The Norwegian Property Market

THE RETURN OF INTERNATIONAL INVESTORS SPARKS RECORD HIGH VOLUMES

The Norwegian economy has continued to grow and activity sharply increased while unemployment continued to fall in the second half of the year. Society is on its way to fully reopening and there is an optimism on the market. High energy prices have however caused inflation to surge. Excluding energy prices and taxes the inflation is roughly around the inflation target of 2%. Salary increases and larger price growth in imported goods is likely to push underlying inflation higher. Due to the high inflation the Norwegian central bank raised rates at the end of 2021 from 0.25 to 0.50%. The Norwegian central bank thus became the first central bank in the Nordics to raise interest rates. An additional three hikes are expected in 2022. As a result of the increase in interest rates, 5 and 10 year SWAPs are now at pre-pandemic levels. Economic activity is expected to continue to increase in 2022, primarily driven by industries which were severally hit by restrictions in 2020 and 2021. GDP is expected to grow by 3.5% for the full year of 2022. Lack of qualified workers and supply chain issues might affect this growth.

Norway is another Nordic country which noted a record year for the real estate market. In total 420 transactions were noted amounting to NOK 167 billion – making this a year for the history books. The last quarter alone amounted to NOK 76 billion which can be put in relation to e.g. 2013 when the total transaction volume for the entire year amounted to NOK 40 billion. Apart from being characterized by record high volumes, several M&A deals and large portfolio transactions could be observed on the market – amounting to a total of 34 transactions above one billion NOK. International investors have also returned to the Norwegian real estate market after showing a limited presence in 2020. International investors amounted to 18% of the total transaction volume, where Swedish buyers were the dominant international buyer contributing to half of that volume. With a strong financing market and a favorable macroeconomic climate, Newsec expects the real estate market to continue to prosper in 2022 although the full year volume is forecast to be lower than in 2021 due to less M&A activity.

Contact: Øyvind Johan Dahl ojd@newsec.no

Photo: Shutterstock

»In total 420 transactions were noted amounting to NOK 167 billion – making this a year for the history books«

Interesting trends on the Norwegian property market in 2021 and 2022

LOGISTICS PERFORMS WELL – FAR FROM SURPRISING

Logistics continue to be the second largest segment on the Norwegian transaction market. Never before has the share been as large as in 2021 and the segment amounted to 23% of the total transaction volume. The share is only expected to increase, and logistics is on track to amount to a quarter of the total transaction volume. As the demand for logistics hubs spikes and the segment makes its mark on the transaction market, the price is bound to follow suit and since the beginning of the pandemic the yield for prime assets have decreased by 75 basis points. Even more remarkable is that normal assets have seen a decrease of 100 basis points since the beginning of the pandemic. Logistics has thus noted a larger yield compression than offices, with a 40% decrease compared to a 35% decrease for offices since 2014.

THE RETURN OF THE NEW OFFICE

The rental market has bounced back from the slow pace which had been observed since the beginning of the pandemic. Although rental levels have remained roughly unchanged, search processes have been substantially longer than prior to the pandemic, but are now back at pre-pandemic levels. An increase in demand for modern premises of high standard near public transportation hubs has been noted as well as flexibility in rental contracts. Especially the flexibility to increase or decrease space as required has become an important part when choosing premises. On the investment market, yield compression within the Oslo CBD is flattening and has probably reached bottom levels for now. Areas surrounding the CBD are instead expected to increase in popularity on the market and the gap between these areas and the CBD is expected to tighten.

NOK 167 BILLION

Total investment volume in 2021

NOK 150 BILLION

Total investment volume expected in 2022

+3.4%

GDP growth expected in 2022

THE YEAR OF M&A DEALS

As the global M&A market reaches record levels, so does the M&A share of the real estate transaction volume in Norway. Several large deals have been noted such as the sale of Oslo Areal, the ABP portfolio, Samhällsbyggnadsbolaget’s acquisition of Trygge Barnehager and their acquisition of Solon Eiendom. Even the much-questioned retail segment was part of the action through the Aurora portfolio. The year was truly the year of M&A transactions on the real estate market and in the last quarter more deals with a value above NOK one billion were noted than in the full year of 2020. Less M&A activity is expected in 2022.

RETAIL AND HOTELS ARE BACK IN BUSINESS

Both hotels and retail have done a comeback throughout the year, making 2021 perhaps the end of the downfall which begun just a year prior. The two hotels Zander K in Bergen and Quality River Station in Drammen which were pulled from the market at the beginning of the pandemic were put back on the market in 2021. The two hotels were both sold during the year, at competitive market levels. For the retail segment the most notable transactions in 2021 were the Aurora portfolio and the Jærhagen Shopping center, both of which went for over or around one billion NOK. Newsec expects the comeback to continue in 2022, with increased activity within both segments, with large portfolio premia being observed and sales at pre pandemic levels.