Newsec Property Outlook Spring 2017 by Newsec Advisory A/S

NEWSEC PROPERTY OUTLOOK SPRING 2017

NEWSEC PROPERTY OUTLOOK

CONTENTS Executive summary ............................................................................................................ 4 Global economic outlook ................................................................................................. 8 Sweden – Rental cycles on a volatile Stockholm office market ................... 12 Sweden – Trends on the Stockholm office market ............................................. 14 Sweden – The office of the future – trends and challenges ............................ 16 The Swedish property market ..................................................................................... 18 The Norwegian property market .............................................................................. 22 The Finnish property market ...................................................................................... 24 The Danish property market ....................................................................................... 26 The Baltic property market ......................................................................................... 28 Nordic property financing ............................................................................................ 32 Outlook for the Northern European property market ................................... 34 Macroeconomic data....................................................................................................... 38 Property data ....................................................................................................................... 41 Definitions ............................................................................................................................ 45 The Full Service Property House .............................................................................. 46 Contact and addresses .................................................................................................. 47

Copyright Newsec © 2017 This report is intended for general information and is based upon material in our possession or supplied to us that we believe to be reliable. Whilst every effort has been made to ensure its accuracy and completeness, we cannot offer any warranty that factual errors may not have occurred. Newsec takes no responsibility for any damage or loss suffered by reason of the inaccuracy of this report. Newsec, Box 7795, SE-103 96 Stockholm, Sweden. Phone + 46 8 454 40 00, www.newsec.se. You may use the information in the Newsec Property Outlook but acknowledgement must be made for all quotations and use of data/graphics. Cover photo: iStock

● EXECUTIVE SUMMARY

NEWSEC PROPERTY OUTLOOK • SPRING 2017

EXECUTIVE SUMMARY Despite an unsettled world situation, growth in Europe and the USA is showing persistence. The aftereffects of the financial crisis of 2007 are beginning to lose their force, and we expect to see stronger growth in 2017. The political risks remain high. During the year the effects of Trump and the Brexit vote will start to become apparent. In Europe, geopolitical tensions are rising. At the same time many economies are being challenged by an ageing population. Despite uncertainties on global markets, the property market in Northern Europe is expected to remain interesting for investors in 2017. Interest rates remain low and there is still a lot of liquidity in the system.

In the last issue of Newsec Property Outlook we discussed the impact of the changing demography on the Swedish property market and made an analysis of how a powerful population growth and a shortage of housing are changing our major cities. This issue will focus on all aspects of the office market from efficiency improvements, conversions, projects and rent levels to expectations for the future.

high rent levels compared to historical levels. Many office spaces are also being converted into residential properties, which also decreases the supply. As we reported in the last issue of Newsec Property Outlook, an amazingly hot residential market is developing around the inner areas of Sweden’s major cities. All properties in the inner cities that are suitable for residential use will be converted sooner or later. This is because – for the vast majority of properties outside the CBD, and also for office properties in the inner city – the alternative value of a property when used for housing is a great deal higher than any other possible use.

The Stockholm office rental market is the largest, most analysed and most transparent rental market in the Nordic region. Office rents in the CBD have risen strongly in recent years, and not least in 2016. The vacancy level is now extremely low and the supply of new office premises very small. Together, this has led to very

Restrictions on new production have

Transaction Volume: Nordic and Baltic Region BEUR

Source: Newsec

50 45 40 35 30 25 20 15 10 5 2009 Sweden

The design of modern offices is widely discussed today. Over time the office environment has been restyled in response to the challenges and changes that working life is faced with. If we look at how workplaces have changed over the past century, they have changed a great deal. Common to all the changes in the working environment is the aim of increasing the rationalisation and efficiency of work. Knowing what office premises leadingedge global companies are seeking today, we can see that efficient office space with great flexibility as regards both the area and the lease contract will be in ever-greater demand. The office of the future will place great focus on retaining employees and attracting new employees. Its location, together with digitalisation and flexibility, will be key factors.

2016 moves into history with a new record transaction volume In Sweden the total transaction volume for the year beat all earlier records and amounted to more than SEK 201 billion in a total of 535 transactions (transactions >40 MSEK), which was also a record. The year ended with an intense transaction month of over SEK 31 billion in December, the second-highest monthly volume of 2016. The transaction volume for 2016 was 37% higher than in 2015, when the comparable figure was SEK 147 billion.

caused demand for office premises to spill over into submarkets where vacancy for the previous five years has been high, and where the demand for modernised premises and new production has in many cases been limited. Since then, premises have been modernised and occupied, which provides the basis for a broad range of services and a flourishing submarket.

2010 Norway

2011

2012

Finland

2013 Denmark

2014 Estonia

2015 Latvia

2016

2017E

Lithuania

Factors contributing to the continuing high interest in property are the low

NEWSEC PROPERTY OUTLOOK • SPRING 2017

EXECUTIVE SUMMARY ●

» The property market in Northern Europe is expected to remain interesting for investors in 2017«

● EXECUTIVE SUMMARY

NEWSEC PROPERTY OUTLOOK • SPRING 2017

SEK 201 BILLION

Photo: iStock

RECORD-BREAKING TRANSACTION VOLUME IN SWEDEN

interest rate, the volatile global stock markets and low yields on the bond market. During 2016 there were a number of political events that created uncertainty on the world market. The results are expected to affect primarily the Swedish

export sector when global trading relations are put to the test. In 2016 the most popular segment was office properties, totalling almost 30% of the volume. In second place, with a 26%

market share, came residential properties, followed by retail properties on 19%. There has been a steady increase in interest for residential properties in recent years and a number of major housing projects are planned or under way.

NEWSEC PROPERTY OUTLOOK • SPRING 2017

EXECUTIVE SUMMARY ●

» The Norwegian transaction market finished the year strongly after a relatively slow start to 2016«

Domestic investors continue to dominate the transaction market, and in terms of volume the share taken by international investors fell to 19%, compared with 26% in 2015. This was mainly due to several large domestic transactions, and in absolute numbers the proportion of foreign investors is much the same as 2015. There continues to be a clear interest from international capital because, among other things, the Swedish market continues to offer a better risk-adjusted return than other markets elsewhere in Europe.

2015. This indicates that the Norwegian transaction market is healthier than ever before. The recovery of the Finnish property market that started in 2014 continued through 2015 and into 2016. Last year ended with a new record volume which exceeded EUR 7 billion by a clear margin. The comparable figure for 2015 was EUR 5 billion. The lack of good investment properties in Europe’s main market areas, and the low yield-levels prevailing there, are continuing to drive investors to seek higher yields and spread their risks in Finland.

In Norway the transaction market finished the year strongly after a relatively slow start to 2016. In the first half-year the total transaction volume in Norway was about NOK 30 billion, spread over 100 transactions. In the second half-year there were nearly 200 transactions, so the total for 2016 was close to 300. This is about 100 more than in both 2014 and

In Denmark the transaction level in 2016 was very strong, demonstrating the attractiveness of Danish commercial properties. Newsec estimates the total transaction volume for 2016 at about DKK 64 billion. The high demand for investment

Market Yield Northern Europe Percent

Source: Newsec

10 9 8

properties has exerted downward pressure on the requirements for return on investment. Some estate agents consider that prices on the Copenhagen property market are rising too fast. However, we do not believe that prices are too high, even though the total transaction volume for Denmark is back at 2007 levels. In Lithuania the transaction volume was close to EUR 300 million for the third year in a row. The most active investment segments were logistics, retail and office, which accounted for nearly 80% of the transaction volume. The hotel segment was also notable, with a 12% share. In 2017 only an insignificant increase in the transaction volume in Lithuania is expected. The total transaction volume in Latvia exceeded EUR 290 million in 2016. Investment in the retail segment last year accounted for nearly 60% of the total transaction volume. Two big shopping centres in Riga – Domina and Riga Plaza – were sold for a total sum of EUR 170 million. The office segment was also active and accounted for 30% of the total transaction volume. In 2017 the real-estate investment volume in Latvia is expected to reach at least the same level.

7 6 5 4 3 2 1 Residential Stockholm Prime

Residential Malmö Prime

Residential Gothenburg Prime

Retail Stockholm Prime

Office Stockholm Prime

Retail Oslo Prime

Retail Copenhagen Prime

Office Oslo Prime

Residential HMA Prime

Office Gothenburg Prime

Retail HMA Prime

Office Copenhagen Prime

Office HMA Prime

Retail Gothenburg Prime

Retail Malmö Prime

Office Malmö Prime

Logistics Stockholm Prime

Logistics Oslo Prime

Average Interest Rate ECB 2006–2016

Logistics Gothenburg Prime

Logistics Malmö Prime

Retail Tallinn Prime

Retail Vilnius Prime

Office Tallinn Prime

Office Vilnius Prime

Retail Riga Prime

Office Riga Prime

Logistics HMA Prime

Logistics Vilnius Prime

Logistics Riga Prime

Logistics Tallinn Prime

The investment market in Estonia was active in 2016. The total transaction volume exceeded EUR 270 million, with the office segment taking almost half. During 2016 several big office buildings as well as the Mustamäe Keskus and Magistrali Keskus shopping centres and the recently opened Hilton Hotel were sold. Demand for quality properties is strong, which has steadily pushed down yields.

Yield 2017E

● GLOBAL ECONOMIC OUTLOOK

NEWSEC PROPERTY OUTLOOK • SPRING 2017

GLOBAL ECONOMIC OUTLOOK Global

Euro area – economic growth is rising amid political risk

Growth in both Europe and the US is showing resilience amid global uncertainties. The labour market keeps adding new jobs, inflation is picking up from low levels, and sentiment among business and consumers has improved. Purchasing Managers’ indices for manufacturing and services point to stronger growth in coming months in both Europe and the US, which is confirmed by rising consumer confidence. The effects of the financial crisis are slowly dissipating. An upturn in global growth is expected in 2017.

households’ incomes despite low wage growth.

Developments in the euro area have been far better than expected in recent months. Business surveys, including the Purchasing Managers’ Index (PMI) and the European Commission’s economic sentiment survey, have shown markedly rising confidence, indicating GDP growth moving towards 2%. After a long period with weak growth, some signs of improvement are predicted in the region’s manufacturing sector. New orders are pointing upwards, and production is on the rise across most of the largest economies. Real investments have been rising continuously for two years and will most likely continue to grow in the years ahead; so far, however, the rise has been relatively slow. Underlying productivity growth remains slow in the euro area, as elsewhere.

Nevertheless, risks remain high. In 2017, the effects of the Brexit vote and the Trump victory will start to materialise. Upcoming European elections and geo political tensions mean that political risks will stay high. In addition, underlying potential growth remains weak. Poor productivity growth and ageing populations are restraining growth prospects. In our forecast, we highlight how demographic changes are transforming labour markets, politics, and savings and investment decisions. Global GDP growth is forecast to reach 3.4% in 2017 and 3.3% in 2018.

At the monetary policy meeting in early December, the European Central Bank (ECB) decided to extend its asset purchase programme to the end of 2017. However, from April the pace will be slower, down from EUR 80 billion per month to 60 billion. This reduction partially reflects rising inflation expectations and better-than-expected macroeconomic data. Inflation is expected to rise by 0.3 percentage point, bringing it up to 1.3% this year. This will go a long way to satisfying the ECB’s criterion of a sustained increase in the underlying inflation. The ECB also decided to leave its key interest rate unchanged at 0.0% at its last meeting in December.

Nordics Sweden: growing-pains intensify

Consumer confidence has improved, alongside similar results from business surveys, and is well above normal levels, suggesting that consumption growth is likely to be maintained. Employment is rising almost everywhere in the region and unemployment is falling, boosting

Sweden is showing record rates of population growth. At the beginning of 2017, the 10 million mark was crossed. According to Statistics Sweden’s latest forecast, the population will increase by another million in the next seven years, reaching 11 million in 2024. The rapidly

Swedbank's Global GDP Forecast 2015—2018E

Central Bank Policy Rate Forecasts

Annual Average Percentage Change

Percent

Source: IMF, Swedbank

Source: Swedbank

7 6

1.5

5 4

3 2

0.5

1 0

Brazil

Russia

Norway

Japan

Denmark

EMU countries

USA

Global GDP

China

-2

India

-1 -0.5

2015

Swedish Central Bank

2016

2017E

Norwegian Central Bank

| Fed

2018E ECB

BoE

NEWSEC PROPERTY OUTLOOK • SPRING 2017

GLOBAL ECONOMIC OUTLOOK ●

» Sweden is showing record rates of population growth and at the beginning of 2017, the 10 million mark was crossed«

In an uncertain world, Sweden has good prospects for continued strong growth. The growth will mainly be driven by domestic demand. The rapid population growth will also drive growth because of the great need for investments. Investments in the public sector and housing are also main contributors to growth. Public consumption is also rising as the growing population raises the demand for welfare services such as health care, schools, preschools and nursing homes. Sweden’s GDP growth is expected to decrease to 2.6% in 2017 compared with 3.4% in 2016. Inflation showed an upward tendency towards the end of 2016 – a trend that is expected to continue, particularly in the first half of this year. The inflation is expected to stabilise at a little below 2% during 2017. The Swedish Riksbank’s expansionary monetary policy is expected to continue in 2017, but the extended bond buying will cease at midyear. At the Riksbank’s February meeting, the Executive Board decided to leave the repo rate unchanged at -0.50%. In the spring

Photo: iStock

growing population will be an important factor for economic development. This could be highly positive for Swedish growth, in both the short and the long term, while also changing and challenging the drivers of the economy. This is largely because the housing market is coming under further pressure. The population growth also accentuates the polarisation of the Swedish labour market into highskilled and low-skilled jobs, with few in the middle range, and problems of matching vacancies with available labour may worsen. Reforms to achieve betterfunctioning housing and labour markets are becoming increasingly urgent. The lack of reforms is a constraint on the otherwise strong growth in the Swedish economy, and increases risks.

of 2018, the Riksbank is expected to raise the repo rate, which will mark the start of a gradual but cautious normalisation of interest rates in Sweden. Swedish exports strengthened in the second half of last year following a stronger outcome in several of Sweden’s most important markets. Increased sales of R&D services pushed up exports of services in the third quarter, while exports of goods benefited from a weak krona. In November, exports of goods rose by 13% in nominal terms compared with November 2015. Conditions for the Swedish export industry will improve during 2017–2018, since we expect slightly stronger global growth. During 2017 and 2018, it will be increasingly important for economic policy to facilitate continued growth in Sweden while reducing vulnerabilities. This is particularly important because an uncertain external environment can quickly reverse economic development. It is also important to exploit the opportunities

presented by the strong population growth. Sweden is facing the problem of an ageing population and an increasing dependency ratio. However, the high population growth may make it possible to alleviate pressures on tax and welfare services. The positive effects are dependent on new arrivals and on young people receiving a good education and finding employment. Reforms to establish a more inclusive labour market and a betterfunctioning housing market are more urgent than ever.

Norway: the economy has turned Growth in the Norwegian economy remains meagre, but that does not change the fact that a corner was turned earlier this year. For the country as a whole, recent data confirm the view that unemployment has peaked and that the downturn in employment has ended. The divergence between oil and non-oil regions remains large, but for the country as a whole the risk of a reversal in this trend now seems remote. GDP growth for the mainland is expected to improve

● GLOBAL ECONOMIC OUTLOOK

NEWSEC PROPERTY OUTLOOK • SPRING 2017

» In Norway unemployment has peaked and the downturn in employment has ended«

to 1.5% in 2017, twice that of 2016, as the drag from declining oil investments finally subsides. Oil prices have risen higher in recent months, and it has become even more evident that the oil market is being rebalanced. Oil prices are expected to rise further in coming years as the sharp drop in global oil investments most likely will result in a significant shortfall in productive capacity from conventional oil. Oil-related manufacturing production is expected to stabilise during the first half of 2017. Household demand looks set to strengthen this year as consumer-confidence barometers continue to rise and inflation recedes. Consumption of goods has been largely flat during this downturn, but consumption of services never weakened and demand for housing has strengthened.

As expected, Norges Bank decided to keep its policy rate unchanged at 0.5% in December despite somewhat weaker economic data than projected. Norges Bank is signalling that the worries about the downturn in oil have receded relative to worries about financial instability. A rate increase would probably require a significant fall in unemployment. No rate hikes from Norge’s Bank are expected until 2018.

Finland: can the country catch the train? In 2016, economic growth in Finland recovered strongly to 1.4%, primarily through private consumption and investments. Improved consumer confidence, a stabilising labour market, very low inflation and low borrowing costs were behind the growth in household consumption. Investments grew primarily because of the construction sector, which has been

one of the major sources of growth during the last two years. The gap between wage and productivity growth has narrowed, which has helped to improve cost competiveness. However, export volumes grew only sluggishly, and enterprises’ export expectations dropped sharply last year. In 2017 and 2018, private consumption and investment are expected to slow, and the improvement in exports will not be enough to sustain the pace of economic growth. Growth is expected to slow to 0.9% in 2017 and 1.0% in 2018. Consumption will slow due to a modest acceleration of inflation and the dampening effect of the Competitiveness Pact on wages. Investment is being held back because construction is estimated to have peaked. A better outlook for Finland’s main trading partners will lead to improved export growth. Labour productivity will increase only very sluggishly, although

NEWSEC PROPERTY OUTLOOK • SPRING 2017

GLOBAL ECONOMIC OUTLOOK ●

GROWTH IN DENMARK IS EXPECTED TO PICK UP IN 2017–2018 AFTER A SLOWDOWN IN 2016 the Competitiveness Pact will reduce labour costs and thus contribute to export competitiveness. Despite tax cuts, the ongoing fiscal reforms are contributing to a gradual reduction of the government budget deficit; however, government debt is expected to increase. The growth of public investments is set to slow considerably in 2017 and even decrease in 2018, due to the austerity measures. For the same reasons government expenditures too will hardly grow.

Denmark: a solid economic performance and good short-term prospects Growth in Denmark is expected to pick up in 2017–2018 after a slowdown in 2016. The main drivers will be household consumption backed by rising employment and wages. Growth should reach 1.5% to 2.0% in the next two years. However, a growing shortage of qualified employees risks limiting growth potential, as well as eroding external competitiveness through rising wages. Over the medium to long term, the labour force is expected to contract and become significantly smaller than in neighbouring Sweden and Norway. The weak political setup could upend the government’s plans

for structural reforms and limit public consumption. Furthermore, housing prices and household debt levels remain a significant risk to the economy, and prices in the greater Copenhagen area have surpassed the levels reached prior to the crash in 2008–2009. External risks are mainly related to the fallout from Brexit, the UK being one of Denmark’s main trading partners.

Baltics Estonia: grab the opportunities and grow!

Lithuania: wages grow but people leave

2016 was the second successive year of decelerating economic growth in Estonia, with a rise of only 1.2%. However, there is no reason for concern since the expected recovery of investments and better outlook for foreign demand will push GDP growth to 2.2% in 2017 and 2.8% in 2018. At the same time, inflation is already gathering pace and is expected to pick up sharply this year as wage pressures persist.

After an estimated 2.0% growth last year the Lithuanian economy is expected to accelerate to 2.8% in 2017, before easing to 2.5% in 2018. Temporary factors, such as shrinking inventories, contracting public investments and a poor crop harvest, are unlikely to drag down growth this year. However, a jump in inflation, weaker wage growth, shrinking employment and rising emigration will dent consumption. Exports will accelerate somewhat, but cost competitiveness has been eroded and the era of rapid growth is behind us.

Latvia: growth is picking up Despite the massive drop in gross fixed capital formation, the economy seems to have grown by a not-bad 1.6% in 2016. Recent data hint that the low point is past

Sweden: Household Consumption & Savings

Sweden: Repo Rate Path Percent

Source: Swedbank

0.75 0.50 0.25 0.00 -0.25 -0.50 -0.75

2014

Outcome

2015

and that growth will pick up from here, driven by inflows from the EU funds and a stronger credit cycle. Investments will soon rebound, supporting job creation, wage growth and consumption and pushing GDP growth to about 3% a year in 2017–2018. Exports will benefit from a cyclical upswing in the advanced economies. Structural policies are back in focus, with changes in the tax code to be drafted in the spring.

2016

Sweden, Swedbank

2017E

2018E

Swedish Central Bank

2019E Market Pricing

Source: Swedbank

Percent 4.5

3.5

2.5

1.5

0.5

2010

2011

Disp. Inc. (y/y), lhs (left axis)

2012

2013

2014

2015

Consumption (y/y), lhs (left axis)

2016

2017E

2018E

Savings rate, rhs (right axis)

● SWEDEN — RENTAL CYCLES ON A VOLATILE STOCKHOLM OFFICE MARKET

NEWSEC PROPERTY OUTLOOK • SPRING 2017

SWEDEN — RENTAL CYCLES ON A

VOLATILE STOCKHOLM OFFICE MARKET The Stockholm office rental market is the largest, most analysed and most transparent rental market in the Nordic region. Office rents in the CBD have increased strongly in recent years, not least in 2016. The vacancy rate is now extremely low and the supply of new office premises very limited. Together, this has led to rent levels which viewed historically are very high. Historically the Stockholm market has been characterised by periods of increa sing market rents followed by high, and in many cases speculative, new production of offices. Typically these new office premises have come onto the market at the same time as the general economy turned downwards, which resulted in very large swings in market rents and vacancy levels. Stockholm’s office rental market has therefore been characterised by high volatility, with clear cycles of peaks and troughs at intervals of 8-10 years. The office rental market was generally viewed as rather boring, and as a result also poorly analysed, until the beginning of the 1980s. At that time the greater part of the office stock in the central part of Stockholm consisted either of converted apartment blocks, mainly in the stock in Eastern City, or of larger office buildings erected in the 1960s and 1970s. The older office premises often consisted of large office rooms. This type of office had a space allocation of 25–30 m2 per employee. The newer stock consisted, with few exceptions, of traditional cell-offices, though with smaller office modules and a space allocation of 20–25 m2 per employee.

led to increasing interest in new production of office space and conversion of centrally located apartment blocks to more profitable office use. On the political side there was action to slow things down, by introducing restrictions on investments in the new construction or rebuilding of commercial premises in order to redirect production resources to the housing sector. In spite of these restrictions, large areas of office space were constructed at this time. And when the downturn in the economy hit Sweden around 1990 there was therefore a large supply of newly built but still unlet office premises.

rents, which might then have also had a negative impact on rent levels in the existing stock at times of renegotiation. The rental market bottomed in 1993 before recovering faster than many experts had thought likely.

… and again in 2000 In line with the recovery of the economy over the next few years and the development of Stockholm into one of Europe’s leading cities in the IT and telecom sectors, the demand for offices in Stockholm increased. Although a relatively small part of the office stock in the CBD was actually let to companies in IT and telecoms – only about 5% according to surveys – these sectors were driving the top rents in the last years of the 1990s. The companies leased larger areas than they really needed, in preparation for planned future expansion. Top rents were pushed up to levels over SEK 6,000 per m2 in the peak year of 2000. However, this top level was very ‘thin’, with only a few individual contracts signed at that level. The measured vacancy level was very low (2%), but at the same time there was a hidden vacancy resulting from the surplus space that companies did not use.

Increasing vacancy rates and a period of very high interest rates at the beginning of the 1990s meant that property owners with high leverage were forced to lower rents significantly in order to retain their tenants. Rents even in the very best locations were nearly halved, and vacancies rose to 15–20%. However, financially strong owners judged that the strongly depressed rent levels were in the long term unreasonably low. They therefore chose to accept a high vacancy in preference to forcing the vacancy rate down by letting vacant areas at low

Prime Office Rents, Stockholm SEK/m2

Source: Newsec

8,000 7,000 6,000 5,000 4,000 3,000 2,000

1990

2005

2010

2015

Q1 2017

2016

2013

2015

2011

2012

2010

2009

2007

2008

2005

2006

2003

2004

2001

2002

1999

2000

1997

1998

1995

1996

1993

1994

1991

1989

2000

Top Rent 1990

1987

Prime Rent

1995

1992

1985

1988

1,000

1985

Deregulation of the financial market and a booming economy from the mid-1980s created increasing demand for offices from the financial and other sectors. Strongly rising rents and low vacancies

1986

Office rents peaked in 1990

NEWSEC PROPERTY OUTLOOK • SPRING 2017

SWEDEN —RENTAL CYCLES ON A VOLATILE STOCKHOLM OFFICE MARKET ●

» The Stockholm office rental market is the largest, most analysed and most transparent rental market in the Nordic region«

With the cutbacks and closures that followed the IT crisis, and the downturn in the economy that began in 2000, the hidden vacancies gradually became visible as the IT companies reduced their office space to match their true needs or left their offices completely. Top rents fell from over SEK 6,000 per m2 to a level of SEK 4,000 per m2 in 2004, but for most of the office stock in the CBD the reduction in rents was less dramatic. Newconstruction activity in Greater Stockholm had gathered pace at the end of the 1990s and a number of projects were completed in 2002 and 2003. Companies that needed to cut back on costs relocated to new and more efficient buildings in attractive suburban office locations. The vacancy rate in the CBD rose to around 10% in 2004. However, most of the vacancies were in unmodern older office buildings. As a consequence of increasing vacancy rates and falling rents, very few new office projects started after the IT crisis. Improvements in the economy from 2004 onwards stabilised rent levels in the CBD. At the same time a trend towards greater differences in rent levels between modern offices and older office premises was observed. Market rents became more dependent on the quality and spaceefficiency of the premises rather than the location within the CBD, which resulted in increased attractiveness for western parts of the CBD (the area around the Central Station), which had a large proportion of modern office buildings.

… and then in 2008 Economic recovery from 2005 onwards increased the demand for modern offices. A large proportion of the high vacancies in the CBD, mainly in the older office stock, was withdrawn from the market for reconstruction and upgrading to modern office premises. The vacancy rate in the

available office stock decreased to a level of 5% during 2005, and market rents began to increase again. The period up to the global financial crisis in the autumn of 2008 was characterised by rising rent levels and falling vacancies, but without reaching the same top rents as before the IT crisis. Top rents peaked at levels of SEK 4,800 per m2. In contrast to the earlier peak year of 2000, however, the level this time was broader, with a large number of contracts signed at or near this level. Although the global financial crisis resulted in large cutbacks in the financial sector, Sweden – and the Stockholm market with it – was hit less hard than many other markets. Vacancies in the CBD began to rise at the beginning of 2009 in response to both cuts in the workforce and increased space-efficiency. At the beginning of 2010 the vacancy rate in the CBD amounted to 7%. The phase of downturn on the office rental market was relatively short. The general fall in rent levels in the CBD was just under 15% from the top level in 2008, and as early as at the beginning of 2010 rent levels began to rise again. Since 2010 rent levels in the CBD (Central Business District) have risen steadily, and

by the beginning of 2011 top rents at a level of SEK 4,800 per m2 were reported, with more normal rent levels in the bracket SEK 3,500 to SEK 4,000 per m2. Good economic growth in Sweden and especially in the Stockholm region, together with low new-production of offices, has now pushed the vacancy level in the CBD to below 2%. Other contributory causes of this trend are demolitions of office buildings and conversions of office space to other uses. Top rents are now reaching levels of SEK 7,000 per m2 and higher, with an established average market rent level for modern offices in the CBD of SEK 5,600 per m2. In response to this, new construction of office premises has taken off, but is still relatively low at about 1% per year in the Stockholm region.

… and year? We are now approaching the end of a ‘normal’ cycle of 8–10 years. However, the market conditions look favourable with good economic growth in the region and low new supply. The question now is ‘How many more years can the strong rental trend continue?’. Contact: Jan Rosengren jan.rosengren@newsec.se

● SWEDEN — TRENDS ON THE STOCKHOLM OFFICE MARKET

NEWSEC PROPERTY OUTLOOK • SPRING 2017

SWEDEN — TRENDS ON THE STOCKHOLM OFFICE MARKET We are moving towards flexibility regarding both where we work and when we work. But human beings are herd animals at heart. We want to work, eat, exercise and socialise with other people, which is why a broad range of services and good public transport are of the greatest importance. The submarket that best fulfils these requirements is Stockholm CBD (Central Business District). In this submarket a current vacancy level below 2% is reported. This is explained by a negative net addition of office space during the last five years as a result of office conversions mainly to hotels, and of restrictions on the height and shape of new office buildings. Another factor that has had great impact is that the office space used by each employee, and hence the cost per employee, has fallen greatly over the last 15 years. This has helped many companies that have chosen flexible premises to sign lease contracts in central Stockholm. The majority of experts were sure that the relocations out of Stockholm CBD by the banks and the social insurance service (Försäkringskassan) would lead to a notable increase in vacancies. Now that more than half of this space has reached the market, vacancy is down at a record low level and there is virtually no sign that it will rise significantly in the next three years. Office rents are running at record high levels, which has persuaded many companies to decide to set up new establishments in suburban markets or relocate there. The choice has then lain between moving to refurbished premises, as Försäkrings kassan did when it moved to Telefonplan, or moving into newly built premises, which many of the banks preferred. Common to all these lettings is that the premises are in locations with good public transport and a wide range of services.

Newly built office premises are notable for a very low vacancy level. In the past ten years developers have built just under 100,000 m2 of offices per year in average, which represents about 0.8% of the office stock in Greater Stockholm. At the same time a large number of office buildings were converted to other uses, which has meant that the net addition of new office space was notable lower than the coming demand. New-production projects initiated without signed leases have been rare, although developers who did

dare to invest in new-production projects have often been very successful. The current vacancy rate in Stockholm region office projects completed between 2012 and 2016 stands at just above 4%, with the majority of the vacancies occurring in Kista and Sickla. This can be compared with a vacancy rate across the whole Stockholm market of just over 7%. Restrictions on new production have caused demand for premises to spill over into submarkets the vacancy rate five

NEWSEC PROPERTY OUTLOOK • SPRING 2017

SWEDEN — TRENDS ON THE STOCKHOLM OFFICE MARKET ●

» The office districts that have seen the highest growth in rents and the greatest lowering of the vacancy level in the last five years are those with a broad range of services and good public transport« years ago where high and where the demand for modernised premises and new production had in many cases been limited. Since then, premises have been modernised and occupied, which provides the basis for a broad range of services and a flourishing submarket. In Solna’s most attractive office districts, vacancy levels have fallen by more than half in the past year, from 9% to just over 4%. And in submarkets just outside Stockholm Inner City vacancies have also fallen greatly, for example in Hammarby Sjöstad where the vacancy level is now below 5%, compared with around 8% in 2015. Some new production of offices is located in these submarkets, but it is hampered because developers are prioritising housing.

A few exceptions exist, and it is mainly Stockholm’s explosive development of housing in the neighbourhood of these offices that makes a high rate of letting now possible. The demand has come from government offices and authorities, municipal departments and smaller office tenants. The City of Stockholm has set a goal of building 140,000 housing units by 2030, nearly 40,000 of them planned for the Inner City. This will inevitably be at the expense of both existing office stock and potential new office production. A majority of the office buildings in Stockholm would be worth more as residential building rights or conversion projects. Regulations and other impediments will make many of these plans impossible. Nevertheless, a large number of the office buildings that can be converted will be lost from the office market. As a result, demand for both existing office space and new production is increasing. Newsec expects that office vacancies will remain low for the foreseeable future.

At the end of the 1980s land in Stockholm was considered more or less fully exploited, and office buildings were being built to a significantly greater extent, mainly for car-driving tenants. These properties, lacking good public transport and with poor services, have been struggling in the past decade, but there are often good possibilities for converting them to housing or for building new housing.

In recent years there have been a few

Completed new production in Stockholm Thousand m2

Source: Newsec

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attempts to create new office districts, but these have often fallen flat. One exception is Arenastaden in Solna, which got off to a flying start with the building of the National Arena and the decision to build the Nordic Region’s largest shopping centre, Mall of Scandinavia, nearby. The Arena has often been a letting for a major company’s head office, or a similar magnet, that has really established a submarket by bringing life and activity a new area at an early stage. In step with tenants who have ever-growing demands and desires, the threshold for creating new office districts becomes higher. The proportion of offices that have been built in existing, established submarkets between 2012 and 2016 is over 90% of the total new production, which further strengthens this thesis. The office districts that have seen the highest growth in rents and the greatest lowering of the vacancy level in the last five years are those with a broad range of services and good public transport. Newsec’s expectation is that this will continue to be the case during the next coming years. These areas will be the winners – and especially those that have the possibility to increase their density, make existing space more efficient and demolish existing office buildings in order to build new ones (preferably tall blocks to create more volume). The new production is expected to continue in these areas, which will further strengthen their position and create a basis for providing services. The trend whereby the office market in Stockholm is concentrated into fewer but larger submarkets is thus expected to continue. Contact: Anders Elvinsson anders.elvinsson@newsec.se

Vacant

● SWEDEN — THE OFFICE OF THE FUTURE – TRENDS AND CHALLENGES

NEWSEC PROPERTY OUTLOOK • SPRING 2017

SWEDEN — THE OFFICE OF THE FUTURE – TRENDS AND CHALLENGES The office of the future is a changeable term and depends greatly on the challenges and changes that working life is faced with. If we look at how workplaces have changed over the past century, they have changed a great deal. Across a hundred years the development of the office has advanced in steps, but driven by the consistent aim of increasing the rationalisation and efficiency of work. In recent times the individual employee, and the adaptation of offices to the individual, have gained ever-increasing importance in the design of offices.

Photo: TT

People began to rationalise routine work in the early 1900s. This was the beginning of the enormous open rooms with desks in long rows. In the inter-war years – the 1930s – individuality and health came into focus, and the cell-office was introduced (research shows that employees in partitioned office rooms and open-plan offices with more than six people report twice as many days of sickness absences as employees in cell-offices). The cell-office, focusing on the individual, was followed in the 1950s by open-plan offices with a clear focus on rationalisation, greater efficiency and increased control for the manager. In the 1970s the combi-office, which combines the best from cell-offices and open-plan offices, came in. The combi-

office is based on the idea of people having a room of their own surrounding a common multi-purpose room. The technical progress and rationalisation that took place in the 1990s then led to the culture of the flex-office coming to the fore. In the flex-office employees have no fixed places of their own, but in other respects the office is no different from the open-plan office in its design. Now the latest office trend is based on the Activity-Based Workplace (ABW), where the open plan is divided into zones according to the main activities arising at the individual company. ABW aims to find solutions based on the open-plan office, but with employees and teams who have work-tasks that vary hugely every day and therefore place ever-changing demands on their working environment. The historic trends above show that the office environment has been changeable over time and will probably be so in the future too. Working life today faces great challenges linked to the demographic changes that Sweden is undergoing. The population is growing at a record rate, and in 2016–2018 population is expected to rise at 1.3% to 1.5% a year. At the beginning of 2017 Sweden passed 10 million inhabitants, and in 2024 Sweden

is expected to reach 11 million inhabitants. The Swedish population will include a larger proportion of older people (the 65+ age group is growing rapidly) and of people born abroad. This will lead to a rising dependency burden for those in work, together with a labour shortage. Employers will face a reduced supply of well-educated young people. The reduced supply of workers will lead to a sharper focus on employees by which companies, to an ever-growing extent, will need to adapt their working methods and working environment in order to attract employees. The new generation that will enter employment in the next few years has grown up with fast-changing technology; a belief that knowledge is always closeto-hand; freedom and flexibility; and high expectations on their workplace, with the ability to make demands. This too will lead to a working life with ever-growing focus on employees. Employers and property owners will need to adapt their offices so that they not only attract the new generation but also appeal to the growing proportion of older people and people born abroad now in the workforce. There are a large range and many preferences to satisfy, which will put considerable pressure on employers and property

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OPEN-PLAN

NEWSEC PROPERTY OUTLOOK • SPRING 2017

SWEDEN — THE OFFICE OF THE FUTURE – TRENDS AND CHALLENGES ●

» Historically the office environment has been changeable over time, and it will probably be so in the future too«

owners. Sweden’s office of the future must attract its workers to come into the office and to want to spend a large part of their working time in their team and close to their customers. Today the greater part of Sweden’s total office stock consists of cell-offices. Changing office trends that are moving away from cell-offices towards more flexible and space-efficient offices are placing ever-greater demands on property owners. Many properties are not able to meet today’s tenants’ requirements for premises: activity-based offices, with more employees in less space. Properties were previously built with completely different demands from today’s spaceefficient office premises. They often have small windows, poor ventilation and cooling capacity, and also inadequate ceiling-height. At the same time these properties are new enough that they still have a long technical life expectancy and an initial property value that makes it hard to invest substantial sums at current market rents. In recent years the trend towards modern ‘office hotels’ such as Urban Spaces and Epicenter, which provide increased flexibility in both area and the length of lease, has exploded, especially in the major

cities. In these office hotels companies can rent space and adapt their office area as they require. This is also a way of meeting new people and sharing experience and knowledge, which has become increasingly popular. In Epicenter, for example, which is an emerging hub for digital innovation companies in central Stockholm, the innovative digital solutions and good cooperation with the property owner AMF Fastigheter have become a success. Many property owners, especially in Stockholm, adjust their properties based on the growing demand for modern and flexible office space tailored to the employees and customers. An example of this is KPMG’s new modern offices. KPMG has opened two new headquarters in the Stockholm area – one located in Vasakronan’s Klara C situated in central Stockholm and one in Fabege’s premises in Arenastaden. The new office spaces will support today’s prone-to-change working methods and increase customer contact and flexibility for employees. Stockholm is growing and several important new areas are developing. KPMG’s choice to have two headquarters in Stockholm is a clear example of how companies and property owners adapt to changes in the market and working life.

Viewed against the historical trends above, and knowing what office premises leading global companies are seeking, we can see that efficient office space with great flexibility as regards both the area and the lease contract will be in ever-greater demand. Sweden’s office of the future must not only be able to meet the requirements of young workers, but – perhaps even more important – must be able to meet the requirements of the two groups of workers whose numbers will increase the most over the next ten years: older people of 65+, and people with immigrant and/or other cultural backgrounds. The office of the future will place great focus on retaining employees and attracting new employees. The location of the office will be a key factor. Digitalisation and flexibility in the premises will be two key words for the office of the future. Sources: SCB, Christiansson & Eiserman Framtidens kontor, Newsec

Contact: Alexandra Lövgren alexandra.lovgren@newsec.se

1990 2010 2030 ABW

Photo: TT

FLEX

Photo: iStock

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NEWSEC PROPERTY OUTLOOK • SPRING 2017

THE SWEDISH PROPERTY MARKET ●

THE SWEDISH PROPERTY MARKET 2016 GOES INTO HISTORY WITH A NEW RECORD TRANSACTION VOLUME The investment market The total transaction volume in 2016 beat all earlier records and amounted to more than SEK 201 billion in a total of 535 transactions (transactions >40 MSEK), which was also a record. The year ended with an intense transaction month of over SEK 31 billion, the second-highest monthly volume of 2016. The transaction volume for 2016 is 37% higher than in 2015, when the comparable figure was SEK 148 billion. One factor contributing to the continuing high interest in property is the low interest rate. The negative rate from 2015 was lowered further in 2016 and stoked an already red-hot Swedish property market. At its last meeting in February the Swedish Riksbank decided to hold the repo rate at -0.5%, and the first rise is expected to take place early in 2018. The volatile global stock markets and low yields on the bond market are other factors. During 2016 there were a number of political events that created uncertainty on the world market: for example the American election and the Brexit vote. The results are expected to affect primarily the Swedish export sector when global trading relations are put to the test. Sweden is regarded as having good economic fundamentals by virtue of low national debt, competitive export industries and a high saving ratio, which are expected to create a sound basis for continued growth in 2017. Together with a low repo rate, relatively good access to financing and lack of high-yielding alternatives, there are good prospects for the property market in 2017. During 2016 private property companies and property funds have been the most active players on the selling side. Together they accounted for something under half of the transaction volume, with about 25% and 20% respectively.

On the buying side, private property companies and listed property companies have been the largest investors during the year and accounted for almost 60% of the volume. Geographically, the categories Stockholm and Other Major Cities have passed and re-passed one another throughout 2016 as regards the largest share of the transaction volume. Other major cities have increased greatly in attractiveness during 2016 and accounted for 27% of the year’s transaction volume, compared with 22% in 2015. The largest share of the volume finally went to Stockholm, with 33% of the market. For the third time in the last ten years Malmö took a larger share than Gothenburg. At year-end Malmö had 8% of the volume and Gothenburg something over 7%. During the year there were several large portfolio and company transactions where smaller cities represented a large share. The largest transaction of the year was also the second-largest transaction ever made in Sweden. This was a transaction between two property companies, whereby Castellum acquired Norrporten with its portfolio worth SEK 22 billion (the Swedish share). The portfolio is geographically spread throughout Sweden and consists mainly of office premises but also includes a substantial number of retail and residential properties. In 2016 the most popular segment has been office properties, totalling almost 30% of the volume. In second place, with a 26% market share, come residential properties, followed by retail properties on 19%. There has been a steady increase in interest in residential properties in recent years and several major housing projects are planned or under way. The Swedish population is growing strongly and 240 of Sweden’s 290 municipalities

have reported having a housing shortage. The substantial rise in population together with the change in the population pyramid – with an ageing population and major baby booms – has also generated a greater interest in public properties. In 2016 public properties represented just under 10% of the total transaction volume and investments in them rose from SEK 7.9 billion in 2015 (5.5% of the transaction volume) to SEK 19.2 billion. Domestic investors continue to dominate the transaction market, and in terms of volume the share taken by international investors fell to 19%, compared with 26% in 2015. This was mainly due to several large domestic transactions, and in absolute numbers the share of foreign investors is much the same as last year. There continues to be a clear interest from international capital because, among other things, the Swedish market continues to offer a better risk-adjusted return than other markets elsewhere in Europe.

The office market Newsec estimates the total office stock in Greater Stockholm at about 12 million m2. The largest share of office space in the Stockholm region is located in the municipalities of Stockholm, Solna, Sundbyberg, Nacka, Sollentuna, Järfälla, Danderyd and Upplands Väsby. Stockholm CBD is considered to be the most attractive office area, with a total stock of about 1.9 million m2, while Stockholm Inner City excluding the CBD has an office stock of about 4.4 million m2. In recent years many major companies have relocated to new office space outside the Inner City, often combining several existing offices and setting up new operations in the inner suburbs. In 2016 about 220,000 m2 of new or rebuilt office space was completed in Greater Stockholm, corresponding to around 2% of the total office stock.

● THE SWEDISH PROPERTY MARKET

NEWSEC PROPERTY OUTLOOK • SPRING 2017

SEK 201 BILLION THE SWEDISH TRANSACTION VOLUME IN 2016 BEAT ALL EARLIER RECORDS AND AMOUNTED TO MORE THAN SEK 201 BILLION IN A TOTAL OF 535 TRANSACTIONS In recent years the building of new office space in Stockholm has changed and is now focused on areas outside central Stockholm. Many of these areas lie north of Stockholm with good communications to the inner city and to Arlanda Airport. Good infrastructure is important in judging an office project, and recently-started and ongoing infrastructural changes will have a great impact on the development of Stockholm. The new Citybanan rail line will be finished in 2017 and will have a positive impact on the office market in the western areas of the CBD. The new line will increase passenger capacity through the inner city, with two new stations at T-Centralen and Odenplan.

in Gallerian. The project, called Urban Escape, will provide about 70,000 m2 of new or rebuilt office space when it is completed in 2019. In Stockholm CBD there are several plans for further expansions which are awaiting a go-ahead from the City Council – for example Pembroke’s development of Hästen 21 and Vasakronan’s improvement of the Sergel district. Outside the central area, Fabege’s Grand Central project in Sundbyberg is another example of a major redevelopment, where 30,000 m2 of office space will become available in 2018. The forecast vacancy rate for Stockholm CBD for the first months of 2017 is expected to continue at 2%.

A number of speculative office-development projects have just been completed, such as Fabege’s Uarda 6 in Arenastaden, NCC’s Torsplan Stage 2 at Norra Station, and Skanska’s Stockholm Seaside and Stockholm 03 in Hammarby Sjöstad. Large parts of these projects were already let before completion.

The average market rent for office premises in Stockholm CBD at the end of Q4 2016 was around SEK 6,000 per m2. Top rents above SEK 6,000 per m2 have been confirmed by some of the major office owners in Stockholm CBD. The high rent levels are a consequence of the high demand together with the low supply of newly built modern premises in Stockholm CBD. The market rent is expected to go on rising until the end of 2018.

In 2016 the Stockholm office property market continued to perform well, and during the year Newsec noted a number of record highs in both transaction volume and rent levels. Many large companies have taken the decision to move out of central Stockholm, which affects availability on the office market. The combination of the strong service sector, the few completed new building projects in Stockholm CBD and the shortage of attractive premises in inner-city locations in general means that the vacancy rate in the CBD remains at low levels of around 2.0%. The prevailing low vacancy level has in turn led to a number of new development and rebuilding projects in, or adjoining, the CBD. One notable project is AMF’s rebuilding of Swedbank’s old premises

Gothenburg is Sweden’s second-largest city and is the hub of Sweden’s exports and industry, mainly because it is the Nordic Region’s largest port. Gothenburg’s economy is dominated by manufacturing industry and especially the motor industry, although the service sector has grown steadily stronger in recent years. The commercial office market in Gothenburg comprises an office stock totalling around 3.4 million m2, which includes the stock of neighbouring municipalities. Areas making up the CBD total about 860,000 m2 of offices, while the Inner City, comprising a number of districts and covering a large geographical area, has a total office stock of

around 900,000 m2. During 2017 Newsec estimates that about 55,000 m2 of office space will be added to the market in Gothenburg. For example, 18,000 m2 will be added on Lindholmen and about 10,000 m2 in Gamlestaden, where the project Gamlestads Torg (also known as the Gamlestaden Travel Center) will be completed. In the CBD Newsec estimates that about 10,000 m2 of office space will be added to the stock in the next two years. Several other projects are planned to be finished in time for the city’s 400th anniversary celebrations in 2021. At the beginning of June, Jernhusen’s contribution was presented. The project includes a high tower of 22 storeys and will provide mainly offices but also retail stores and restaurants. In the next few years there will be an additional supply of office space in Gårda/Ullevimotet. Platzer and Skanska are currently working to prepare a zoning plan for building high-rise blocks providing a total gross area of about 60,000 m2. These projects will be named Gårda Skyline (Platzer) and Göteborg City Gate (Skanska). The building of Göteborg City Gate is scheduled to start towards the end of 2017. Serneke’s spectacular Karlastaden project with the muchdiscussed Karlatornet skyscraper is currently awaiting approval of the zoning plan. The skyscraper will be 266 metres high, making it the tallest building in the Nordic region. Apart from Karlatornet, the district will consist of a number of blocks with housing, offices, retailing and services. The project is planned to be completed around 2021. Karlastaden is part of the Nordic region’s largest city development project, Älvstaden. The vacancy rate in Gothenburg CBD fell last year. It currently stands at 4.2% and is expected to continue downwards towards 4% during 2017. It remains difficult to find modern premises over 1,000 m2

NEWSEC PROPERTY OUTLOOK • SPRING 2017

THE SWEDISH PROPERTY MARKET ●

» There has been a steady increase in interest in residential properties in recent years and several major housing projects are planned or under way«

in the CBD and companies are therefore resorting to newly built premises elsewhere, which has had a positive effect on the Inner City. The rent level in Gothenburg CBD is continuing to increase. The market rent currently lies between SEK 2,600 and SEK 2,700 per m2. Top rent in the CBD is estimated at SEK 3,250 per m2. The market rent in the Inner City has also been rising during the year and lies around SEK 2,250 per m2 with top figures around SEK 2,700 per m2. The highest rents in the Inner City are found in the newly built stock at Ullevi. Newsec expects that the rental market in Gothenburg will continue to be stable, since demand is expected to remain good. The commercial office stock in Malmö totals just over 2 million m2. The single largest submarket is Malmö CBD, with 608,000 m2. Addition of new office space has been good in recent years and in 2015 significantly more office space was completed and added a total of 53,500 m2 to Malmö’s office stock. For 2016 Newsec expects the new building stock to total about 34,700 m2. There is plenty of land in attractive areas such as Hyllie and the district round the Central Station, which gives good opportunities for a continuing good pace of new construction in Malmö. This affects the older stock, which must constantly compete with the newly built, and Newsec has noted a number of conversions to apartments in older office buildings situated in good locations. The vacancy rate in Malmö CBD continued to fall during Q4 2016 and stands at a level around 5%. The market rent in the CBD is estimated at around SEK 2,300 per m2, while a top rent of around SEK 2,900 per m2 has been reported. Newsec forecasts stable rent levels during 2017, with an upward tendency.

The Malmö region is benefiting from the City Tunnel and the connection across the Öresund. Commuting to work across the Öresund has fallen back a little in recent years but is still twice as high as in 2005. About 18,000 people commute each day between Sweden and Denmark, which compares with the total of about 18,500 people who commute to work between the Swedish cities of Lund and Malmö. The region will benefit further when the Fehmarn Belt tunnel linking Denmark and Germany is opened in 2021.

The retail market Thanks to the strong general economy, 2015 was an exceptional year for retail sales, with growth of 5.8%. In 2016, according to HUI Research (The Swedish Institute of Retail), the growth of Swedish retail was 3.3%, with convenience goods achieving 2.5% growth and consumer durables 4%. Black Friday and a record Christmas trade both made strong impacts. HUI’s forecast growth for 2017 has been revised downward to 3%. Factors such as a stable labour market, low interest rates and an increasing population should continue to benefit retail trade, but, because of the greater uncertainty about 2017, consumers’ urge to buy is expected to decline and Swedes to keep tighter hold of their wallets.

shopping destinations, which makes factors like location and quality of premises increasingly important in attracting both consumers and tenants. E-commerce has been growing for many years, and grew by 15% in the third quarter of 2016. The forecast for the full year is 16% growth. Shopping centres have been increasing in size and their premises are being let at new top rents. Newly built and newly renovated shopping centres in the best regional locations outside Stockholm are now at the same level as top rents in Stockholm CBD. Mall of Scandinavia in Solna, which opened in November 2015, is the single largest retail establishment in Sweden. There has been an increased interest in developing city centres. Since many new large establishments have been built outside city centres, many developers are now looking inwards at the possibility of developing the inner city to compete with the large retail centres. These days a good centre does not depend only on what it sells, but on the destination itself and the experience it offers, where good restaurants, cafés and service play an important part. Contact: Alexandra Lövgren alexandra.lovgren@newsec.se

In 2016 19% of the property transaction volume was retail. This share is very similar to 2015 when retail transactions accounted for about 18% of the volume. In the next few years Sweden will experience a record population increase, and ongoing urbanisation will heavily affect demand in all the major cities. Up to 2025 there will be an average increase of 110,000 people a year. The growing population along with the rising trend towards e-commerce has led to fierce competition between different types of

● THE NORWEGIAN PROPERTY MARKET

NEWSEC PROPERTY OUTLOOK • SPRING 2017

THE NORWEGIAN PROPERTY MARKET A STRONG END TO 2016 2016 has been characterised by low oil prices, cuts in oil investments, low interest rates and a staggering rise in house prices in Oslo. Norway seems to be close to a cyclical bottom after the dramatic fall in oil prices. Growth in the Norwegian economy has been weak in recent years. Through 2016, oil prices have risen from the low levels seen at the start of the year, but the negative influences of the petroleum sector are still present. After zero growth in the second half of 2015, the mainland economy began to pick up in 2016. The downturn in the oil industry has created repercussions in the Norwegian economy and led to increased uncertainty among businesses. This uncertainty has led firms to be more cautious about their expected growth when seeking new premises, and when signing a contract they require flexibility regarding both length of lease and freedom to reduce the area rented. This in turn has led to a more complicated and longer letting process. Tenants are also seeking information earlier than before to decide whether they should remain in their premises or move. When tenants still have time left before maturity, the processes can often break down when close to a decision. The total office space let in the third quarter was influenced by this uncertainty, and the volume was the lowest recorded level in eight years.

The investment market The investment market finished the year strongly after a relatively slow start to 2016. Investors were initially concerned about the Norwegian macroeconomic indicators such as low oil price, higher unemployment and low GDP growth and what implications these would have for the rental market. Then during the summer the 5-year and 10-year swap were at a record low, indicating confidence in the

Norwegian economy. After the summer the oil price, the CPI and interest rates all started climbing and the unemployment rate started to fall. The Norwegian economy looked far more healthy half-way through the year. In the first half-year the total transaction volume in Norway was about NOK 30 billion, spread over 100 transactions. In the second half-year there were nearly 200 transactions, so the total for 2016 was close to 300. This is about 100 more than in both 2014 and 2015. The volume ended at NOK 79 billion – well below the NOK 125 billion achieved in 2015, although we think the number of transactions is more important than the size of the deals. This indicates that the Norwegian transaction market is healthier than ever before. The largest transaction of 2016 was the sale of the 67,000 m2 Statoil building at Fornebu to an Arctic Securities syndicate, guaranteed by Trond Mohn, for NOK 3.9 billion. This represents about NOK 58,000 per m2 and a yield of 5.2%. The second-largest transaction was the selling of the NPRO portfolio at Skøyen. With a value of about NOK 2.53 billion this gives a yield around 4.7% to 4.8%. The prime yield in Norway is 3.75%, down from 4.00% at the start of 2016. After several years of falling yields we believe the prime yield will now hold steady. This is mainly due to rising interest rates that will minimise the yield gap. In earlier years foreign investors have bought properties in the CBD, resulting in the spread widening. But in 2016 foreign investors had only an 8% share, compared with 43% in 2015 and 24% in 2014. With less activity from foreign investors and interest rates likely to rise, we believe that investors should be bold enough to buy properties in other central areas of Oslo and in the CBDs of the other big cities of

Norway, such as Bergen, Stavanger and Trondheim.

The office market Several companies have co-located their subsidiaries and sister companies, which has sometimes resulted in companies moving before their lease matures and therefore ending up paying double rent. However, the upside from moving is often larger than the downside from staying. More companies are moving to a smaller area than what they had, but this is not always due to downsizing. The focus may be on more efficient premises and activity-based workplaces. Last year there was also a growing trend to subletting of premises, which is negative for the market because sublet premises are often offered at heavily discounted prices, causing negative short-term effects in local markets. With continued challenges resulting from international economic trends, which influence Norway to a greater extent than previously, property owners have to work harder to keep their tenants. Measures such as discounts, refurbishment of existing premises and rent exemptions are seen more often than before. While good premises still do well, landlords with less attractive premises must rethink how to keep their tenants. Newsec records all vacant office space every quarter, and we see that a surprisingly large share of the vacant premises is in buildings that have been vacant for a long time. The strong increase in house prices has saved some of these buildings because there has been a growing trend to convert office buildings to housing as a result of high housing prices and highly selective office tenants. The statistics for Q4 2016 indicate that the trend may be about to turn. Lettings were far above what we saw in previous quarters. Hopefully this indicates that

NEWSEC PROPERTY OUTLOOK • SPRING 2017

THE NORWEGIAN PROPERTY MARKET ●

»A better Norwegian economy and increased conversions of office premises to housing could affect office rents positively«

firms are more positive and it will be interesting to see how lettings will develop throughout 2017.

In summary, we believe that a better Norwegian economy and increased conversion of offices to housing could affect rents positively. In 2016 vacancy in Oslo dropped from a record high of 743,000 m2, corresponding to a vacancy rate of around 8.6%, to less than 660,000 m2, a vacancy rate of about 7.65%. With increased conversion to residential use, only a small added area from completion of new buildings in 2017 and a possible improvement in the Norwegian economy, we expect that vacancy will continue to fall through 2017. This will lead to further pressure on rent levels, which rose by 10% in the Oslo area in Q4 2016 after remaining unchanged in previous quarters.

Photo: Shutterstock

The Purchasing Managers’ Index rose sharply from 47.8 in November to 51.4 in December, indicating that purchasing managers are more positive. The sub-index for employment rose from 46.8 in November to 49.9 in December – its strongest since November 2014. This may indicate that 2017 can be a year of better growth in the Norwegian economy.

equally on social aspects such as eating out, conversation and leisure activities. In Oslo, the premier street Karl Johans gate now has a mixture of cafés, restaurants, small theatres and specialised shops located close together. The old Aker Brygge shipyard has been converted into a lively seafront promenade with entertainment, dining and ground-floor retailing.

e-commerce is steadily increasing its share, online sales are still only a small part of total retail sales in Norway, repre senting just 3.6%. Overall, shoppers spent nearly NOK 308 billion in retail stores in the first eight months of the year. That is 3.1% more than in the same period in 2015. Retail sales volume showed an increase of 2.9% over the same period.

Added-value features such as these will be essential for stores to survive in the retail market of the future. They offer an experience not available when shopping on the Internet, which otherwise will become the preferred trade channel. At present, compared to the other Nordic countries, Norway has the smallest share of social and entertainment concepts in its shopping centres.

The biggest retail transaction of the year was the sale of Åsane Storsenter outside Bergen for NOK 2,000 billion. The seller was Nordea Liv, Nordea’s life insurance company, and the buyer was Olav Thon, Norway’s biggest retail investor. Retail properties accounted for 21% of the transaction volume in 2016, compared with 34% in 2015. In the third quarter the prime yield for the best high-street shopping properties fell from 4% to 3.75%.

The retail market Shopping in Norway has changed dramatically in the past half-century. People used to buy their daily necessities from small local shops and went to department stores and specialist retailers in the city centre for major purchases and luxury items. But the move to big grocery supermarkets, and the cheaper land outside the city centre, meant that shopping centres in suburban and out-of-town locations took over as the main retail arena for all functional items. Today, city-centre shopping hosts a different form of shopping which focuses

During the first eight months of 2016 retail sales online were valued at over NOK 11 billion, which is 14% more than in the same period last year. But although

Contact: Oyvind Johan Dahl, ojd@newsec.no

● THE FINNISH PROPERTY MARKET

NEWSEC PROPERTY OUTLOOK • SPRING 2017

THE FINNISH PROPERTY MARKET

A RECORD YEAR IN PROPERTY TRANSACTIONS Throughout the past autumn and winter Finland has received indications of an improved economy. Confidence in the Finnish economy has continued to increase and consumer confidence in particular has improved. Confidence in the future has also improved in the service industries, while confidence in construction remains strong but did not increase in 2016. Manufacturing industry, on the other hand, is still experiencing a lot of insecurity. Although growth has revived and is expected to remain at approximately 1% in the next few years, Finland’s growth continues to lean heavily on private consumption. Meanwhile exports lag and investments are cautious, except in the construction sector where investments are made at a relatively quick pace. In order to achieve a more wide-based and rapid growth, it is necessary that exports and investments should grow in addition to construction and private consumption. The recovery of the property market that started in 2014 continued through 2015 and into 2016. Last year it reached a new record volume, exceeding EUR 7 billion by a clear margin. At the same time, other Nordic countries are experiencing the same trend: the transaction volume in Sweden, for example, exceeded EUR 20 billion. It is worth mentioning that approximately 38% of the total volume of the Finnish property market came from rental-apartment transactions: apartments were the most popular investment sector in 2016.

4.5%, with a few going below 4%. How ever, the criteria for these best properties include long leases and good tenants, a good location, and a modern and versatile building. The regional focus of investors has widened further, and both good provincial properties and more challenging properties in the metropolitan area have attracted investor interest. Pension companies have continued to spread their property investments internationally and allocate more money to foreign properties. Finnish pension companies were more active on the selling side of domestic investments, while international investors’ interest in Finland remains strong. Last year’s major transactions included the Forum block acquired by Sponda for about EUR 576 million, and two large apartment-portfolio transactions. Y-Säätiö bought a portfolio of more than 8,500 apartments from VVO for about EUR 576 million, and VVO bought a portfolio of nearly 2,300 apartments from Icecapital for about EUR 400 million. In addition, there were several portfolio transactions comprising more than a thousand apartments, as well as several office, retail, logistics and care-property transactions worth more than EUR 100 million. In Helsinki prime office rents were around EUR 365 per m2 at the end of 2016, and they are expected to remain at this level in 2017. Yields for prime offices in Helsinki were around 4.40% at the end of 2016.

country, it does not correlate with growth in the size of leased retail premises. In retail, the multi-channel form is gaining in popularity: internet sales, for example, are growing, and as a result the number of retail properties will not increase – with the single exception of centrally-located shopping centres. Retail rents in prime locations in Helsinki are slowly increasing. At the end of 2016 the rent levels were around EUR 1,690 per m2 and they are expected to increase to around EUR 1,700 in 2017.

Prospects for the future Newsec predicts that the property market will remain active. At the beginning of the year, there was plenty of investment capital in the market, with more coming. Low interest rates and accessibility to loans both support the attraction of property investments. Investors are also likely to be interested in Finland’s improved economic prospects. We believe that the transaction volume for apartments will fall from last year’s total of around EUR 2.7 billion, and that new demand will be generated in infrastructure investments and in different types of care properties and sheltered housing solutions for the country’s ageing population, as well as in commercial industrial properties. We predict a property transaction volume of EUR 5.5 to 6.5 billion for 2017.

Retail is still waiting Demand in office markets and residential portfolios In response to the increasing demand, property yields have fallen and have reached a record low in prime properties in particular. In Helsinki city centre, the best offices have a yield level of less than

Now that the Finnish economy is finally showing modest signs of recovery and consumers’ demand is on the rise, one might expect this to be reflected in the demand for leased retail premises. However, although private consumption is growing faster in Finland than in any other Nordic

Contact: Olli-Pekka Mustonen, olli-pekka.mustonen@newsec.fi

NEWSEC PROPERTY OUTLOOK • SPRING 2017

THE FINNISH PROPERTY MARKET ●

Photo: iStock

»XX«

● THE DANISH PROPERTY MARKET

NEWSEC PROPERTY OUTLOOK • SPRING 2017

THE DANISH PROPERTY MARKET

STRONG TRANSACTION VOLUMES DEMONSTRATE THE ATTRACTIVENESS OF DANISH PROPERTIES Danish businesses are looking for office facilities that can live up to their expectations for a dynamic and flexible workplace. Modern offices must be able to support meeting activities, knowledgesharing opportunities and social contact while also providing room for in-depth thinking. The demands are varied and more complex than they were 20 years ago, when office buildings typically consisted just of meeting rooms, office cubicles and a canteen.

Photo: iStock

Cooling, ventilation and a good indoor climate are high on the wish list of businesses seeking new offices to conduct

their business from. The surroundings should preferably stand out by having an “edge” and ideally should have an exciting history. Urban life and opportunities for shopping also enhance the overall assessment of whether the location can help attract and retain the right talent.

The investment market

The high demand for investment properties has exerted downward pressure on the requirements for return on investment. Some estate agents consider that prices on the Copenhagen property market are rising too fast. However, we do not believe that prices are too high, even though the total transaction volume for Denmark is back at 2007 levels.

The transaction level in 2016 was very strong, demonstrating the attractiveness of Danish commercial property. Newsec estimates the total transaction volume for 2016 at about DKK 64 billion, of which between DKK 45 billion and DKK 48 billion was in Copenhagen.

There are several factors that are crucially different between the market during the boom years and the market today. First, ten years ago, investments in Copenhagen constituted about 48% of the total transaction volume, while

NEWSEC PROPERTY OUTLOOK • SPRING 2017

THE DANISH PROPERTY MARKET ●

» The high demand for investment properties has exerted downward pressure on the requirements for return on investment«

we estimate the share in 2016 to be about 75%. After the financial crisis of 2008/2009, the values of properties located in secondary or tertiary areas were hit hardest. Today, because of the much larger proportion of transactions in Copenhagen, it is easier to sell assets, which is helping to attract more investors. At the same time there is a worldwide tendency for companies to domicile themselves in major cities, helping to generate more activity in the property market in these cities, including Copenhagen. The majority of transactions today involve a relatively high degree of equity from investors, whereas before the financial crisis many transactions were highly leveraged with external funding. Today more investments are targeted towards ‘safe’ assets, such as properties on Strøget and Købmagergade, well-located office buildings, well-located logistics properties, and most recently, hotels because the global increase in prosperity is resulting in greater numbers of tourists and conferences. There is also increasing investment in residential properties that cater to demographic changes, for example family housing, youth housing, especially in university towns, and earlystage construction projects specifically targeted at seniors. Newsec’s firm opinion is that as long as such a major proportion of transactions are conducted under the above criteria, the market will remain relatively stable. However, the very low interest rates also mean that investors are looking towards assets other than bonds, and we must therefore expect that the volume will decline somewhat when interest rates rise again.

The office market Overall, the Copenhagen office market

is moving in a positive direction. A large share now consists of efficient spaces in new construction. At the same time, the supply of older and less efficient buildings is falling, with a major portion being converted to homes. In central Copenhagen there is a rising demand for good office premises from both tenants and investors. It is not unusual that several potential tenants vie for the same property, causing upward pressure on rents. In most of the period from 2012 to 2014, the proportion of empty office space was over 9%. In 2016, the vacancy rate has stabilised at just under 8% (7.82% on 1 October). And even though the current relocation of government jobs is expected to free approximately 80,000 m2 of office premises in the city, the growth in jobs and the increased demand for offices in Copenhagen are likely to mean that the vacancy rate in Copenhagen office space will continue on a horizontal or downward trend. During 2016 the prime office rents in Copenhagen increased from EUR 220 per m2 to EUR 235 per m2. The yield levels for the same period decreased from 4.50% to 4.25%. Prime rents in Copenhagen are expected to keep increasing during 2017.

The retail market Once again in 2016, all records were broken on Black Friday, 25 November. The payment processing service Nets reported that transactions on the day amounted to DKK 2 billion. More generally, e-commerce accounted for only 15–20% of revenue in 2016, which may indicate that Danes are continuing to find their way to the shops.

has 25 new shops in the pipeline. The grocery group Dagrofa plans to open 50 supermarkets in Denmark over the next 10 years. However, Coop has decided to close approximately 25 shops nationwide. With the prospect of a new Planning Act, several major chains in other fields have also announced that they will establish more shops in 2017. For example, the new electronics retailer Power will open 17 new department stores, which would have been impossible under the old Planning Act. Despite a great deal of activity on the retail market in 2016, the transaction volume decreased compared with 2015. The decline was driven mainly by the fact that a number of prime properties in pedestrian streets had changed hands in 2015. The requirement for return on investment on prime-location retail properties remains under pressure and we are currently seeing transactions at a level of around 3.50%. Elsewhere in Copenhagen and in Aarhus, the required return on investment has also decreased and is now at 4.5% to 5.5%. The rent level for the very best retail properties in Copenhagen, around Illum and Amagertorv, is DKK 22,000 to DKK 23,000 per m2. This is significantly more than the top rent in Aarhus, which is about DKK 6,000.

Contact: Mathias Hartmann Bonde, mathias.bonde@newsec.dk

Several supermarket chains have announced plans to open more shops in the next few years. For example, REMA 1000 will open 130 new shops, while NETTO

● THE BALTIC PROPERTY MARKET

NEWSEC PROPERTY OUTLOOK • SPRING 2017

THE BALTIC PROPERTY MARKET CONTINUES TO BE AN ATTRACTIVE INVESTMENT MARKET Lithuania: In 2016 the total office stock in Vilnius increased by 84,430 m2 of gross lettable area, or by 19.1%. Another 140,000 m2 are scheduled for delivery by 2018. Most of the new developments are concentrated in or near the CBD, with the effect of expanding its borders. The Kaunas office market was almost non-existent until 2016 when five new schemes totalling 40,000 m2 started to be developed. At least another four projects will be launched in 2017 to deliver a further 25,000 m2 of modern office space by 2018. Although the take-up of the new offices in Vilnius and Kaunas was strong, office vacancy rose a little in both cities. With real-estate markets that favour tenants, both cities offer strong cost-competitiveness.

The investment market After a record-breaking year for the Baltics in 2015, 2016 was also active in terms of property transactions. In Lithuania the transaction volume was close to EUR 300 million for the third year in a row. The most active investment segments were logistics, retail and office, which accounted for nearly 80% of all investment volume. The hotel segment was also notable, with a 12% share. In 2017, an insignificant increase in the real-estate investment volume in Lithuania is expected. Although yields have decreased significantly in recent years, there is still an attractive gap compared to Western European levels. Average yields for prime retail and office assets in Vilnius were compressed to 6.75%, with the most attractive properties being bought at yields up to 50 basis points lower. Secondary properties produced yields around 7.50%. Local Baltic, Nordic and Eastern

European investors are still the key players in Lithuania, but more interest from Western European investors has been noticed recently and this trend is likely to increase in the near future.

The office market At the end of 2016 the stock of modern office premises in Vilnius was 526,700 m2, or 0.97 m2 per capita. It is expected that a further 140,000 m2 of office space will be commissioned during 2017–2018, of which 68% will be Class-A. Currently twelve out of seventeen planned projects for 2017–2018 are under construction. The opening of new projects in 2016 increased vacancy rates: the average vacancy for Class-A office properties reached 3.5% and for Class-B properties 5.5%. By the end of 2016 the average vacancy rate for classified office buildings in Vilnius had risen to 4.8%, and it is expected to move slightly higher due to scheduled openings in coming years. The average market rent for prime office space in Vilnius CBD ranged from EUR 14 to EUR 16 per m2 per month, reaching EUR 17 per m2 per month in a few cases. In other central areas rents were in the range EUR 11 to EUR 14 per m2 per month. Average rents for both Class-A and Class-B properties have increased slightly for the past few years. It should be noted that new buildings coming to the market are asking for slightly higher rents quarter-by-quarter, including paid parking lots and NNN charges. Advance lease deals are common in the Vilnius office market, with leases often being signed 6 to 18 months before entry.

The retail market At the end of 2016 the stock of modern shopping centres in Vilnius was nearly 370,000 m2, or 0.69 m2 per capita. After

a few years’ brake on shopping-centre developments in Vilnius by foreign investors, Nantucket Holdings finished its new two-stage Nordika Shopping Valley project (40,000 m2) in the early summer of 2016. Two other investors have updated their plans to start the development of Central Mall (60,000 m2) and the second Akropolis shopping centre (up to 50,000 m2) in Vilnius, but no earlier than 2018. At the end of 2016 the average vacancy in the largest shopping centres in prime locations in Vilnius stood at around 2%. Demand in the retail market is increasing as the majority of retailers have expansion in their plans. All of the largest shopping centres are attracting new ‘big brand’ tenants and improving their tenant mix by replacing small and medium local brands with internationally famous brands such as H&M, Sports Direct, The Pier and others. Rents in shopping centres are set according to the size of the tenant, and vary from EUR 7 to EUR 50 per m2 per month in the capital city. The average rent in Vilnius prime shopping centres is increasing slightly year by year and stood at EUR 21.5 per m2 per month at the end of 2016.

Latvia: After several quiet years the office market in Riga started to grow again in 2016. A number of large premium offices are currently under construction or will start construction soon. Most of the new projects are green Class-A buildings offering efficiency, sustainability and superior quality. The vacancy level for prime offices in Riga increased to 3% in 2016 and is expected to rise slightly higher due to scheduled openings in coming years. Meanwhile, in other Latvian cities

NEWSEC PROPERTY OUTLOOK • SPRING 2017

EXECUTIVE SUMMARY ●

Photo: iStock

» In Lithuania the transaction volume was close to EUR 300 million for the third year in a row« 29

● THE BALTIC PROPERTY MARKET

NEWSEC PROPERTY OUTLOOK • SPRING 2017

» After several quiet years the office market in Riga started to grow again in 2016. A number of large offices are currently under construction«

the office market is still stable, with low activity.

The investment market The total transaction volume in Latvia exceeded EUR 290 million in 2016. Investment in the retail segment last year accounted for nearly 60% of the total investment volume. Two big shopping centres in Riga – Domina and Riga Plaza – were sold for a total sum of EUR 170 million. The office segment was also active and accounted for 30% of the total investment volume. In 2017 the real-estate investment volume in Latvia is expected to reach at least the same level. Although yields have decreased significantly in recent years, there is still an attractive gap compared to Western European levels. Average yields for prime retail and office assets remain around 7.00%. Prime industrial properties in Latvia reach around 8.50%.

The prime office rent in Riga was EUR 184 per m2 and the yields were around 7%. The rent is expected to increase slightly to EUR 186 per m2 during 2017.

The retail market The main shopping destination in Latvia is Riga, which has 16 modern shopping centres with a total lettable area of about 422,000 m2, or 0.65 m2 per capita. Only five centres exceed 30,000 m2, the others being considered medium or small. The last addition to the stock was in 2010 with the opening of Galleria Riga by Titan Invest. In the summer of 2016 the largest Lithuanian developer, Akropolis Group, finally announced the development of a new big shopping complex of 60,000 m2 in 2017. Earlier, Linstow Centre Management announced the expansion of Alfa SC and Origo SC, and a second Stockmann department store may be added to the retail stock by 2018.

The office market The Riga office stock now exceeds 600,000 m2. New deliveries of modern offices were insignificant during the last few years, but in 2016 the stock was finally supplemented by several smaller office buildings with a total area of nearly 10,000 m2. While the vacancy level for prime offices rose to 3%, vacancy in Class-B offices stood at 7% by the end of 2016. The large offices currently under construction include Z-Towers and Place Eleven, both being developed by Hanner. Several other projects, including Business Garden Riga (Vastint), Ulmana Offices Park (Domuss, a part of NCH Capital), New Hanza City (ABLV Bank), a Class-A office building in Skanste (E.L.L), and others, are expected to begin construction soon. In this case, supply could potentially increase sharply by 2018.

In Latvia, many major brands are already located in or switching to the most successful shopping centres. Following the general trend, the market has seen entrances from Burberry, Massimo Dutti, H&M, Debenhams, Subway, Sports Direct, KFC and others. This has kept vacancy in the most successful shopping centres still close to zero at the end of 2016. The prime retail rent in Riga 2016 was EUR 265 per m2 and the yield level was 7.0%.

Estonia: The office market in Tallinn is growing. This decade’s first high-rise building over 100 m tall is currently under construction and will add 21,500 m2 of Class-A office space to the CBD when completed in

2018. Another big development project near the harbour will add 31,700 m2 to the office stock. The quality of the new buildings has improved radically over the last ten years. Projects located in the CBD are focused on exclusivity, offering high ceilings and large windows with views of the Old Town and the sea. Energy efficiency is also taken seriously. The Explorer office building was recently granted the highest LEED Platinum certificate. In other Estonian cities the office market is stable, with low activity.

The investment market The investment market in Estonia was active in 2016. The total transaction volume exceeded EUR 270 million, with the office segment taking almost half. During 2016 several big office buildings as well as the Mustamäe Keskus and Magistrali Keskus shopping centres and the recently opened Hilton Hotel were sold. Demand for quality properties is strong, which has steadily pushed down yields. A few transactions with yields below 7% were made in 2016, and we forecast the trend to continue in coming years. The buyers are mostly local Baltic and Nordic realestate funds.

The office market The office stock in Tallinn increased by 59,000 m2 during 2016, exceeding the growth of nearly 50,000 m2 in 2015. Vacancy in Class-A buildings is close to zero. The top rent in A+ premises is currently estimated around EUR 16 to EUR 17.5 per m2 per month, and for Class-A, EUR 13.5 to EUR 17 per m2 per month. The average rent for Class-B offices is EUR 8 to EUR 12 per m2 per month, although rents in quality buildings with sufficient parking located close to the City Centre are as high as EUR 10 to EUR 13 per m2 per month. In 2017 the expected new delivery is a modest 22,300 m2. Of this, more than

NEWSEC PROPERTY OUTLOOK • SPRING 2017

THE BALTIC PROPERTY MARKET ●

EUR 270 MILLION

Photo: iStock

THE TOTAL TRANSACTION VOLUME IN ESTONIA EXCEEDED EUR 270 MILLION, WITH THE OFFICE SEGMENT TAKING ALMOST HALF

40% is already leased to two tenants. The situation will change in 2018 when many major developments that are currently under construction will be completed. Unless some of these are delayed or put on hold, more than 100,000 m2 of new offices will be delivered during 2018. This will increase vacancy rates and may put pressure on rents, especially for buildings located outside the CBD. Vacancy in the buildings completed in the second half of 2016 is still high, indicating that for Class-B buildings supply is starting to exceed demand. In 2017 the office market will remain stable. We do not

expect vacancy rates or rents to change significantly.

ment and restaurants to attract more customers.

The retail market

Rent levels have been stable for several years. For anchor tenants, rents are in the range EUR 8 to EUR 13 per m2 per month and for other tenants in the range EUR 10 to EUR 50 per m2 per month. We expect rent levels to remain stable in 2017.

Two new shopping centres were opened in Tallinn during 2016, adding 21,500 m2 to the stock. Vacancies have been close to zero in recent years. In 2017 no new shopping centres are planned to open, but two centres (T1 and Porto Franco) with a total gross lettable area of 90,000 m2 are currently under construction with plans to open in 2018. If both projects are finished then vacancy rates will increase. New shopping centres and expansions are increasingly focusing on entertain-

Contact: Gintaras Tolocka, g.tolocka@newsec.lt

Photo: Folio

● NORDIC PROPERTY FINANCING

NEWSEC PROPERTY OUTLOOK • SPRING 2017

NORDIC PROPERTY FINANCING ●

NORDIC PROPERTY FINANCING The capital market still has a great appetite for yield, and the Swedish High Yield market is continuing to develop. We are beginning to see really large volumes and an impressive placing power, with one of the investment banks in particular standing out for its business understanding, speed and pure placement power – that is, it has a powerful trading desk working in symbiosis with an effective Debt Capital Market. This means that the market is developing and as a result investors are becoming even more familiar with the product. The senior banks generally display a more restrained attitude. One section of the banks seems very cautious at the same time as a couple of banks continue to make deals and show great enthusiasm for transactions. Generally one is even more restrained about loan-to-value ratio and even more focused on obtaining amortisation. Pricewise there are no major differences from before. One strongly growing segment is Direct Lending, where institutions etc lend money bilaterally via an investment bank or other form of agent, or sometimes together with others. This is very interesting since there is no problem with

accepting volume and direct lenders have yield requirements that can often be very competitive to the senior banks. Here it is also in place to say a few words about the importance of having a good firm of lawyers involved in the transactions. Especially the bond market is complex, and the importance of treading correctly is enormous, since the bond is a rather rigid instrument if anything needs to be changed later after issuance. Here one firm of lawyers stands out, which has built up its financing and capital markets department in recent years and constantly demonstrates proof of both great knowledge and genuine business skills. When structuring a High Yield bond, great importance attaches to what can and should be pledged, while at the same time considering, in everyday language, that you will have to live with the bond for a number of years. In other words, it is of the greatest importance not to lock yourself into a structure that is not in harmony with your day-to-day business. It is naturally also important how and whether to lock in possibilities of distributing money, buying and selling properties and taking on other debt at the same time as managing the debt portfolio at such a level that there is scope to respond to unforeseen

events. This is where an effective collaboration between a professional group of investment bank, law firm and adviser is hugely important for the borrower so that the bond not only can be placed but is good long term business for all parties. We are looking at the future with excitement and at the capital market with hope that it also will be possible to achieve a transaction-efficiency and level of pricing that will allow even borrowers with a requirement below SEK 100 million – and perhaps even lower – to start to participate in the capital market in an advantageous way. Contact: Mats Karlsson, mats.karlsson@newsec.se

» One strongly growing segment is direct lending, where institutions etc lend money bilaterally via an investment bank or other form of agent, or sometimes together with others«

● OUTLOOK FOR THE NORTHERN EUROPEAN PROPERTY MARKET

NEWSEC PROPERTY OUTLOOK • SPRING 2017

OUTLOOK

FOR THE NORTHERN EUROPEAN PROPERTY MARKET Newsec continuously makes predictions about the commercial property market in Northern Europe. Our ability to produce these predictions is due to our local market presence in all the Nordic countries as well as in the Baltics. The basis for our forecast is our perspective regarding the macroeconomic development of the countries in the region and how that, in turn, will affect the commercial property market in each country. Yield, rental and vacancy trends for each market segment and area are estimated by our local experts and applied in a financial model to predict the optimal risk/return relationship between assets. The analysis that follows indicates where Newsec thinks the commercial property market in Northern Europe is heading during the next few years.

For further information concerning the assumptions behind the analysis, please contact us and we will support you in making the optimal investment and allocation decisions in the years to come.

or under way. The low-interest-rate environment is expected to persist until 2018 and, combined with a lack of high-yielding alternatives, the Swedish property market shows good prospects for 2017.

A strong year across the Nordics with good prospects for 2017

The Norwegian property market had a strong finish to 2016 after a relatively slow start. Investors were hesitant due to macroeconomic indicators such as the low oil price, higher unemployment, low GDP growth and fears of a weakening rental market. The total transaction volume for 2016 was NOK 79 billion, which is significantly lower than the volume of NOK 125 billion in 2015. However, 2015 was by far the strongest year ever on the Norwegian market, and 2016 is still a very strong year in a historical perspective. The overall conclusion is that the property market in Norway is seen as very

By November 2016 the transaction volume in Sweden had already reached new record levels, and the final total for the year broke all previous records and amounted to SEK 201 billion in a total of 535 transactions. Office properties were the most popular segment in 2016, totalling almost 30% of the volume. In second place, with a 27% market share, came residential properties. There has been a steadily increasing interest in residential properties in recent years and a number of major housing projects are planned

Total Return/Market Risk — 2017E—2018E

Average Total Return 2017E—2018E

Percent

Source: Newsec

Office Sweden

Retail Sweden Logistics Sweden 12

Residential Sweden Office Norway Retail Norway

Logistics Norway Office Finland 8

Retail Finland Logistics Finland Residential Finland

Office Denmark Retail Denmark 4

Office Baltic Region Retail Baltic Region Logistics Baltic Region

2 2

32 Percent

Standard Deviation in Total Return 2008—2016

NEWSEC PROPERTY OUTLOOK • SPRING 2017

healthy both at the moment and going forward. The Danish property market showed high activity in 2016, with the total transaction volume returning to 2007 levels and estimated at DKK 64 billion, of which DKK 45– 48 billion was in Copenhagen. The great interest shown by investors resulted in a downward pressure on yields, which had previously been generally stable for a number of years. The Danish property

OUTLOOK FOR THE NORTHERN EUROPEAN PROPERTY MARKET ●

market is predicted to be stable going forward, although there is a risk that, as interest rates begin to rise, investors’ interest in property may decline as they start looking at bond investments again. The Finnish economy showed signs of improvement during the winter of 2015–16 and trust in the Finnish economy continued to increase during 2016. Consumer trust in particular has improved. In the property market, demand in the

office and residential segments increased further during 2016. Property yields were further compressed and hit new record levels in prime areas. The regional focus of investors widened further during the year and both good provincial properties and more challenging properties in the Helsinki Metropolitan Area attracted interest from investors. Low interest rates and good access to financing, combined with an improved economy, are expected to increase the attractiveness of the

● OUTLOOK FOR THE NORTHERN EUROPEAN PROPERTY MARKET

NEWSEC PROPERTY OUTLOOK • SPRING 2017

» Investors seeking to maximise their riskadjusted return during the forecast period should allocate towards well selected logistic properties in Finland«

Finnish property market further during 2017.

and will add 21,500 m2 of Class-A office space to the CBD when completed in 2018. The investment market in Estonia was active in 2016. The total volume exceeded EUR 270 million and the office segment accounted for almost half of this. Demand for quality properties is strong, which has pushed yields down steadily. Buyers are mostly local Baltic investors and Nordic real estate funds. Few transactions were made with yields below 7% in 2016 and we forecast the trend to continue in coming years.

After a record-breaking 2015, the Baltic transaction market continued to be strong during 2016. Lithuania’s transaction volume amounted to nearly EUR 300 million for the third consecutive year. Although yields have decreased significantly in recent years, there is still an attractive gap compared to Western European levels. The average yield for prime retail and office assets in Vilnius was compressed to 6.75% during the year, with the most attractive properties being bought at yields up to 50 basis points lower. Local Baltic, Nordic and Eastern European investors are expected to remain key players in the near future.

After several years, the office market in Riga started to grow again in 2016. A number of large premium offices are currently under construction or will start construction soon. The total transaction volume in Latvia exceeded EUR 290 million in 2016, with investment in the retail segment accounting for nearly 60% of the volume. Although yields have decreased significantly in recent years,

The office market in Tallinn is growing. This decade’s first high-rise building over 100 m tall is currently under construction

Expected Average Capital Growth 2017E—2018E Average Capital Growth, Percent

Source: Newsec

9 8 7 6 5 4 3 2 1

Retail

Logistics

Office Oslo Prime

Logistics Malmö Prime

Office HMA Prime

Residential HMA Prime

Retail Oslo Prime

Retail Malmö Prime

Logistics Tallinn Prime

Logistics Gothenburg Prime

Office Vilnius Prime

Logistics Stockholm Prime

Retail HMA Prime

Logistics Riga Prime

Logistics Oslo Prime

Retail Tallinn Prime

Office Malmö Prime

Office Riga Prime

Residential

Retail Copenhagen Prime

Retail Riga Prime

Logistics HMA Prime

Retail Vilnius Prime

Office Tallinn Prime

Logistics Vilnius Prime

Retail Stockholm Prime

Retail Gothenburg Prime

Office Gothenburg Prime

Office Stockholm Prime

Residential Malmö Prime

Office Copenhagen Prime

Office

Residential Gothenburg Prime

Residential Stockholm Prime

there is still an attractive gap compared to Western European levels.

Logistic and office properties in Finland are expected to show the highest risk-adjusted total return in 2017–2018 Logistic properties located in Finland are expected to show the highest total return during the period 2017–2018. The segment has shown a relatively low volatility in total returns. However there is a large submarket spread in risk-adjusted returns. Investors seeking to allocate capital to logistic properties in Finland should therefore choose their submarket carefully since some locations are predicted to show similar returns while having considerably higher volatility. Properly analysing the location of logistic properties in Finland remains essential in order to limit exposure to unnecessary risk. The high expected risk-adjusted return is driven mainly by predicted increases in rents combined with continuous yield compression. Office properties in Finland are also expected to show high risk-adjusted returns. However the office segment shows historically more varying standard deviations. The historical volatility of office properties in the Jyväskylä and Other Growth Centres submarkets is the lowest in the Nordics, while office properties in the HMA submarket show a volatility almost three times as high. The highest risk-adjusted total return is expected to be in the Jyväskylä and Other Growth Centres submarkets. The expected return is driven mainly by expected increases in rents combined with slightly decreasing vacancy rates. Residential properties in Sweden, in particular in the Rest of Greater Stockholm, Other Major Cities and Rest

NEWSEC PROPERTY OUTLOOK • SPRING 2017

OUTLOOK FOR THE NORTHERN EUROPEAN PROPERTY MARKET ●

having the highest expected capital growth in 2017–2018. Residential properties in Stockholm Prime are expected to show the highest capital growth in 2017–2018. The average yearly capital growth is predicted to reach a little over 9%, driven mainly by a combination of yield compression and rental growth.

of Sweden submarkets, are expected to continuously deliver stable total returns with relatively low volatility. The segment has been characterised by compressed yields in recent years, with yield levels on residential properties in the outer areas of Greater Stockholm falling from 4.7% in 2012 to today’s level of 4%. Other key drivers for the high expected return are continuously rising rent levels and stable vacancy rates. The residential segment in Sweden shows a clear risk spread. The expected return within the segment ranges from 7.5% to 10% while the historic standard deviation has ranged from 4.75% to 10%, indicating that the submarket selection needs to be properly analysed in order not to get exposure to an investment with an unnecessary risk

level in relation to total return. Office properties in Norway are expected to show the lowest risk-adjusted return during the forecast period due to low expected returns and rather high historical volatility. Stable yield levels and vacancy rates are expected to limit the total return for office properties in Norway during 2017–2018. Investors seeking to maximise their risk-adjusted return during the forecast period should allocate towards well selected office properties and well selected logistic properties in Finland. The interest in residential properties is expected to continue, with the segment

Two segments are predicted to have negative capital growth during the period. Office Oslo Prime and Logistics Malmö Prime are expected to show capital growth rates of -0.2% and -0.1% respectively. Investors chasing maximum capital return during the forecast period should focus on residential properties in Stockholm Prime areas.

Total Return | Baltic Region

Total Return | Nordic Region Percent

Source: Newsec

Percent

Source: Newsec

20 18

16 14

10 8

6 4 2 0

Two other segments show positively diverging returns compared to the other segments. Office Copenhagen Prime and Residential Gothenburg Prime are both expected to show capital growth rates above 6% per year, with office properties having the higher growth rate of 8.5%.

5 2011

2012

Prime Office

2013

2014

Prime Retail

2015

2016

Prime Residential

2017E

2018E

Prime Logistics

2011

2012

Prime Office

2013

2014

Prime Retail

2015

2016

2017E

2018E

Prime Logistics

● MACROECONOMIC DATA

NEWSEC PROPERTY OUTLOOK • SPRING 2017

MACROECONOMIC DATA Sweden Economic Indicators

Interest Rates

Percent

Source: SCB, Newsec

Source: Swedbank, Swedish Central Bank

7 6

5 4

3 1

2 1

0 -1

-1

2010

2011

2012

2013

2014

GDP, Annual Percentage Change Inflation, Yearly Average

2015

2016 2017E 2018E 2019E

2010

2011

2012

2013

Central Bank Interest Rate

Private Consumption

2014

2015

2016 2017E 2018E 2019E

STIBOR 3M

STFIX 5Y

Employment 7 6 5

Norway

Economic Indicators

Percent

Interest Rates

2 Percent

Source: BNP

1 4

-1 3

Source: BNP

-2

2010

2011

2012

2013

2014

GDP, Annual Percentage Change Inflation, Yearly Average

2015

2016 2017E 2018E 2019E

2010

2011

2012

2013

Central Bank Interest Rate

Private Consumption

2014

2015

2016 2017E 2018E 2019E SWAP 5Y

NIBOR 3M

Employment

Finland 4

Economic Indicators Percent

Source: BNP

4 3

Interest Rates Percent

Source: BNP

2 -2

0 0 -1 -2

2010

2011

2012

2013

2014

GDP, Annual Percentage Change Inflation, Yearly Average

2015

-1

2016 2017E 2018E 2019E

2010

2011

2012

2013

Central Bank Interest Rate

Private Consumption

Employment

4 3 2

2014

2015

2016 2017E 2018E 2019E

EURIBOR 3M

SWAP 5Y

NEWSEC PROPERTY OUTLOOK • SPRING 2017

MACROECONOMIC DATA ●

Denmark Interest Rates

Economic Indicators Percent

Percent

Source: BNP

-1

2010

2011

2012

2013

2014

GDP, Annual Percentage Change Inflation, Yearly Average

2015

-1

2016 2017E 2018E 2019E

2010

Source: BNP

2011

2012

2013

2014

Central Bank Interest Rate

Private Consumption

2015

CIBOR 3M

2016 2017E 2018E 2019E SWAP 5Y

Employment

Estonia

Economic Indicators Percent

Source: BNP

2 1

8 0

6 4

-1

Interest Rates Percent

Source: BNP

2 1.5 1 0.5

0 -2

-4 -6

2010

2011

2012

2013

2014

GDP, Annual Percentage Change Inflation, Yearly Average

2015

-0.5

2016 2017E 2018E 2019E

2010

2011

2012

2014

2015

2016 2017E 2018E 2019E

SWAP 5Y

EURIBOR 3M

Private Consumption

2013

Employment

Latvia

8 6

Economic Indicators

Percent

Source: BNP

2 0

Interest Rates Percent

Source: BNP

-2

-4 2

-6

-2 -4

2010

2011

2012

2013

2014

GDP, Annual Percentage Change Inflation, Yearly Average

2015

-1

2016 2017E 2018E 2019E

2010

2011

RIGIBOR 3M

Private Consumption

2012

2013

2014

2015

2016 2017E 2018E 2019E

EURIBOR 3M

Employment

6 4 2

● MACROECONOMIC DATA

NEWSEC PROPERTY OUTLOOK • SPRING 2017

MACROECONOMIC DATA Lithuania Interest Rates

Economic Indicators Percent

Percent

Source: BNP

6 4

2 2 0

-2 0 -4 -6

2010

2011

2012

2013

2014

GDP, Annual Percentage Change Inflation, Yearly Average

2015

-1

2016 2017E 2018E 2019E

Employment

GDP Growth 2016—2017E Percent

Source: BNP

4 2 0

3 -2 2

-4 -6

2016

2017E

2010

2011

VILIBOR 3M

Private Consumption

2012

2013

2014

EURIBOR 3M

2015

2016 2017E 2018E 2019E

NEWSEC PROPERTY OUTLOOK • SPRING 2017

PROPERTY DATA ●

PROPERTY DATA Office rents Prime Office Rents (CBD) | Nordic Region

Source: Newsec

Percent

EUR/m2

800

600

Prime Office Rents (CBD) | Baltic Region

Source: Newsec

Percent

EUR/m2 240

210

180 4

400

200

150 120

60 1

Stockholm Gothenburg

Malmö

Oslo

Helsinki

Copenhagen

Tallinn

Riga

Vilnius

Average Annual Rental Growth 2011—2016 (left axis)

Average Annual Rental Growth 2017E—2019E (left axis)

Rent Level 2017E (right axis)

Office yields Prime Office Yields | Baltic Region

Prime Office Yields | Nordic Region Percent

Source: Newsec

Percent

Source: Newsec

6 5.5

9 5 8

4.5 4

7 3.5 3

2010

2011

2012

Stockholm Oslo

2013

2014

2015

Gothenburg Helsinki

2016 2017E 2018E 2019E

2010

2011

Tallinn

Malmö Copenhagen

2012

2013

2014

2015

Riga

2016 2017E 2018E 2019E

Vilnius

Retail rents Prime Retail Rents | Nordic Region

Source: Newsec

Percent

EUR/m2 4000

12 10

Source: Newsec

Percent

EUR/m2

300

2.5

250

200

1.5

150

100

3000

8 6

2000

4 2

1000 50

0.5

0 -2

Prime Retail Rents | Baltic Region

Stockholm Gothenburg

Malmö

Oslo

Helsinki

Copenhagen

Tallinn

Riga

Vilnius

Average Annual Rental Growth 2011—2016 (left axis)

Average Annual Rental Growth 2017E—2019E (left axis)

Rent Level 2017E (right axis)

● PROPERTY DATA

NEWSEC PROPERTY OUTLOOK • SPRING 2017

PROPERTY DATA Retail yields Prime Retail Yields | Baltic Region

Prime Retail Yields | Nordic Region Percent

Source: Newsec

Percent

Source: Newsec

5.5

5 8 4.5 7

4 3.5

2010

2011

2012

Stockholm Oslo

2013

2014

2015

Gothenburg Helsinki

2016 2017E 2018E 2019E

2010

2011

2012

Tallinn

Malmö Copenhagen

2013

2014

Riga

2015

2016 2017E 2018E 2019E

Vilnius

Logistics rents Prime Logistics Rents | Nordic Region

Source: Newsec

Percent

EUR/m2 200

5 4

150

3 100 2 50

1 0

Stockholm

Gothenburg

Malmö

Oslo

Helsinki - East

Prime Logistics Rents | Baltic Region

Source: Newsec

Percent

EUR/m2

Tallinn

Riga

Vilnius

Average Annual Rental Growth 2011—2016 (left axis)

Average Annual Rental Growth 2017E—2019E (left axis)

Rent Level 2017E (right axis)

Logistics yields Prime Logistics Yields | Nordic Region

Prime Logistics Yields | Baltic Region

Percent

Source: Newsec

Percent

Source: Newsec

10 7 9 6 8

2010

2011

Stockholm Oslo

2012

2013

2014

Gothenburg Helsinki - East

2015

2016

Malmö

2017E

2018E

2019E

2010

2011

Tallinn

2012

2013 Riga

2014

2015

2016 2017E 2018E 2019E

Vilnius

NEWSEC PROPERTY OUTLOOK • SPRING 2017

PROPERTY DATA ●

Residential rents Prime Residential Rents | Sweden

Source: Newsec

Percent

EUR/m2

Prime Residential Rents | Finland

Source: Newsec

Percent

EUR/m2

200

400

150

300

100

200

100

Stockholm

Gothenburg

Malmö

Helsinki

Average Annual Rental Growth 2011—2016 (left axis)

Average Annual Rental Growth 2017E—2019E (left axis)

Rent Level 2017E (right axis)

Residential yields Prime Residential Yields | Sweden

Prime Residential Yields | Finland

Percent

Source: Newsec

Percent

2010

2011

Stockholm

2012

2013

2014

2015

Gothenburg

2016 2017E 2018E 2019E

Source: Newsec

2010

Malmö

2011

2012

2013

2014

2015

2016 2017E 2018E 2019E

Helsinki

Annual transaction volumes Transaction Volumes — Annual | Nordic Region BEUR

Transaction Volumes — Annual | Baltic Region Source: Newsec

MEUR

500

400

300

200

100

2010

2011

Sweden

2012 Norway

2013

2014 Finland

2015

2016 Denmark

2017E

Source: Newsec

2010

2011

Estonia

2012

2013

Latvia

2014

2015

2016

2017E

Lithuania

● PROPERTY DATA

NEWSEC PROPERTY OUTLOOK • SPRING 2017

PROPERTY DATA Quarterly transaction volumes Transaction Volumes — Quarterly | Baltic Region

Transaction Volumes — Quarterly | Nordic Region BEUR

Source: Newsec

MEUR

250

200

150

100

Source: Newsec

0 2010

2011

2012

Sweden

2013

Norway

2014

2015

Finland

2011

Latvia

Q1 Q3 Q1 Office stock 2010 2010

2012

Estonia

Denmark

Office new construction Q1

2010

2016

2011

Q3 2011

2013

2014

Office Office Market) 2010 New 2010 Construction 2011 2011 2012(Capital 2012 2013 2013 2014 2014Source: 2015 Newsec 2015

Office Stock Q2 2016 (Capital Office Market) Million m2

150

2016

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 2012 2012 2013 2013 2014 2014 2015 2015 2016

Thousand m2

Percent of stock

2015

Lithuania

Source: Newsec

14 12

100

10 8 6

4 2

Stockholm

Oslo

2016 (left axis)

HMA

Copenhagen Tallinn

2017E (left axis)

Riga

Vilnius

2017E (right axis)

Stockholm

Oslo

HMA

Copenhagen Tallinn

Riga

Vilnius

2017E

NEWSEC PROPERTY OUTLOOK • SPRING 2017

DEFINITIONS ●

DEFINITIONS Offices

Retail

Logistics

• In the Nordic region, the forecast refers to new or newly refurbished modern and flexible office premises with normal area efficiency.

• Rent levels refer to attractive, modern High-Street or centrally located shopping-centre retail premises with a prime location on the High Street or in the shopping centre.

• In the Nordic region the size of the premises is assumed to be 5,000—20,000 m2 with 5—10 years lease agreement.

• In Finland, the forecast refers to office premises with normal area efficiency in office buildings in office areas. • The size of the premises is assumed to be around 1,000 m2. • In the Baltic region, the forecast refers to new or newly refurbished stand-alone modern business centres. • In Sweden the market rent includes heating and excludes Property Tax. • In Finland the market rent includes heating and Property Tax. • In Norway and Denmark the market rent excludes heating and Property Tax.

• In Norway, rents refer only to shopping centres. • The rents do not refer to premises used for groceries and daily necessities (except in the Baltic region). • The size of the premises is assumed to be around 250 m2. • The rent excludes heating and Property Tax in all Nordic countries except Finland where heating and Property Tax are included. • In the Baltic region the market rent excludes all applicable taxes.

• In the Baltic region the market rent excludes all applicable taxes.

• In the Baltic region the size of the premises is assumed to be from 3,000 m2 with 3—5 years lease agreement. • In the Nordic region the rent excludes heating and Property Tax. • In the Baltic region the market rent excludes all applicable taxes.

Residential • The forecast refers to attractive locations. • The standard assumes buildings constructed in the late 1990s and with an apartment area of around 60—70 m2. • The rent includes heating and Property Tax.

Exchange rates All rents and transaction volumes are calculated using exchange rates from January 2017.

NEWSEC’S ANALYSIS PRODUCTS Thanks to Newsec’s comprehensive knowledge we are able to offer a number of analysis and market reports which give you a valuable summary of the property market. Order your English report at www.newsec.com/insights/market-reports/ Order your Swedish report at www.newsec.se/insikter--rapporter/marknadsrapporter/

● THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE

NEWSEC PROPERTY OUTLOOK • SPRING 2017

THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE Newsec — The Full Service Property House in Northern Europe — is by far the largest specialised commercial property firm in Northern Europe. Newsec manages more properties and carries out more transactions, more lettings and more valuations than any other firm in Northern Europe. Through this great volume, and the knowledge and depth of our various operations, we acquire extensive and detailed knowledge of the real estate market. In turn, we can quickly identify business opportunities that create added value.

The Group expanded internationally into Finland in 2001, Norway in 2005, the Baltic countries in 2009 and Denmark in 2016. The Norwegian asset and property management companies First Newsec Asset Management and TM Partner were acquired in 2012. In 2013, Newsec acquired Jones Lang LaSalle’s Swedish property management operation.

Today, Newsec employs over 1 000 professionals in over 33 offices and covers all parts of the commercial property market. Newsec provides services to most of the leading property owners, investors and corporates in the region.

Newsec is a stable and long-term player. The company was founded in Sweden in 1994. The founding family have been the main owners from the start, with the rest of the company owned by key executives in the Group.

Our prime market is Northern Europe, but through our alliance membership with BNP Paribas Real Estate, we offer our services on the global market. This makes Newsec Northern Europe’s only full service property house, and provides us with a unique ability to forecast the future.

A history of growth Newsec is the result of a unique history of growth, characterised by constant originality of thinking. The first issue of the comprehensive market analysis, Newsec Property Outlook, was published in 2001.

OULU

TRONDHEIM

TAMPERE BERGEN OSLO STOCKHOLM

HELSINKI TALLINN

GOTHENBURG RIGA

AARHUS COPENHAGEN

MALMÖ

VILNIUS

NEWSEC PROPERTY OUTLOOK • SPRING 2017

CONTACT AND ADDRESSES ●

CONTACT AND ADDRESSES Sweden

Norway

Finland

Estonia

info@newsec.se

info@newsec.no

info@newsec.fi

info@newsec.ee

Stockholm

Oslo

Helsinki

Tallinn

Stureplan 3 P.O. Box 7795 SE-103 96 Stockholm, Sweden Tel: +46 8 454 40 00

Filipstad Brygge 1 P.B. 1800 Vika NO-0123 Oslo, Norway Tel: +47 23 00 31 00

Mannerheiminaukio 1 A P.O. Box 52 FI-00101 Helsinki, Finland Tel: +358 207 420 400

Roseni av. 7 EE-10111 Tallinn, Estonia Tel: +372 664 5090

Trondheim

Tampere

Latvia

Beddingen 8, 3. etg. NO-7042 Trondheim, Norway Tel: +47 98 67 (24t)

Aleksanterinkatu 32 B FI-331 00 Tampere, Finland Tel: +358 207 420 400

info@newsec.lv

Stockholm Humlegårdsgatan 14 P.O. Box 5365 SE-102 49 Stockholm, Sweden Tel: +46 8 55 80 50 00

Gothenburg Sankt Eriksgatan 5 P.O. Box 11405 SE-404 29 Göteborg, Sweden Tel: +46 31 721 30 00

Denmark Newsec Egeskov & Lindquist Denmark info@newsec.dk

Copenhagen Gothenburg Kungsportsavenyn 33, 5 tr SE-411 36 Göteborg, Sweden Tel: +46 31 733 86 00

Öresund Office Davidshallsgatan 16 SE-211 45 Malmö, Sweden Tel: +46 40 631 13 00

Silkegade 8 1113 Copenhagen Tel: +45 33 14 50 70

Aarhus Banegårdspladsen 20 8000 Aarhus C Tel: +45 87 31 50 70

Riga Zala street 1 LV-1010 Riga, Latvia Tel: +371 6750 8400

Lithuania info@newsec.lt Vilnius Gediminas av. 20 LT-01103 Vilnius, Lithuania Tel: +370 5 252 6444

THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE