CB RICHARD ELLIS
MarketView Nordic Property H1 2009
OVERVIEW
Quick Stats Change from H1 08 H2 08 Turnover
Rent
Yield
• All Nordic economies have felt the impact of the downturn The Nordic region has not avoided the impact from the global economic and financial crisis. The regional economy is expected to contract by some 4% in 2009 which is in line with the outlook for the European economy. The extent, to which the different countries in the region have been hit, differs quite much. • Demand for commercial real estate has weakened The office market has softened and rents are falling across the region. The pace and duration of the rental decline differs between the Nordic countries. Retail rents have remained relatively stable in all Nordic capitals.
Hot Topics • Investment activity was low in H1 2009, at just €3 billion, but with signs of improvement in Q2. • Investment turnover increased in three out of the four Nordic markets from Q1 to Q2. • Yields have softened across the Nordic region but at a slower pace than earlier.
Industrial rents have developed quite differently across the region. In Oslo and Helsinki rents have fallen by 12-13% over the last year. Rental decline has been more moderate in Copenhagen, and in the main logistic and industrial hubs in Sweden rents have remained stable. • Investment activity is low but there are signs of improvement The capital markets in the region have all seen declines since Q3 2008 and transaction turnover has fallen by 76% compared to the same period in 2008. Some signs of improvement were detected in Q2. Investment activity increased by 14% from the previous quarter but the increase should be seen in the context of a very weak Q1. • Yields have softened - shifts vary between sectors Yields have risen across the region but at a slower pace than earlier. There are signs that yields in the primary retail and office markets are beginning to flatten. In the industrial and logistic market no stabilization of yields has been reported anywhere yet.
• Domestic investors were the most active buyers but cross-border deals increased in Q2 from very low levels. Nyhavn, Copenhagen
The Parliament, Stockholm
• Intra-regional investors and German OpenEnded Funds have been important cross-border buyers.
The Cathedral, Helsinki
a
The Parliament, Oslo
Source: Norden.org
©2009, CB Richard Ellis, Inc.
MarketView Nordic Property
Nordic Country Overview
The Nordic Region
Denmark Denmark is a member of the European Union but not the European Monetary Union. The primary objective of the Danish Central Bank “Nationalbanken” is to maintain the currency stable towards the euro (€). The “Danish krone” (DKK) is allowed to fluctuate in a band of + 2.25%. As a consequence, the Danish Central Bank generally follows the European Central Bank closely regarding the leading interest rates. The population of the Copenhagen Capital Region is 1.7 million. The region generates 36% of the Danish economy. Sweden Sweden is a member of the European Union but not the European Monetary Union. The primary objective of the Swedish Central Bank “Riksbanken” is to maintain price stability. The operative target is to maintain CPI inflation around 2%. The “Swedish krona” (SEK) is allowed to flow towards the euro (€).
Nordic Country Overview
Country
Population, million
GDP, € billion
The population of the Stockholm Region is 2.0 million. The region generates 29% of the Swedish economy.
Denmark
5.519
229
Copenhagen
Sweden
9.302
291
Stockholm
Finland Finland is a member of the European Union and also the European Monetary Union. The monetary and currency regime is therefore decided by the European Central Bank.
Finland
5.326
179
Helsinki
Norway
4.826
251
Oslo
The population of the Helsinki Region is 1.4 million. The region generates 35% of the Finnish economy. Norway Norway is not a member of the European Union. The primary objective of the Norwegian Central Bank “Norges Bank” is to maintain price stability. The operative target is to maintain CPI inflation around 2.5%. The “Norwegian krone” (NOK) is allowed to flow towards the euro (€). The population of the Oslo Region is 1.1 million. The region generates 29% of the Norwegian economy.
Capital
Source: Eurostat & National Statistical Offices
Nordic Currencies per €
12
12
Danish krone Swedish krona Norwegian krone
11 10
11 10
9
9
8
8
7
7
6 1999
2001
2003
2005
2007
6 2009
Source: European Central Bank
The Nordic Countries Nordic Currency Conversion 2009
H1 2009
The Nordic countries consist of Denmark, Greenland, the Faroe Islands, Finland, Åland, Iceland, Norway and Sweden. Sweden The Faroe Islands and Greenland are both part of the kingdom of Denmark. Åland is part of the republic of Finland. Finland The focus of this report is on the four main countries in the Region; Denmark, Sweden, Finland and Norway and their capitals. Page 2 ©2009, CB Richard Ellis, Inc.
Currency per € Q2 2009 Q1 2009
€/DKK
€/SEK
€/NOK
7.449
10.781
8.850
7.449
10.941
8.897
Source: European Central Bank
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In Sweden and Finland a fall in GDP of 5-6% is anticipated. These economies are to a large extent dependent on the manufacturing sector and both countries suffer from weakening exports to a depressed global market. The downturn has brought the unemployment rate close to European average. Source: Copenhagen Capacity
Interest Rates, 10 Year Government Bond
5%
5%
4%
4%
3%
3%
2%
2% Denmark Finland
1%
Norway Sweden
0%
1% 0%
aug-08
nov-08
feb-09
may-09
aug-09
Source: Statistics Denmark
Economic Indicators 2009
GDP
Inflation
Unemployment
Denmark
-3.0%
1.4%
3.6%
Sweden
-5.0%
-0.2%
8.8%
Norway
-1.6%
1.9%
3.3%
Finland
-6.0%
0.2%
9.0%
EU
-4.0%
0.9%
9.4%
Source: Ministry of Finance (DEN), National Institute of Economic Research (SWE), Ministry of Finance (FIN), Statistics Norway (NOR), European Commission (EU)
MarketView Nordic Property
Nordic Economy The Nordic region has not avoided the impact from the global economic and financial crisis. Regional GDP - comparable in size to the Spanish economy is expected to contract by some 4% in 2009 which is in line with the outlook for the EU. However, the extent to which the different countries in the region have been hit differs quite much.
Copenhagen Harbour
In Denmark the economy suffers from the global downturn as well as falling domestic demand. Falling housing prices remain a key obstacle for a broadly based recovery and the economy is expected to fall by 3%. Unemployment is below Nordic and European levels and will remain so despite further increases in 2009 and 2010. In Norway the economy is also set to shrink in 2009 but Norway has been able to weather the crisis fairly well. Part of this is explained by Norway’s endowments of oil and petroleum, but even the mainland economy performs better than most other European economies. Norwegian economy produced positive growth in Q2 which means that the country has now technically left the recession behind. Unemployment is low and not increasing as fast as elsewhere. The macro economic situation of the Nordic countries is reflected in the inflationary trends. Inflation remains relatively high in Norway and Denmark. The countries with the strongest economic contraction - Sweden and Finland - face zero or even negative inflation. The central banks across the region have all cut leading interest rates throughout 2009, which has resulted in lower money market and other short term interest rates. The Swedish central bank has been most active in easing the monetary policy and has cut the leading interest rate to 0.25%. Interest rates do not differ much between Denmark (1.35%), Norway (1.25%) and Finland (1.00%) despite the different monetary regimes. Long term interest rates have shifted less. The yield spread between the 10 year government bonds has narrowed between the countries in 2009. This has mainly been due to increasing Swedish interest rates and fairly stable rates in Denmark and Finland. Norway has somewhat higher interest rates than the three EU countries in the region.
H1 2009
Page 3 Š2009, CB Richard Ellis, Inc.
MarketView Nordic Property
Nordic Property Market Overview Transaction volume in the Nordic property market was €3.0 billion in the first half of 2009. The capital markets in the region have all seen sharp declines since Q3 2008 and the total regional transaction turnover has fallen by 76% compared to the same period in 2008.
Uspenski Catherdral, Helsinki
Some signs of improvement were detected in Q2. Investment activity increased by 14% from the previous quarter. The increase should be seen in the context of a very weak Q1 and we believe it is yet to premature to conclude that markets are genuinely returning to normal. Cross-border transactions have dwindled in the region. This is especially the case in Denmark and Norway where domestic buyers have been the most important investors thus far in 2009. In Sweden most investors have also been domestic, but with some exceptions – such as KLP’s and DEKA’s acquisitions of hotels for an estimated €160 million, and IVG’s purchase of offices for €37 million. The situation is changing in Finland which has been targeted by international investors in recent months. Intra-regional transactions were amongst the most significant cross-border deals. Norwegian investor, KLP, has been active in the region with large acquisitions in Stockholm and Oslo. Swedish private equity property fund, Niam, has purchased large portfolios in Sweden and Norway. German Open-Ended Funds such as DEKA Immobilien, UBS Euroinvest Immobilien Fund and Commerz Real were important extra-regional investors. Offices have been the most liquid asset in the first half of 2009. Residential property has also been attractive. This was to a large extent because of the Swedish tenant owner associations who were involved in residential transactions for nearly €0.4 billion. Some large transactions of hotels and leisure facilities contributed to the high share of “other” property types. Industrial and logistic property have not attracted much interest from investors.
Source: Johannes Jansson/norden.org
Investment Volume*, € million
12000 10000 8000 6000 4000 2000 0 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Source: CB Richard Ellis * Including Swedish tenant owner associations
Property Investment by sector, H1 2009
Other 27%
H1 2009
Yields have softened across the region but at a slower pace than earlier. There are signs that yields in the primary retail and office markets are beginning to flatten. In the industrial and logistic market no stabilization of yields has been reported yet. Transactions involving distressed property has become increasingly frequent in Denmark and the same is expected to happen in Finland. This is not the case in Norway and Sweden where there have only been a few distressed sales so far.
Page 4 ©2009, CB Richard Ellis, Inc.
Of f ice 27%
Residential 26%
Retail 13%
Industrial 7%
Source: CB Richard Ellis Break-down based on investments in Denmark, Sweden and Norway Including residential transactions involving Swedish tenant owner associations
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View of Stockholm
The decline is most significant in Oslo, where rents started to fall a year ago. The office market in Oslo has been strongly affected by the downturn. Office rents in the CBD have fallen by 1/3 measured in local currency.
MarketView Nordic Property
Nordic Offices The office market has softened and rents are falling across the region. The pace and duration of the rental decline differs quite much between the cities. Rent free periods and other incentives offered are increasing in the Nordic capitals, and actual rents are often lower than base rents.
In Stockholm rental decline also set in early in 2008. The trend in these two cities should be seen on the background of the high rental growth before the downturn.
Source: Johannes Jansson/norden.org
In Copenhagen and Helsinki rents have held up relatively well until recently, but these two cities are now experiencing rental decline too. Prime Yields, Q2 2009
9% 8% 7% 6% 5%
Copenhagen Oslo
Prime yields in Stockholm and Copenhagen are at 5.75%. Helsinki and Oslo saw further increases in Q2 bringing yields to 5.90% and 7% respectively.
Stockholm Helsinki
Nordic Retail Retail rents have remained relatively stable in all the Nordic capitals.
4% 3% 2% 1% 0% Office
Retail
Industrial
The Nordic region has seen very little retail investment so far this year. This is a marked contrast to 2008, when two of Europe’s top 10 largest deals took place here, including the €2.7 billion Steen & Strom portfolio. Prime retail yields are in the range of 5.00-6.75%.
Source: CB Richard Ellis
Prime Net Rent, Q2 2009
€/sq m/annum
Office
Retail
Industrial
Copenhagen
235
2,014
67
Stockholm*
366
1,053
60*
Oslo
336
1,570
112
Helsinki
340
1,380
117
Nordic Industrial Industrial rents have developed quite differently across the region. In Oslo and Helsinki rents have fallen by 12-13% over the last year. In Copenhagen industrial rents have just started to fall recently and are only some 5% below rental levels a year ago. Rents have remained stable in Stockholm and other main industrial cities . Prime industrial yields are in the range of 7.208.25%. Yields have risen rapidly across the region. No sign of flattening was detected in Q2.
Source: CB Richard Ellis * Industrial rents for prime industrial and logistic hubs in Sweden
H1 2009
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MarketView Nordic Property
Denmark Economic activity has been falling since the beginning of 2008. Leading business indicators suggest that the economy has not bottomed out yet, but the decline is running at a slower pace. Consumer confidence and business expectations remain in negative territory but have improved since March. The economic policy has been relaxed to stimulate domestic demand and inventories have been reduced. This raises hope, that growth will turn positive in H2 2009. The recovery is expected to gain momentum gradually. The private sector has cut jobs at a large scale and economic growth in 2010 will be too modest to prevent unemployment from further increases. Following the business cycle with some lag, demand for real estate will remain subdued well into 2010. The Danish Central Bank has cut its leading lending rate seven times in 2009 to 1.35%. Short term interest rates have come down, but lower interest rates have to a large extent been offset by higher margins – especially on existing loans. Average costs of borrowing to real estate has fallen for new loans but credit standards for corporate lending remain tight.
Capital Markets Investment activity has not picked up in Denmark. The transaction volume was DKK 2.3 billion in the first half of 2009 - down more than 80% compared to same period last year. Only a few large deals of DKK 100 million or more have been completed so far this year. The market is almost entirely driven by Danish buyers – mostly property companies and funds. Judging from the transactions done it appears that the investors seek prime offices. Almost 2/3 of the turnover belong to this type of property.
H1 2009
Yields have softened but at a slower pace than earlier. Although the gap between buyers and sellers expectations has narrowed, this has not been enough to bring about a turnaround in investment activity yet. Tight access to credit remains another obstacle for most potential investors. Looking forward it is likely that we will see increases in liquidity. However, this will be from a very low base and may very well be caused by a few one-off deals and forced sales rather than a general recovery. Much will depend on the willingness of the banks to take on additional risk. This may be happening in the second half of 2009, as credit standards are not expected to tighten further in Q3. More distressed property will come onto the market, but whether this will lead to a drop in prices remains to be seen. So far, this has not happened.
Page 6 ©2009, CB Richard Ellis, Inc.
Danish property company, C.W. Obel, purchased Lautrupbjerg in Ballerup for DKK 153 million. The building was sold by GN
Danish Investment Volume, € million
1600 Office
Retail
1400
Industrial
Residential
1200
Other
1000 800 600 400 200 0
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Source: CB Richard Ellis
Copenhagen Prime Yields
8%
Office Retail Industrial
7% 6% 5% 4% 3% 2%
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Source: CB Richard Ellis
a
Copenhagen Prime Office Rent (DKK) and Vacancy Rates
2000 1950 1900 1850 1800 1750 1700 1650 1600 1550 1500
8% Rent
Vacancy
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Copenhagen Office The lease activity has remained fairly robust so far in 2009. This is not because of an increase in overall demand for offices. It reflects corporate relocations to smaller and cheaper locations. Net absorption was negative in Q2 and the vacancy rate rose to 7.4% in Copenhagen City. The increase was mainly driven by new addition to the office stock. During the first half of 2009 almost 75,000 sq m office have been completed, of which only 11% was pre-let. Office rents have long withstood the downturn but have started to decline. Property owners are reducing asking prices, and tenants are now in a better position to negotiate lease terms.
Copenhagen CBD
The demand for office space will remain weak. Corporate lay-offs are expected to continue for several quarters. The market will continue to be driven by consolidation and relocation, which is going to release much existing space. Furthermore, several large office projects are completed in the second half of this year, adding 55,000 new vacant sq m to the market causing vacancy rates to continue up for the rest of 2009.
7% 6% 5% 4% 3% 2% 1% 0%
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Source: CB Richard Ellis, DE/Oline-Lokalebørs
Copenhagen Retail Retail sale is weak and retailers are under pressure to sell at large discounts. The plunge in the retail sale has been slowing down in recent months but consumers are expected to stay small spenders as long as the economic situation remains uncertain. There are only few vacancies at the most popular high-streets but availability has increased. The overall vacancy rate in Copenhagen City is 2.8%. Due to the current financial crises and the increasing amount of unoccupied retail space, there is a trend towards lower levels of key money. However, key money is still of importance in the Danish retail market, especially regarding leases of high-end locations in Copenhagen and other major cities.
Copenhagen Prime Net Rent in local currency (DKK)
DKK/sq m/annum
Q2 2008
Q1 2009
Q2 2009
Office
1,850
1,850
1,750
Retail
16,000
15,000
15,000
525
525
500
Industrial Source: CB Richard Ellis
Copenhagen Industrial The industrial and logistic sector is facing a difficult time. Manufacturing and transport activities are being reduced, companies downsize, and demand from tenants/occupiers is falling. The weak fundamentals has put industrial rents under pressure - especially in the secondary market. The outlook for the lease and occupier market is not likely to recover any time soon. Vacancies are likely to increase in 2009 due to less demand. Property owners will remain under pressure to lower rents in order to keep existing tenants. Further rental decline is likely due to the difficult and weak fundamentals. The yield gap has widened considerably since mid-2008 due to the shift in industrial yields.
H1 2009
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Sweden The Swedish economy is affected by the weak economical growth abroad. Export has declined at the same time as the situation on the labour market continues to deteriorate. Sweden’s central bank (Riksbanken) has lowered the repo rate several times from 4.75% in September 2008 to all-time low 0.25% in July 2009. The repo rate is expected to remain at a low level until autumn 2010. Indicators show that the state of the economy is improving and is facing a slow upturn. The upturn depends on the recovery of the economy abroad, since it affects the Swedish export. Consumer confidence and business expectations are slowly turning upwards. The Consumer Confidence Indicator (CCI) has risen nearly seven points between July and August. CCI shows that the Swedish households are more confident about the economy compared to previous months, although they remain pessimistic in a historical perspective. The confidence indicator for the business sector continued to increase in August, as it has since April 2009. Retail trade has shown the strongest growth over the past few months, while manufacturing industry fell back one point in August compared with the previous month.
The largest transaction in H1 2009, Royal Viking Hotel sold to the Norwegian pension fund KLP for over SEK 1 billion in May 2009
Swedish Investment Volume*, € million
8000 Office Industrial Other
Retail Residential
7000 6000 5000 4000
Capital Markets The real estate cycle lags the national economy, and although transaction volume in Q2 of SEK 8.3 billion rose with nearly 20% from the previous quarter it is too early to speak of any reverse in trend. Tenant owner associations (TOAs) accounted for a large share of the activity. Investment volume, excluding TOAs, rose by 22% to SEK 6.1 billion in Q2.
H1 2009
The H1 investment volume of SEK 15.3 billion is a drop of 69% from H1 2008. Until now only two deals over SEK 1 billion have been completed, of which one was done by a Nordic investor. The market is almost entirely driven by domestic buyers - with a few exceptions. The gap between sellers and buyers price expectations has narrowed somewhat in H1. Office, residential and hotel have been the most liquid assets in the first half of 2009, with market shares of 32%, 16% and 13% respectively (excluding TOA). Retail has had tough H1 with a share of 3% of the investment volume. Prime yield for offices in Stockholm was 5.0% in Q2 2008 and has since Q1 2009 been at 5.75%. We see that smaller investment volumes are more attractive than larger. All the sectors have seen significant softening in yields since H1 2008. The market has had a few forced sales but not as many as expected. The uncertainty in refinancing of existing loans will most likely have an impact on the future investment market.
Page 8 ©2009, CB Richard Ellis, Inc.
3000 2000 1000 0 Q1 2008 Q2 2008 Q3 2008 Q4 2004 Q1 2009 Q2 2009 Source: CB Richard Ellis * Including tenant owner associations
Stockholm Prime Yields
9% Office
Retail
Industrial
8% 7% 6% 5% 4% 3% 2%
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Source: CB Richard Ellis Preliminary estimates for Q3
a
The demand for offices is depending on the labour market, which has a gloomy outlook. Hence, is the expectation that the demand for offices will continue to stay low, especially on inefficient office space. Smaller and efficient premises are therefore in stronger demand. The CBD vacancy is 11.1%, compared to 9.4% at the beginning of the year. Office vacancy is forecast to increase throughout the year due to an increasing supply and decreasing demand. Increase of sub-lettings will also affect the vacancies.
Stockholm Prime Office Rent (SEK) and Vacancy Rates in CBD
5000 4750 4500 4250 4000 3750 3500 3250 3000
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Stockholm Offices Office rents have fallen more in CBD than in other parts of central Stockholm. Prime rents for offices in Stockholm are at 4,000 SEK/sq m. Landlords offer tenant discount in order to sign new and keep existing tenants which means that the actual rent is far less than the base rent. Competition is increasing as supply is growing due to completions of new and upgraded premises, but also by sub-lettings. During 2009 152,000 sq m office will be completed, of which 46% is speculative.
Stockholm CBD
12% Rent
Vacancy
10% 8% 6% 4% 2% 0%
Q1 2008
Q2 2008
Q3 2008
Q4 2008
Q1 2009
Q2 2009
Q3 2009
Source: CB Richard Ellis Preliminary estimates for Q3
Stockholm Retail Retail sale has shown a strong growth throughout the summer. The growth in sale increased significantly in July. The retail trade is optimistic and forecasts a continuing sales growth. There are almost no vacancies in the most popular retail high streets. Shopping malls in prime location have a low vacancy, while malls in secondary location have a high vacancy. Due to households’ low demand for capital intensive goods, such as furniture and home electronics, retail parks have a hard time signing new and keeping old tenants, which increases vacancy. The outlook for 2010 is that the demand for retail establishments of all types will recover over the year.
Sweden Prime Net Rent in local currency (SEK)
SEK/sq m/annum
Q2 2008
Q1 2009
Q2 2009
Office
4,400
4,100
4,050
Retail
11,500
11,500
11,500
650
650
650
Industrial*
Sweden Industrial There are today approximately 115 million sq m industrial property in Sweden. About 50 million sq m is production and the same amount is warehouse. The remaining 15 million sq m constitutes of office area. The top regions for properties in distribution, logistic and warehousing are Gothenburg, Norrköping/Linköping and Örebro. A small nation like Sweden is often very dependent on trade. The value of Swedish exports is over 50% of GDP.
Source: CB Richard Ellis * Industrial rents for prime hubs in Sweden – Gothenburg, Norrköping, Örebro
Page 9 ©2009, CB Richard Ellis, Inc.
H1 2009
The number of companies that have chosen to rent their premises has historically been low in Sweden, but has over the years changed and now constitutes over 80% of the market. The rental levels for older logistic premises in smaller cities, all over Sweden, are generally within the interval of SEK 400-700 per sq m. Prime rents in greater cites may come up to SEK 1,000 per sq m on short contracts.
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Finland The Finnish economy is affected by the global downturn, and the labour market has deteriorated. The economical recession is expected to increase the unemployment rate towards the end of 2009 from the present 7.7%. The downturn can be seen also on the service sector.
Commerz Real entered the Finnish marked in 2009 when it acquired he “Swing Life Science Center” office scheme in Helsinki from the Etera Mutual Pension Insurance Company
Inflation was -0.1% in June 2009 and -0.6% in July 2009. Consumer confidence in the economy has remained positive. The confidence indicator has risen from 7.2 in May to 8.2 in August. On the financial markets the increase of banks’ interest margins has become slower. Short term market rates are still decreasing. The 3-montheuribor has decreased from 2.46% in January to 1.23% in June. The Bank of Finland has lowered the interest rate rate to 1.0%.
Capital Markets The total transaction volume has decreased from €2.7 billion in H1 2008 to €732 million in H1 2009. The total volume for the year 2009 is expected to be significantly lower than the €4 billion transacted in 2008. Investors yield requirements has increased by some 100bp compared to the situation a year ago varying however between different property sectors. Buyers are cautious regarding investment decisions and the transactions consist mainly of good and safe properties. Properties with tenant risk in regressing towns and cities are not considered interesting on the market. In the beginning of 2009 property trading was occuring mainly between domestic actors. Lately international investors have lately expressed their interest, and in the biggest sale during H1 2009 the buyer was foreign. Towards the end of the year it is expected that the activity increases when the gap between buyers and sellers expectations narrows and when the sellers aim to develop their portfolios. Since the difficulties in reorganizing the finance of the investors’ investment properties are likely to continue, there will probably be also compulsory sales and/or different methods of financing during the rest of 2009.
Finnish Investment Volume, € million
2500 2000 1500 1000 500 0 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Source: CB Richard Ellis/Realia
Helsinki Prime Yields
8% Office
Retail
Industrial
6% 5% 4% 3% 2% Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009
H1 2009
Source: CB Richard Ellis/Realia
Page 10 ©2009, CB Richard Ellis, Inc.
7%
a
The vacancy rate is on the increase and it is expected to exceed 10% during 2009. Consequently occupiers have many good and different optional locations. The market is stigmatized by the difficult decision making due to the uncertainty of the present and future economy.
Helsinki Retail Within CBD, the demand and rental level of high street retail space has remained and is also expected to stay at steady level. No vacant space exists.
Helsinki Prime Office Rent (€) and Vacancy Rates
400 375 350 325 300 275 250 225 200
Rent
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Helsinki Offices The pressure for lower rents is growing on the office market in Helsinki. However, there has not yet been significant change in the CBD area. Instead, the substantial new supply has made rent free periods more common and rental levels in different market sectors has decreased notably.
Helsinki CBD
12%
Vacancy
10% 8%
On the other hand, some shopping centres are expected to encounter difficulties during the rest of 2009. Due to new supply the rental levels are likely to decline.
6% 4% 2% 0% Q2 2006
Q4 2006
Q2 2007
Q4 2007
Q2 2008
Q4 2008
Q2 2009
Source: CB Richard Ellis/Realia
Helsinki Prime Net Rent in local currency (€)
€/sq m/annum
Q2 2008
Q1 2009
Q2 2009
Office
350
350
340
Retail
1,385
1,380
1,380
133
120
117
Industrial
Helsinki Industrial The demand for industrial space has decreased in Helsinki and is concentrated into modern industrial and logistics properties with good connections. The vacancy rate is on the increase and there are no occupiers for poorly located and technically outdated space. Some of the current industrial areas will probably be re-zoned for new use in the future and some prominent projects are already in the pipeline such as the Western Harbour area (Jätkäsaari) and Kalasatama area.
Source: CB Richard Ellis/Realia
H1 2009
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Norway Preliminary figures show that the mainland GDP contracted by 1.0% in Q1, but changed direction and increased by 0.3% in Q2. The Norwegian economy is growing again after two quarters in recession.
Strandveien 20 at Lysaker sold for NOK 523 million in Q3 2009
The central bank has cut the key deposit rate four times in the first half of 2009 from 3.5% to 1.25%, which is expected to be the bottom for now. The interest rate cuts seem to have a positive effect on the private consumption, retail sales and savings rate. The CPI inflation increased for five consecutive months before dropping by 0.6% in June, bringing the year-on-year growth in CPI down to 2.2%. The Norwegian currency has appreciated against both € and $ the first half of 2009, and is expected to appreciate further through 2009. The unemployment is still increasing, but at a much lower rate than expected. The unemployment rate increased from 2% to 3% during the first half of 2009.
Capital Markets The investment market is still slow. There are few properties for sale and there are also few distressed sales. As financing is still a challenge, the investors and the sellers have become more creative and solution orientated. The key is often to take over existing financing or to include a sellers credit. Moreover, we have often seen several examples of sale-leaseback. The transaction volume for Q1 and Q2 shows a total turnover of NOK 2.3. billion and NOK 2.6 billion, giving a total transaction volume of NOK 4.9 billion for the first half year (including NIAM’s purchase from Aberdeen). This is a reduction of 64% compared to the first half of 2008. Q2 2009 is the second consecutive quarter that the transaction volume is increasing, even if the volume still is at a very low level.
Norwegian Investment Volume, € million
Office Industrial Other
Retail Residential
Q1 2008 Q2 2008 Q3 2008 Q4 2004 Q1 2009 Q2 2009 Source: CB Richard Ellis
Oslo Prime Yields
9% Office
Retail
Industrial
6% 5% 4% 3% 2%
H1 2009
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009
Page 12 ©2009, CB Richard Ellis, Inc.
8% 7%
Office-, retail- and logistic properties were the most liquid sectors during the first half of 2009. Worth noticing is, that development properties accounted for 15% and retail properties accounted for almost 40% of the total volume. Local and private investors, as well as syndication players, seem to be the most active in the market, whereas the life insurance companies still are expectant. As financing is still difficult and expensive, the investment market has to get used to a higher degree of equity financing. The investment volume is expected to stay at low historical levels until the credit markets normalize.
2000 1800 1600 1400 1200 1000 800 600 400 200 0
Source: CB Richard Ellis
a
Oslo Office take-up, new space and vacancy Take-up
New Space
Vacancy
350000
12%
300000 10% 250000 200000
8%
150000 6% 100000 50000
4%
0 2% -50000 -100000
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Oslo Offices After the financial crisis hit Norway at full force last autumn, the rental market has been slow but in Q2 we have seen signs of increased activity. The tenants have postponed the signing of contracts as long as possible, while the rental prices have fallen, but sooner or later, they have had to sign as their contracts expired. Several tenant have seen the opportunities of getting new premises at good prices compared to one year ago. The landlords have become softer and many are now willing to offer various types of deductions, such as rental free periods, free adaptations and relocation. The number of subletting is lower than at the previous downturn, a situation which is mainly due to cost savings and to a lesser degree due to bankruptcies.
Oslo City Centre and CBD
During first half of 2009 the prime rent in CBD fell from 3,500 to 3,000 NOK per sq m. There is currently quite a lot of vacant space in CBD, a fact that contributes to pressing the prices down. The general office market seems to be in a better balance than CBD, but the tenants are undoubtedly in the driver's seat. As the unemployment rate is rising, prime rent in CBD is expected to decrease further in 2009, while other areas will be less negatively affected. The general vacancy in the office market is currently about 6.5%, an increase from 5% at the start of the year. We expect that the vacancy will continue to increase as long as the labour market has a negative development. We expect that the vacancy will increase to around 8% at the end of 2009.
0% 2002
2004
2006
2008
2010E
Source: CB Richard Ellis
Oslo Prime Net Rent in local currency (NOK)
NOK/sq m/annum
Q2 2008
Q1 2009
Q2 2009
Office
4,500
3,300
3,000
Retail
15,500
14,000
14,000
Industrial
1,150
1,050
1,000
Source: CB Richard Ellis
Oslo Retail The downturn is affecting the small retail shops in the best shopping streets in Oslo. The vacancy is increasing and some of the premises have been vacant since Christmas. On the other hand, both retail sales and private consumption is expected to increase in 2009. The prime rent has not decreased much since the downturn started and is between NOK 10,000-14,000 per sq m for the best premises in Karl Johan, while in Bogstadveien/ Hegdehaugsveien you get between NOK 5,00010,000 per sq m. The prime yield has been stable at 6.75% during first half of 2009.
Page 13 Š2009, CB Richard Ellis, Inc.
H1 2009
Oslo Industrial Efficient buildings in prime locations still achieve high rents, despite decreasing construction costs. Ceiling height, access and proximity to main roads are still important. The general trend in the market is increased focus on localization, centralization and improved efficiency. The prime rent has dropped from NOK 1,150 to NOK 1,000 per sq m for high quality buildings with more than 6 meters ceiling height and to NOK 900 per sq m with less than 6 meters ceiling height. The prime yield is estimated to be at 7.75% pt, up from 7.5% in Q1.
MarketView Nordic Property
Major Transactions in 2009
Price, € million Type 18 Office
Area DK – Copenhagen
Property Pilestræde 52 & Bomhusvej 13
Purchaser Aberdeen
Time Q3 2009
DK - Hellerup
Onsgaarden, Strandvejen
23
Office
BRF
Q2 2009
DK - Ballerup
Lautrupbjerg 7-11
21
Office
C.W. Obel
Q2 2009
DK - Mainly Copenhagen
Office portfolio -7 properties
65
Office
Aberdeen
Q1 2009
DK - Copenhagen
Carl Jacobsens Vej 25
30
Office
Q1 2009
DK - Copenhagen
Nørrebrogade 66
22
Office
Copenhagen Technical Academy Ejendomsselskabet Norden
DK - Copenhagen
Nyropsgade 2
16
Hotel
NorCap
Q1 2009
SWE - Nation wide
Retail portfolio
98
Retail
Niam
Q3 2009
SWE - Gothenburg
First Hotel, Gullbergsvass 17
42
Hotel
DEKA Immobilien
Q3 2009
SWE - Stockholm
Pennfäktaren 12
121
Hotel
KLP Fastigheter
Q2 2009
SWE - Stockholm
Magasinet 1
37
Office
IVG Funds
Q2 2009
SWE - Stockholm
Hammaren 15
82
Office
AMF
Q1 2009
SWE - Stockholm
Styrpinnen 21 & Rörstrand 33
29
Office
Byggnadsfirma Olov Lindgren
Q1 2009
SWE - Stockholm
Elefanten Mindre 1
27
Office
AFA
Q1 2009
NOR - Norway
4 properties
170
Q2 2009
NOR - Oslo/Inner city
Kiellands Hus
25
Retail/Office/ Niam Hotel Retail Catella Real Estate AG
NOR - Norway
Post Terminal Portfolio
43
Other
DTZ Corporate Finance
Q1 2009
NOR - Oslo/Skøyen
Drammensveien 144
36
Office
Arivest AS
Q1 2009
NOR - Oslo/Fornebu
Fornebu Senter/Arena Handel
31
KLP
Q1 2009
FIN - Vantaa/Joensuu
3 properties
22
Swing Life Science Center
120
Real Estate Fund owned by Mandatum and Kaleva Commerz Real AG
Q2 2009
FIN - Espoo
Development site Logistics/Ret ail Office
FIN - Many
Portfolio
50
Retail/Office Trackside Holding
Q2 2009
FIN - Tampere
Tulli Business Park, phase IV
20
Office
Q2 2009
FIN - Helsinki/Tampere
4 properties
50
Retail
FIN - Vantaa
Kesko Warehouse/Hakkila
FIN - Hamina/Summa FIN - Helsinki FIN - Vantaa
N.a..
Logistics
Summa mile site
40
Industrial
Sport and wellness center/ Salmisaari Airport Plaza Business Park, Rondo
37
Leisure
17
Office
UBS Euroinvest Immobilien Fund Kesko Pension Fund Varma Mutual Pension Insurance Company Google Varma Mutual Pension Insurance Company Paperiliitto/Metallityöväenliitto and Palkansaajasäätiö
Q1 2009
Q2 2009
Q2 2009
Q1 2009 Q1 2009 Q1 2009 Q1 2009 Q1 2009
Source: CB Richard Ellis
H1 2009
Currency conversion for Q3 is preliminary (July-August): €/DKK:=7.445, €/SEK = 10.524
© 2009 CB Richard Ellis Limited
MarketView Nordic Property
CBRE Global Definitions Prime Rent - Represents the top open-market tier of rent that could be expected for a unit of standard size commensurate with demand in each location, of highest quality and specification and in the best location in a market at the survey date. The Prime Rent should reflect the level at which relevant transactions are being completed in the market at the time but need not be exactly identical to any of them, particularly if deal flow is very limited or made up of unusual one-off deals. If there are no relevant transactions during the survey period, the quoted figure will be more hypothetical, based on expert opinion of market conditions, but the same criteria on building size and specification will still apply. For offices, the Prime Rent should represent the typical “achievable” open market headline rent which a blue chip occupier would be expected to pay for: • an office unit of standard size commensurate with demand in each location, typically 1,000 sq m (10,000 sq ft) • an office unit of highest quality and specification within the local market • an office unit within the prime location (CBD, for example) of a market It is assumed that the occupier will also agree to a package of incentives that is typical of the market at the time. Prime Yield - Represents the Yield which an investor would receive when acquiring a grade/class A building in a prime location (CBD, for example), which is fully let at current market value rents. Prime Yield should reflect the level at which relevant transactions are being completed in the market at the time but need not be exactly identical to any of them, particularly if deal flow is very limited or made up of unusual one-off deals. If there are no relevant transactions during the survey period a hypothetical yield should be quoted, and is not a calculation based on particular transactions, but it is an expert opinion formed in the light of market conditions, but the same criteria on building location and specification still apply.
For more information regarding the MarketView, please contact:
Nordic Country Contacts Denmark Robin Rich Head of Research CB Richard Ellis Trondhjems Plads 3 DK-2100 Copenhagen t: +45 70 22 96 01 e: robin.rich@cbre.com
Finland Veijo Saarinen Head of GCS and Transactional Services CB Richard Ellis Oy Mannerheimintie 12 a FIN-00100 Helsinki t: +358 50 3048 013 e: veijo.saarinen@cbre.com
Sweden Rebecka Andersson Temp. Head of Research CB Richard Ellis Mäster Saumelsgatan 42 111 57 Stockholm t: +46 8 4101 8732 e: rebecka.andersson@cbre.com
Norway Per Erik Solem Analyst CB Richard Ellis Atrium Bryggegata 7 0250 Oslo t: +47 40 00 57 66 e: pes@cbre.no
H1 2009
Disclaimer 2009 CB Richard Ellis Information herein has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified ve it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. c Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance performa of the market. This information is designed exclusively for use by CB Richard Ellis clients, and cannot be reproduced without prior written permission of CB Richard Ellis. © Copyright 2009 CB Richard Ellis
Page 15 ©2009 CB Richard Ellis, Inc.
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