will affect the Norwegian economy both in the short and the long run. Statistics Norway expects weak growth in the entire OECD area as far as 2014. The more modest increases in the growing economies will likely result in mode growth in Norway the next few years. Domestic demand, however, is still going strong. The demand growth in mainland Norway is estimated to be between 3.1-4.4 per cent p.a. between 2012-2014. Household spending growth will between 3-4 per cent, adjusted down somewhat but still on a high level compared to the rest of Europe. It seems that Norwegian exports will only grow a little the coming years. This is caused by very low growth in demand on the world market, larger wage increases in Norway than in competing countries and a stronger Krone. The world market prices on important Norwegian exports are expected to decrease even though some actors predict increasing oil prices. Norway Capital Population (2011) Number of employees (2011, Q3) Figur 10: Source: Eurostat Oslo 4.9 mil. 2.3 mil. A small increase is expected in unemployment but it is not estimated to go above 3.6-3.7 per cent. Increases in the number of jobs are expected, however, the workforce will also increase as the population is growing and additional people will be looking for jobs. Many people are talking about a schism of the Norwegian economy due to the strong growth in oil and oil related industries. Large growth in the oil industry is expected. In a period where most people expected the golden age of the Norwegian oil industry to come to an end two large oil fields was discovered in Avaldsness (North Sea) and Skrugard (Bearing Sea). This will contribute to growth in this industry and the suppliers, which will trickle down through the Norwegian economy. Examples af recent transactions > ibsen Kvartalet + Sections, Aker Brygge, office, Oslo: Swap + cash deal between life insurance company KLP and Norwegian Property. 1 bn transaction, yield around 5,8%. > Niam (Sektor), purchase of 4 shopping centers from Oslo Areal, price N/A (between 1-1,2 BN), yield 6-6,5%. > dnb Liv purchase of DNB s new HQ in Bjørvika, price NOK 4,8 Billion, 5% net yield. > akersgata 64-68, office, OsLoc ca. MNOK 600 and yield 5,5%. > sjølyst Arken, office/retail Oslo: MNOK 975 and yield 5,8%, acquired by Fram from DNB property fund. Investment The transaction volume in 2011 was somewhat lower than what many expected during the first half year. Colliers believes that the main reason for this was the still decreasing access to financing during the second half year of 2011 and that large expected transactions (e.g. Bjørvika) did not go through. The demand for high quality, central properties is high at the moment. Most buildings in the market are sold at the expected prices and buyers include institutional investors, real estate companies and wealthy, private individuals. There are also high demand for properties with long leases within most segments. This has been characteristic for the last 2-3 years and some of the yields, which were registered in 2011, were level with the peak years 2006-2007. The reasons for the large interest are low interest s, good access to financing for investors and the lack of safe investments in other asset classes. A current topic of discussion is the fact that many loans to commercial properties in the Norwegian market are due to be renegotiated within the next years. A significant part of these loans can be 5-year loans signed in e.g. 2007. We assume that many of these loans have larger loan to value ratios and lower margins than what is usually seen in the Norwegian market today. It remains to be seen if many distressed opportunities will present themselves in the market. If that is the case there will be big advantages to actors with good bank relations and strong balance sheets. The appetite for opportunistic investments has gradually increased since 2009. Several investors have bought commercial properties with the intention of rebuilding into residential properties. We assume that the access to financing will determine how large the demand for opportunistic investments will be going forward. p. 6 Colliers International
Oslo 1.290 5,75% 5 % Oslo 426 5,50 % 7 % Industrial Oslo 116 6,50 % 8 % Colliers is currently experiencing good demand for offices in Oslo and tenants are willing to pay good prices if they receive the desired product. The trend is that tenants are looking for new or upgraded, flexible buildings of a high standard. Older properties especially in peripheral areas will suffer under this and require investments in years to come. This also applies to older properties in CBD but the upside potential of the tenancies are large if the investments are made. The largest rent growth in the second half year was in CBD. The upper 15 per cent of leases signed in Q4 was on average NOK 3,870 per sqm. We see this as above the real average in the CBD at the moment, however, it does show that central office properties is currently a good segment to invest in. We are experiencing few examples of speculative building in the market. The latest example is Fram s 24,000 sqm building on Skøyen. Commerce in Norway is stable but given the population s disposable income and today s interest s, expectations among retail actors have probably been higher in the past. Household spending increased by 2.3 per cent in 2011 (below expectations), while growth expectations for the next three years are between 3.4-4.4 per cent per year. Statistics Norway informs on growth in retail in 2011. The Norwegian retail industry increased turnover with NOK 2.6bn from July and August (4rth term) 2010 to July and August 2011. This corresponds to a growth of 3.8 per cent. In comparison the retail turnover index showed growth of 3.3 per cent for the same period. In total the retail industry had revenue of almost NOK 70bn in 4th term this year. Grocery stores alone had revenues of NOK 24bn. This make up 34.5 per cent of all retail turnover. The growth of grocery stores was 4 per cent or almost NOK 1bn more than the same period in 2010. In the first eight months of 2011 retail sales increased by NOK 8.6bn, which is an increase of 3.5 per cent compared to the same period last year. Tenants are willing to expand both in terms of area and new establishments. During the last few years the retail chains have made changes and restructured the number of stores and store sizes. However, the market for high quality retail premises and attractive shopping centres is good. The textile, sports and home/interior industries are strengthening their market position by offering customers widened concepts, which includes good platforms for e-shopping. Rents have kept unchanged through 2011. Rents in high streets (Karl Johan/Bogstadveien) can be as high as NOK 15,000 per sqm. for smaller premises. Percentage rents on shopping centres are relatively unchanged from 2010 and big box retail rents are stable. Logistics Demand for logistics properties in the Oslo region continues to be stable and good but there is an area shortage within the municipal boundary. Oslo is experiencing a large population growth and authorities are not very keen to convert new areas to industry or logistics. Tenants have to look to other places. Demand for nearcentral properties will always be there if they fulfil the requirements to standard and design as well as proximity to transport hubs. That is precisely the challenge to logistics properties in the most central areas. Many properties are marketed towards the professional segment/large commerce as rents are higher in these areas. The level of new construction continues to be mode even though there are large expansion plans in the logistics parks in greater Oslo. Rent levels are stable on warehouse/logistics properties. In general the level for existing buildings is between NOK 600-1,000 while new properties can command NOK 1,100 per sqm./year. The share of office square metres and large plots of lands are pulling up the average for the properties. The trend in last few years is that major tenants want still larger and more efficient properties, which requires large plots of land. It is our experience that owners have become better at charging for empty plots. Colliers International p. 7
Sweden Economy The Swedish GDP will most probably show a growth of 4,5 % in 2011, a number which will place Sweden among the top growth countries in the EU. The prediction by The Economist is only 1,4 % for the Euro area. Since Sweden is not an economic island but a small export oriented nation the European recession will hit Sweden in 2012. The GDP forecast average among analysts is a zero ( -1,4 to +1,3 %). The effect will be a growing unemployment, reaching almost 8%, however, a number envied by most other EU countries. Due to the very low interest landscape, the disposable income for the working population will probably remain relatively high.however, the main concern in Sweden, as for all the EU-countries is the Euro crisis and the bank crisis. The latter will be the main concern for the property sector: How to find a bank willing to finance a property transaction? Once a bank is found (note that the traditional biggest European lenders have in principle stopped new business) the purchaser will find that the loan-tovalue-ratio that banks used to accept, is no more. In fact, the old German Pfandbrief-rule of a loanto-value of ca. 60 % seems to have set standard also for the rest of Europe. Sverige Capital Population (2011) Number of employees (2011, Q3) Figur 11: Source: Eurostat Stockholm 9.4 mil. 4.2 mil. Investment After a promising start in 2011 the positive trend in the investment market ended after the summer due to the public debt/euro crisis. Despite the change of the economic climate the transaction volume almost reached the same level as in 2010, adding up to SEK 105 billion. The most attractive investment segment was offices but we also noticed a growth for retail properties. Examples af recent transactions > January 2012: Carlyle acquires Nacka Strand from Vasakronan. The portfolio consists of 210,000 sqm mainly offices and the purchase price was SEK 3 billion. > January 2012: 3,900 sqm office in Malmoe (Hyllie) sold for SEK 185 million to Schroders. The newly erected building is fully let. > January 2012: 4,800 sqm retail in Gothenburg (Hisingen) sold for approx. SEK 192 million to Axfast. Seller was the Irish fund MKO. > december 2011: 3 inner city malls with a lettable area of ca 60,000 sqm was sold to the Swedish Pension fund AMF for approximately SEK 4 billion. > december 2011: 28,500 sqm office in Stockholm (Western Kungsholmen) was sold for SEK 1,275 million by the developer Skanska to AMF yielding 4,90%. > November 2011: 21,000 sqm logistics in south Stockholm sold for SEK 316 million yielding 6,60%. This is Rockspring s first investment in Sweden. > November 2011: CBD office building sold to Hufvudstaden for SEK 478 million yielding 4,90%. The lettable area is 6,700 sqm. Please note that the yield in the transactions mentioned may differ from the stated yields in the market barometer since the characteristics of the properties may differ from the standard. The outlook for 2012 is that we predict less activity on the investment market because of the Euro crisis. The most active buyers will be the institutional investors but we also expect to see increased activity among international investors due to the current stability of the Swedish economy compared to most other European countries. We also believe that investments will increase in residential properties in larger cities with a positive growth. However, the financing will be the key issue to solve in order to achieve a successful 2012. Corpo bonds will most likely take a bigger market share since a number of European banks have ceased their property lending in Sweden. The prime office yields in Stockholm will remain around 5,0 % due to the large interest from many institutional investors that are not as dependent on bank financing as other investors. In Gothenburg a few property companies compete fiercely for the available office properties, a situation which will also keep the prime yield down at the level of 5,25 %. In Malmö we expect to see yields around 6,0% even for new modern office buildings. The prime retail yields will most likely be subject to a small increase. However, for retail parks in peripheral locations we expect to see some changes in the coming years. The main problem today is to fill up the existing vacancies, which already have started to affect the rental levels in some less attractive areas. When the current leases expire in these locations the landlords will lower the rents in order to keep the tenants. In time, these rent adjustments will lead to lower values, enhancing the trend of rising yields in these locations, observed during 2011. Therefore the outlook for 2012 is decreasing rents combined with slightly raised yields. It is currently harder to get competitive financing for logistic investment compared to other property segments. Several banks consider logistics investments more risky than other segments, despite long leases signed by strong tenants in prime logistic locations. The unwillingness to finance this segment will continue to affect the yield which means that we expect to see the prime yield increase to around 7% later this year. p. 8 Colliers International
Stockholm 505 5.00 % 6 % Gothenburg 281 5.25 % 3 % Malmö 269 6.00 % 5 % Stockholm 1.683 4.75 % 4 % Gothenburg 785 5.00 % 3 % Malmö 729 5.75 % 2 % Industrial Stockholm 89 6.50 % 1 % Gothenburg 73 6.50 % 1 % Malmö 68 6.50 % 1 % Despite the signs of a weakened economy in the past six months the office rental market had a good year with increasing rents. The trend on the rental market since the economic turbulence began after the summer is that lead time has increased for new leases. The rental levels have not been affected nor have the demand for sublettings increased. The outlook for 2012 is that the long lead times will continue. We don t expect to see any increased vacancies or decreased rents due to the steady demand for office space in Stockholm, Gothenburg and Malmö. However, the development of the Swedish economy will control the rental market in the current year. In Stockholm CBD we expect to see stable rental levels during the year due to the uncertainty of the economic situation which is compensated by the lack of supply of modern and efficient office space. There is a low supply of new premises this year and new premises, primarily outside the CBD, will not reach the market until 2013 and 2014. 2011 was a good year for the rental market in Gothenburg with increased rents and decreased vacancy. During the year new top rents were noticed in CBD, reaching over 3,000 SEK per sqm. The demand for new premises is still high and the low supply of new premises will lead to a stable rental market in 2012, despite the economic uncertainty. The supply of new premises is extremely low in Gothenburg and in the coming two years only 30,000 sqm of new modern office space will reach the market in Gothenburg CBD, of which some already has been let. In Malmö 2011 was also a good year for the office rental market. The rents however differ depending on the micro location. The highest rents are currently found in Västra Hamnen where the rental level for new modern office premises is 2,300-2,500 SEK per sqm. In Malmö CBD the rents are lower, even for newly refurbished properties due to the fact that many buildings can t offer modern efficient office space demanded by tenants. The high demand for modern office space will contribute to keep the rents at the current level in the year to come. The Euro crisis has had a negative impact on the retail market and the total turnover in October and November was lower than the corresponding period last year. However, the turnover for the whole year was positive for the 16th year in a row due to a record turnover for the Christmas shopping, but the annual increase was the lowest since 1996. The trend for everyday commodities was positive in 2011 while it was negative for durable goods, a trend which is believed to continue this year as well. Recent surveys show that the Swedish citizens now have more money than ever before, but at the moment prioritize other expenses than consumer goods. A solution to the Euro crisis could be an element for further turnover increases. One segment within retail that however does benefit from the economic uncertainty is the discount stores, which attracts a larger span of customers who ordinarily do their shopping in upmarket stores. High street retail, popular shopping centres as well as established retail parks will most likely not be as affected of the current situation as peripheral locations. We expect the rents to remain stable, perhaps a small decrease in the current year. For the secondary locations, the rents will decrease due to the vacancy problems discussed in the investment part of this report. Industrial and logistics The demand for logistic space was strong in the whole country during 2011 and despite the obvious economic threats and the general uncertainty in the market there are just a few actual signs for a drop in demand in 2012. The rents for B-class secondary space in Malmö and Gothenburg have been stable. In Stockholm there has even been an increase in rents driven by a decreasing supply of space. The general demand from tenants are premises about 3,000-5,000 square meters with a typical lease of 3-5 years. The only option for these tenants is usually B-class secondary space since speculative developments are very rare. The new logistic developments are in most cases prelet to tenants with +10 year leases and at least 10,000 square meters of space. 2012 will be the third best year (only beaten by 2006 and 2009) in terms of take up of newly built logistic space since we started monitoring the logistic developments (2002). There are a total of 13 developments which will sum up to an area of 300,000 square meters of logistic space. 2009 was the second best year since 2002, despite the financial crisis that year. The main reason for this was that almost all leases were signed before September 2008. Colliers After that International there was a measurable p. 9 shortage in new leases which in 2010 led to a record low number of new developments. During
Finland Economy Finland has experienced good recovery after the 2009 recession and the expected GDP growth for 2011 is 2,6 %. Due to the unstable situation of the European economy, the forecast for the Finnish economy is also modest. Modest growth has been forecasted for the GDP for 2012 and 2013, and sliding into a recession in 2012 is possible. The growth in the Finnish economy will be caused by increase in domestic demand, while increases in exports are not expected until the second half of 2013. The employment growth of 2011 will halt and the unemployment will increase slightly in 2012. Inflation is expected to decrease in 2012 to 2,7 %, which still would be above the European average. Investment finland Capital Population (2011) Number of employees (2011, Q3) Figur 12: Source: Eurostat Helsinki 5.4 mil. 2.2 mil. Even though the market sentiment improved in the first half of the year, the total transaction volume remained in low level in 2011. The demand concents on prime properties which supply is limited. The yields have further decreased in prime locations. The total transaction volume reached the level of app. EUR 1.7 billion and thus remained in the same level than in 2010. The financing covenants for real estate transactions, which loosened in the first half of 2011, have started to tighten again. A strong presence of domestic investors has prevailed in the market. Approximately two thirds of transactions were made in Helsinki metropolitan area. Examples af recent transactions > Fourth quarter of 2011: Portfolio of 8 retail properties sold to ARIF I Ky for ca. 28 m EUR. > third quarter of 2011: 2 Logistics properties of 13,000 sqm in Vantaa bought by Real Estate Fund Finland III Ky. > Fourth quarter of 2011: 14 000 sqm office building in Espoo sold to a German fund for 50 m EUR > Fourth quarter of 2011: Stockmann department store building of 11 500 sqm in Espoo bought by Tapiola for 45 m EUR > third quarter of 2011: 16 600 sqm office building in Espoo sold to Veritas Pension Insurance Please note that the yield in the transactions mentioned may differ from the stated yields in the market barometer since the characteristics of the properties may differ from the standard. The office market in Helsinki Metropolitan area is highly divided between old stock in secondary locations and modern premises in the well established locations. The old stock is continuously losing interest, while new development is ongoing in locations like Leppävaara, Keilaniemi and Aviapolis. The vacancy started to decrease in the second half of 2011 but is expected to remain in the high level of 11-12 %. The supply of office space will increase in Tampere and the vacancy is expected to increase. There are new development projects ongoing and Nokia s restructuring operations will hit the office demand. The office rents in Helsinki Metropolitan are expected to increase slightly in nominal terms, and it is possible that the rents will fall in real terms. In some areas even the nominal rents are expected to decline. In the other big markets, the rents are expected to increase by 3 per cent p.a. and the vacancy s are on normal levels. requirements in Helsinki prime offices have decreased to the level of 5.5 per cent. The vacancy of attractively located retail premises has remained low and the customer spending has increased in 2011. Due to decreased consumer confidence, the customer spending is forecasted to experience only weak growth in 2012. Demand for high street retail has improved and the rents have increased in both Helsinki and other major cities. The vacancy s have remained on a low level in all markets. Development in the retail sector has occurred in two forms: existing retail premises are being improved and new development, especially shopping centres are also being built. The yields for retail premises have declined in 2011. s in Helsinki are below 6 per cent. p. 10 Colliers International
Denmark Codanhus, Gl. Kongevej 60 1850 Frederiksberg C TEL +45 70 23 00 20 www.colliers.dk Helsinki 300 5.50 % 11.50 % Tampere 180 7.00 % 7.50 % Turku 165 7.25 % 7.50 % Oulu 165 7.00 % 7.00 % Helsinki 1,920 5.40 % 2.50 % Tampere 960 6.75 % 3.00 % Turku 900 6.75 % 3.50 % Oulu 1,020 7.00 % 1.50 % Industrial and logistics The demand for industrial and logistics properties increased in 2011 due to recovering economy. The biggest demand has been experienced for smaller logistic premises. There are many ongoing development projects ongoing in the southern Finland and none of them are speculative developments. The vacancy s have increased slightly, which have strengthened the bargaining power of primetenants when negotiation new agreements. Overall the rent levels have remained on a stable level. Torben Nielsen Sales Director Nordics Partner Certified Real Estate Agent Valuar TEL +45 40 96 99 66 Email tn@colliers.dk Norway Hegdehaugsveien 31 N-0352 Oslo TEL +47 22 06 62 80 www.colliers.no Thor Bjørdal CEO/Partner TEL +47 40 20 17 00 Email thor@colliers.no Sweden Regeringsgatan 25 103 88 Stockholm TEL +46 8 402 36 70 www.colliers.se Dan Törnsten Managing Director Sweden TEL + 46 70-855 75 50 Email dan.tornsten@colliers.se Industrial Helsinki 120 7.50 % 4.50 % Tampere 85 8.50 % 3.00 % Turku 85 9.50 % 5.50 % Oulu 85 9.00 % 4.50 % Finland Mechelininkatu 1 a 00180 Helsinki TEL +358 9 8567 7600 www.colliers.fi Petri Mella Managing Director Finland TEL +358 50 539 9170 Email petri.mella@colliers.fi researcher Anne Kaag Andersen Head of Research, ph.d. TEL + 45 58 58 38 54 Email aka@colliers.dk The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. Colliers International p. 11
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