The Norwegian property market

The transaction market has been characterized by high activity and record pricing of commercial real estate for the past few years. After a record strong start of 2022, market activity slowed significantly during the second half as the market underwent a repricing. Consumer prices have risen rapidly, and inflation is markedly above target, currently standing at 7% as of January 2023. To combat this situation, Norges Bank raised the policy rate six times in 2022. The policy rate currently stands at 2.75%, which is the highest it has been since 2009, and is expected to be hiked further towards the summer. The monetary policy has started to have a tightening effect on the economy and the activity is projected to fall in the near term. This affects both households and businesses, who will face even higher costs and lower purchasing power. Retail trade will face lower demand owing to weaker household purchasing power, the construction industry reports lower order volumes, manufacturing is facing dampened prospects, and only the energy sector sees strong demand. This is reflected in the forecast for GDP mainland Norway which is forecast to decline by 0.2% in 2023, while the total GDP is expected to grow by 0.6%.

Despite the modest growth in GDP, the unemployment rate in Norway is low. There are still more than two available job positions per registered unemployed person, indicating a strong labor market.

Throughout the first half of 2022, the activity in the transaction market was high. In brief, a volume of almost NOK 65 billion was noted in the first six months, resulting in the second highest volume in the first half of a year that ever have been recorded, only beaten by the record year 2021. In the last six months of 2022, however, the market sentiment shifted towards gloomier days. SWAP rates peaked, inflation increased, yields started to hike for the first time in years and there was great uncertainty in the market. A transaction volume of NOK 30 billion during Q3 and Q4 is the lowest registered volume for H2 in eight years. In comparison, the average transaction volume for the second half of a year in the last eight years has been over NOK 60 billion. Going into 2023, market activity is slowly starting to return. Yields have stabilized at higher levels and there is less uncertainty among investors. Appetite has shifted towards shorter contracts in the office and logistics segments, both with strong growth in market rents in the past year.

Contact:

Øyvind Johan Dahl ojd@newsec.no