The Norwegian property market

THE NORWEGIAN PROPERTY MARKET ANOTHER STRONG TRANSACTION YEAR IN NORWAY

The Norwegian economy continues to grow at a steady pace, with a GDP growth rate of around 2 per cent in 2019. Unemployment and employment figures are strong, core inflation is keeping pace, and following interest rate hikes in March, June and September 2019, the prospect of further interest rate increases is limited. Though signs of volatility on the oil market could impact Norwegian growth, all in all, the Norwegian economy is expected to grow at a stronger rate than the other Nordic countries in the coming years. Newsec also believes that the turmoil that has characterized the stock market in recent times will persist and the long stable cash flows offered by the real estate market will tempt more investors. There is a lot of capital, there is a lot of equity, and the banks are willing to lend, which bodes well for the real estate market.

2019 was yet another good year for Norwegian commercial property. In total, commercial real estate was sold for NOK 100 billion, spread across 286 transactions. The rental market has and will continue to benefit from a strong economy in 2020. Newsec believes that office vacancies will continue to fall in Oslo and remain stable in the other major cities. Rental levels will continue to rise, especially in Oslo and centrally in Trondheim. However, recently, rental growth projections have fallen somewhat, and Newsec expects a lower growth rate over time, in line with the weaker economic outlook for 2021 and 2022. Nevertheless, strong fundamentals and a strong demand for real estate lead Newsec to believe that the transaction volume will be in line with 2019, with an expected volume of NOK 100 billion in 2020.

In addition to developments in terms of yields and rents, Newsec is seeing a substantial trend shift across all segments. History can no longer be used to predict the future. One must think both innovatively and differently, because user needs are changing across the office, retail, logistics and hotel markets. The changes that occur over the next 10 years will probably be greater than those seen over the past 100 years.

Contact: Øyvind Johan Dahl, ojd@newsec.no

»There is a lot of capital, there is a lot of equity, and the banks are willing to lend, which bodes well for the real estate market«

Interesting trends on the Norwegian property market in 2019 and 2020:

SYNDICATES ACCOUNTED FOR 31 PER CENT OF TRANSACTION VOLUME IN 2019 Considering that the new Alternative Investment Fund Act was not adopted until Q3 2019, after which considerable time had to be spent on adapting to new regulations, syndicates accounting for 31 per cent of transaction volume constitutes a very strong result. Syndicates purchased properties for three times as much as they sold for, with primarily offices and logistics being traded. Furthermore, it is interesting to note that life insurance companies have shifted firmly over to the buy-side once again. In 2019, they bought offices and logistics while selling off retail. 3,75% NOK 100 BILLION 2019 transaction volume

31%

SYNDICATES accounted for 31 per cent of transaction volume in 2019

FOREIGNERS ARE NET SELLERS Unlike syndicates and life insurance companies, foreigners in general were net sellers in 2019. Foreign investment peaked in 2014 and pushed yields downwards in central areas for the first few years. However, 2018 was the first year in which foreigners were net sellers, which has intensified in 2019. Norway has simply become too expensive when considering the hedging costs foreign investors must pay.

OFFICE PRIME YIELDS remain at 3.75%

NOMINAL VALUES FOR OFFICES IN OSLO CBD HAVE DOUBLED SINCE 2013 The value increase in commercial real estate has been formidable over the last 6–7 years, with an acceleration in both yield compression and rental growth. Looking at developments in rents over the last few years in Oslo, the CBD has performed the strongest, with nominal values for offices doubling since 2013. Many other central areas have also seen strong growth. However, well-informed investors will find opportunities in overlooked areas.

MIXED DEMAND ACROSS THE COUNTRY In Oslo and Bergen, newer buildings in proximity to major roads and railways are in high demand. In Oslo, we see this demand pushing prices up west. In Stavanger, construction is strengthening as oil prices surge, but improved absorption of existing land means that particularly strong impacts have not been seen yet. However, rental levels in central Stavanger are on the rise. Prime yields remain at 3.75 per cent for the most attractive office properties in Oslo, which means that investors are looking for higher returns in secondary cities such as Bergen, Trondheim, Stavanger and Tromsø.

THE SEARCH FOR RETURNS CONTINUES Expectations of increased rental levels also mean that more properties are shifting hands in search of increased returns when renegotiating contracts. Newsec has also noted a continued willingness to buy housing, although house prices generally appear to be stabilizing. Areas outside of Oslo with strong population growth are seeing particularly high demand, as these are now more stable than the Oslo market.