4 minute read
The Norwegian Property Market
NOTHING CAN BRING DOWN COMMERCIAL PROPERTY
Due to a higher infection rate and stricter measures to contain the virus, the recovery in Norway was slightly suppressed at the beginning of 2021. However, as the year progressed the Norwegian economy has shown great promise and Covid-related restrictions will cease sometime in the fall. Underlying inflation passed the target of 2% in 2020 but has edged off during the year as the NOK strengthened. The CPI 12-month November figure is projected to come in as high as 4%. By the end of 2021 unemployment is expected to have seen a sharp decline from the high numbers observed in 2020 and is projected to level beneath 3% by the end of this year. The GDP growth in mainland Norway in 2021 is expected to amount to 3.6% and growth in the mainland economy is expected to be back at its pre-pandemic level by the end of 2021. Low interest rates and a continued expansionary fiscal policy are the key drivers of growth.
The real estate market in Norway has performed exceptionally well during the year and Q2 showed record high volumes at over 50 billion NOK. The volume has been driven by both M&A transactions, such as the bidding war for Entra, as well as portfolio and single property transactions. The market has also been boosted from several delayed projects which were pushed from 2020 to 2021. With a continued flow of capital onto the market, 2021 is set to reach record high volumes of NOK 140 billion.
Contact: Øyvind Johan Dahl ojd@newsec.no
Photo: Shutterstock
Interesting trends on the Norwegian property market in 2021
After restricted borrowing for some time, the credit market is warming up to lending towards the real estate sector and the period of limited access to bank funding is almost over. Banks are instead eager to increase lending portfolios as the funding costs decrease. The bond market is also improving, with margins back at levels seen pre-pandemic outbreak. Average issuance spreads for real estate widened from around 69 bps to 224 bps in March 2020 and have since fallen to 75 bps per August 2021. Moving forward, stable lending rates should be expected. Swap rates will slowly increase, but margins and credit spreads are expected to fall further.
NOK 115 BILLION
Total investment volume in 2020
NOK 140 BILLION
Total investment volume expected in 2021
+3.6%
GDP growth expected in 2021
FOREIGN INVESTORS ARE MAKING A COMEBACK
Foreign investors who previously were highly active especially within logistics have during the pandemic been more absent in Norway. However, the trend is breaking and projections for the fall show an increase in the activity of foreign investors, foremost in larger deals.
SHOPPING CENTER LIQUIDITY IS SLOWLY STARTING TO IMPROVE
The pandemic has left pricing favorable for those who believe customers will return to old shopping habits post pandemic, or for properties where there is potential in terms of adapting to e-commerce, cross-border shopping and changing customer behavior. The prime yield is at 4.00%.
WITH RISING RENTAL LEVELS, OFFICES STAND STRONG
The office segment performed well during the pandemic. Yields were stable for prime assets in Oslo in 2021 and have compressed in the secondary cities. Spreads have widened as investors are keen on core products. The prime yield is at 3.25%. The vacancy rate is at 7.6% in Oslo and is expected to peak at 7.8% towards the end of 2021. The rate in which offices are being let increased sharply in Q2 together with rental levels.
PRIME LOGISTICS ARE RED HOT
Logistics have continued to show high activity both in terms of volume and number of transactions, due to increased globalization and the sped-up growth in e-commerce during the pandemic. This has resulted in higher demand for distribution hubs. Both prime and average yield has compressed further down to 4.25% and 5.00% for high standard (new builds), with solid tenants and 10-year lease term. Location is most important for yield levels, as tenants compete primarily on lease lengths and not price.
A LONGER FALL THAN BAUMGARTNER BUT THE HOTEL INDUSTRY IS FINALLY SHOWING SIGNS OF RECOVERY
The hotel industry has experienced its sharpest decline since the Financial Crisis. Revenue per available room (RevPAR) in Oslo hit its trough in March 2021 at NOK 151, totaling a fall of 80% since yearend 2019 — 6 times greater than the fall following the financial crisis of 2008. Oslo was already heading for a decline in terms of RevPAR due to a large incoming pipeline of new hotels scheduled to open in 2020/21. The hotel industry in Oslo has thus been hit by both a pandemic and a large increase in room capacity. However, the fall seems to have leveled out and stabilized at around NOK 153 as of June this year. The prime yield is at 4.50%.
