Interesting trends on the Norwegian property market

Interest rates will stabilize, and uncertainty in the market will decrease

The Norwegian policy rate is currently at 2.75 percent after six interest rate hikes in 2022 — the highest it has been since 2009. These hikes are an attempt to halt the surging inflation. During the last rate decision in January 2023, Norges Bank’s Monetary Policy and Financial Stability Committee decided to keep the policy rate unchanged at 2.75 percent. The central bank was also one of the first in Europe to raise rates rapidly. Norges Bank also emphasizes that the policy rate most likely will be raised by an additional 25 basis points in March 2023. On the other hand, energy prices might fall earlier than expected, and global inflationary pressures also appear to be easing. The policy rate has been raised considerably over a short period of time, and monetary policy has started to have a tightening effect on the economy. This may lead to a less aggressive approach to policy rate setting further on this year.

Several of the closings that were postponed last year will reappear on the market in 2023

Regardless of a strong first half of 2022, the autumn was abnormally slow for commercial property. Liquidity in the market dried up and it was challenging to get buyers and sellers to meet. When buyers and sellers have got used to the new market conditions, some of the postponed transactions from last year are expected to reappear on the market and be closed in 2023. There is still a lot of capital seeking return and a large interest for value-add opportunities close to the city center has for example been noted.

Strong activity on the rental market, especially for attractive, flexible premises that offer flexibility

Any trace of the pandemic has now vanished from the rental market especially in Oslo, and uncertainty related to the effects of home offices has been replaced with renewed faith in the office market. It is primarily the most attractive areas that have benefited from this trend, but the more average premises have also seen increased demand now when much of the A-Category premises have been filled. There is somewhat lower activity in the east and south of Oslo, while the activity is especially high in the center and the western parts of the city. However, the frequent interest rate hikes will sooner or later affect activity on the rental market. Many tenants are facing a difficult spring with inflation-adjusted rental levels and drastically higher operating costs because of the high prices for electricity. As such, flexibility either in the contract or by use of flexible space will be of interest on the market.

Reduced supply of new buildings will keep vacancy levels low and help to keep rent levels up in Greater Oslo

Activity and growth in market rents has been high, however, the positive market sentiment will be put to the test as 2023 delivers declining employment and a low forecast growth. But inflation has also affected the construction industry and already low volumes of planned new buildings will become even smaller, as several projects are put on hold. Low demand for tenants will be offset by low supply of new premises and the rental market will thus stay relatively strong in 2023. Office vacancy in Oslo currently stands at a record low 5.4 percent which can be compared to the record-high level in 2015 of 8.6 percent. It is estimated that the vacancy level during the year will move slightly up towards 6.0, thus ending the year at a more normal level.

Green is good

According to figures from Arealstatistikk, the market. is still adjusting to the new universe of sustainability. Some legal requirements are already in place and more will come. We have already noticed a shift in yields, both due to requirements from the financial sector, but also from investors having the ESG aspect as part of their investment mandate. Lately, the market has started to see a shift in requirements from tenants. A few of the latest tenant searches in the market demand BREEAM certificated buildings, energy efficient premises and also requirements towards a circular economy and recycling of materials. Going forward, this will be important in order to maintain property values.