Market Report Spring Great focus on property development

Transcription

1 Market Report Spring 2013 Great focus on property development

2 LEADER Size matters During parts of May, the 10-year swap rate was below 3%. However, macro prognoses are indicating that interest rate levels will increase in the longer term. Our latest bank survey show a slight reduction in bank margins in new loans and we would go as far as to hope for further reductions. Even so, it would appear that there is limited potential for lower yields via a falling finance interest rate. In other words, it is property development and rising rent levels that we shall be living off in the future. Active property management will always be important for creating good returns. The focus on property development (new builds, conversions and complete renovations) has also increased considerably over the last couple of years. Conditions are now good for increasing returns on property development, with the need for commercial property on the increase. Tenants have become more selective in terms of location and good quality, and growth in employment and population is high. Since 2007, population growth in the four largest metropolitan regions has been more than twice as rapid as in the rest of Norway, and it is in these regions in particular that employment growth in the private sector is expected to remain high. Naturally it is in the growth areas that conditions are best for property development in general and this is also where the market is most liquid. We record transactions from NOK 50 million upward, and since 2010, three-quarters of the transaction volume measured in value has been connected with the four largest metropolitan regions. We recorded 344 transactions in 2011/2012 and we have sorted these by property value. Transactions from NOK 350 million and over represented only 16% of the number of sales, but as much as 56% measured in value. There is often a focus on yield in relation to location, and we have duly covered this in the report. Here, however, we have looked at average net yield in transactions by property value and many transactions, such as sites and conversion cases, are obviously not included in the calculations. In transactions with a property value below NOK 100 million, the average level was 7.6%, while transactions with a value from NOK 350 million had an average yield below 6%. Summaries such as this will always involve an aspect of chance depending on what is sold, as well as an element of comparing apples with oranges. Risk connected with rent income tends to be lower in larger properties, such as large head office properties, than in smaller ones. Yields are also often lower in larger properties, as more efficient operation is obtained with a small number of large properties than with many small ones. The larger properties are also attractive in that a large amount of capital is invested at one time and more favourable loan finance terms can often be obtained. From the banks point of view, the costs per krone lent are lower with one large loan than with many small ones. The length of lease contracts also influences yield - most for logistics and industry and least for retail property. The table indicates a risk mark-up of 80 points in moving from 15 years or more to 4 to 7 years. Our assumption is that the risk mark-up in real terms is somewhat higher than the table indicates if we compare similar properties with regard to location, property segment and tenants. 8, 0, % 7, 5, % 7, 0, % 6, 5, % 6, 0, % 5,5 5,5 % 5, 0, % 4, 5, % 4,0 4,0 % Average yield and and property values in in 2011 and and % % % % % NOK NOK 1 bn. bn. or or NOK NOK NOK NOK NOK NOK higher higher 1, 000, 000 mill. mill mill. mill mill. mill. NOK NOK mill. mill. Transactions in in and and Share Share Quantity Quantity (quantity) (quantity) NOK NOK m Share Share (value) (value) Remaining lease lease period period Average Average yield yield NOK NOK 1 bn. bn. and and above above % 3% % 31% yrs yrs or or more more 6.5% 6.5% NOK NOK ,000 1,000 million million % 13% % 25% to to yrs yrs 7.0% 7.0% NOK NOK million million % 31% % 26% 7 to to yrs yrs 7.0% 7.0% NOK NOK million million % 21% % 10% 4 to to 7 yrs yrs 7.3% 7.3% NOK NOK million million % 33% % 9% Total Total % 100% % 100%

3 1/LEADER/PAGE 2 2/CONCLUSIONS/PAGE 4 3/MACRO/PAGE 6 4/THE TRANSACTION MARKET IN GENERAL/PAGE 10 5/THE TRANSACTION MARKET IN OSLO, AKERSHUS/PAGE 12 6/THE TRANSACTION MARKET AND KEY INFOR FOR DIFFERENT PROPERTY SEGMENTS/PAGE 13 office/retail/logistics/hotel/residential 7/THE TRANSACTION MARKET IN BERGEN, TRONDHEIM, STAVANGER/PAGE 18 8/RETURN ON INVESTMENTS IN COMMERCIAL PROPERTY/PAGE 22 9/THE OFFICE RENTAL MARKET IN OSLO, ASKER, BÆRUM - GENERAL/PAGE 25 10/THE OFFICE RENTAL MARKET IN OSLO, ASKER, BÆRUM - BY AREA/PAGE 32 3

4 CONCLUSIONS, MAY 2013 The transaction market (from NOK 50 million) o The patterns of what is being sold have continued from last year and show that a high percentage of the transaction volume is connected with office property with an address that inspires confidence and/or long lease contracts, sites and development cases and shopping centres. There has been a low volume connected with industry, retail, hotel and in general properties with ordinary risk (secondary locations and normal lease lengths). o As of mid-may, property companies were the largest net buyers and life insurance companies the largest net sellers. Including the most recently recorded transactions, the transaction volume exceeded NOK 16 billion in a total of 45 sales. o As of mid-may, we had recorded 24 different buyers and several investors with a desire to purchase had yet to find the right properties. In the early part of the year, demand exceeded supply of good cash flow properties and centrally-located office property in Oslo. o We have found that many of the transactions have been buyer-driven. These include buyers who acquire neighbouring property with a view to development and syndicates seeking good cash flow properties. Work is also proceeding on a few large portfolio deals. o There has been a decline in both interest rates and bank margins in recent months. At present, a finance interest rate of approx. 4.8% can be obtained for a five-year loan with a five-year interest rate swap, compared with 5.4% in February. o Our prime yield estimate remains at 5.25%. However, in view of the finance interest rates, strong confidence in the office rental market in Oslo, interest in buying and certain market observations, we would not be surprised to see good property achieving 5.0% on market rent. o Over the last two years, properties with short contracts and risky locations have had an increased risk mark-up. At the other end of the scale, office properties in established areas (including on short contracts), sites and property with good potential for conversion into apartments have increased in value. o There is a large focus on development. Some players have been selling property in order to release funds for development, while others have been limiting the purchase volume. 4 Office rental market Oslo, Asker & Bærum o As of April, office vacancy was 6.7%. The level has been slowly falling since last autumn, when it peaked at 7.3% There are now 734 vacant office premises. This figure has remained stable over the last year. o Demand has increased markedly over the last couple of years and area absorption was especially high last year at approx. 200,000 m². Even so, since last time we have lowered our forecast for net area absorption to an average of 150,000 m² per year and raised the forecast for average conversion volume to approx. 40,000 m² per year. Our forecast for the office rental market is for a marginal decrease in vacancy this year, accelerating to below 5% in o With regard to new builds, it has become clear that Kværner is moving to 8,000 m² in Fornebuporten in The project is planned to have two building stages, each of 25,000 m². NCC has also leased 13,400 m² to Technip in Lysaker Polaris. The new building will be 18,500 m² and is scheduled for completion in o Our new builds summary shows that firm projects for the period will total approx. 400,000 m² of offices. The combination of increased building costs and a lack of large premises will result in new build projects with rent levels averaging from approx. 2,000 NOK/m² per year upwards. o Market rent levels have shown a rising tendency since the beginning of 2010 and we expect about 5% annual growth. This growth should be seen in the context of the gradually rising standard of the premises being leased. o Demand patterns indicate that tenants are prioritising space-efficient properties of a high standard and in a good location over lowest possible price. By good location, we mean established office areas with effective traffic solutions including proximity to public transport. o New builds have been, and continue to be, spread across most of the office areas, although the centre has been the biggest winner of tenants in recent years. This positive trend has already spread into the adjacent areas. The oil boom has contributed to several large lease contracts in the Western Corridor with companies anticipating growth. Office vacancies vary from below 5% in the central areas to 12-13% in the outlying zones in the north, east and south.

5 Colosseum Kino UNION Norsk Næringsmegling handled the sale on behalf of Nordisk Film. 5

6 MACRO Norwegian economy - prospects for Continuing prospect of moderate economic upturn o The USA and China appear to be looking forward to a period of solid growth, while the euro zone represents the weakest growth area in the global economy. Internationally, the economy is developing sufficiently well to allow a moderate rise in our mainland exports, which remain fluid this year and will show good growth from 2014 (av. 2.7% for the years ). o Statistics Norway's forecast is for Norway to experience a moderate economic upturn over the next few years. The growth will be marginally higher than trend growth. Average growth in employment will be approx. 1.4%. o A falling oil price and a high rate of household saving are slowing growth, although these factors also represent an upside potential. o As of May, Statistics Norway expects the consumer price index (CPI) to rise by an average 2.0% over the next four years. Good overall conditions for commercial property Once again, we can state that the statistics and forecasts for macro conditions indicate that commercial property will have favourable overall conditions over the coming years. In addition to the moderate economic upturn and associated growth in employment, Norway s population growth is at record levels. Last year, the population increased by 1.3% in Norway and by around 2% in the capital city. The combination of growth in both population and employment will provide good conditions for property development as demand for commercial property increases. Business (i.e. tenants) is also showing positive confidence in the future. Dagens Næringsliv's economic barometer for the first quarter shows that companies are expecting increased sales, profitability and staffing. The economic barometer's collective index indicates zero when there are as many optimists as pessimists. The index for Q1 was stable at a figure of 43. In other words, optimists are still the overwhelming majority. 6 Reduced estimates for Norway's trading partners, but global economy rising 3-4% per year GDP growth, YoY % Change E 2014E USA Japan (0.5) China Euro Zone 1.5 (0.5) (0.4) 1.4 UK Norway (Mainland) Sweden Norwegian trading partners* Source: Nordea, M arch *Norges Bank, M arch 2013 Norway Key figures (annual percentage change) Annual change (%) E 2014E 2015E 2016E GDP mainland Norway GDP CPI Private consumption Public consumption Oilrelated investments Non-petroleum exports Employment Unemployment (level) Source: Statistics Norway, May 2013

7 MACRO The labour market - Norway/Oslo Slightly more moderate employment growth o Our consensus overview indicates employment in Norway rising by 89,000 over the period This growth rate is clearly lower than last year's record level. Overall, information about the labour market indicates that growth in employment was particularly high in 2012, due to taking up a lag from previous years. o The number of vacant office jobs in Oslo has declined in recent months and the level is down by about 10% since the peak of a year ago. o Manpower's latest survey, in the first quarter, shows a net majority of 6% of companies planning to increase staff in the second quarter. The corresponding figure for the fourth quarter of 2011 was 14%. Optimism is at its highest in Greater Oslo where there is now a net majority of 18% of companies planning to increase staffing levels. Percentage change in employment in Norway E 2014E 2015E DNB - April Norges Bank - March Statistics Norway - May Consensus Change (employed persons) month trend for number of vacant office jobs in Oslo Source: UNION/FINN Change in number employed in Oslo. NAV estimates 7,000 this year No. employed (3 000) (8 000) (13 000) E2013E 7 Source: UNION/SSB/NAV Oslo

8 MACRO Interest rates Falling finance interest rates on new loans Nordea s interest rate forecast, May 2013 o As of 21 May, the 10-year swap rate was 3.00% compared with 3.4% in mid- February. The 5-year swap rate has correspondingly fallen from 2.8% in mid February to 2.29% as of 21 May. o Nordea expects the 10-year swap rate to rise to 3.93% in a year's time, while DNB Markets expects the level to rise to 3.50%. o The median response in the UNION Bank Survey Q shows that the bank margin in the "majority of lending" is down from 2.50% in Q1 to 2.35% now. The average response is correspondingly down from 2.47% in Q1 to 2.39% now. The margin in the "majority of lending" is, however, affected by factors such as length of loan. In completely identical cases, the bank margin has been reduced on average by 13 points from Q1. The combined finance rate (interest rate + bank margin) has declined by approx. 60 points in total since February. Swap and money market rates in selected markets 12M NIBOR. 3, 5, 7 and 10 year swap rates y swap 3y swap 5y swap 7y swap 10y swap NOK SEK EUR USD % Source: DNB Markets, May 16 8 % Nordea - May 2013 Spot 3M 31 Dec Jun 14 Dec 14 3-month NIBOR Leading rate Spread year swap year Gov Spread Mix of 70% 10-year swap and 30% 3-month NIBOR The advantage of floating: 10-year swap rate minus 3-month NIBOR Source: DNB Markets year swap minus 3-month NIBOR

9 Innspurten 9 Oslo UNION Norsk Næringsmegling handled the lease of 4,578 m² in Helsfyr Panorama on behalf of Basale Oslo AS. 9

10 THE TRANSACTION MARKET IN 2013 TO DATE Increased sales activity and stable sales patterns At the beginning of the year, the sales markets were characterised by the conclusion of processes linked to Q4 sales. However, as of mid-may, activity has increased and sales of several large individual properties have been confirmed in recent weeks. More properties have been available for sale and work is also proceeding on some potentially large portfolio deals. Storebrand has sold two portfolios of shopping centres for a total of NOK 3.5 billion to Sektor and the newly-formed Thon Reitan AS. In addition, Norwegian Property has sold Drammensveien 149 for NOK 695 million to Orkla, which is planning a new head office at the Skøyen address. Other sales over NOK 500 million include Ferd Eiendom's sale of the Aibel building in Asker to Oslo Pensjonsforsikring, OSU's sale of the Deloitte building in Bjørvika to Braathen Eiendom, DNB Liv's sale of Granfoss Næringspark in Lysaker to Mustad Eiendom for almost NOK 900 million and Sparebanken Vest 's 66% sale of its future head office in Bergen to Trond Mohn and associates. Also, Oslo Pensjonsforsikring and partners are in the process of buying a portfolio of 7 logistics buildings in the Trondheim region and Statnett has taken up its option to buy a new head office in Nydalen for NOK 718 million from Avantor. In our experience, interest in buying is selective, but good. The patterns of what is being sold continue as last year. A very large percentage of the sales volume has been in office property with an address that inspires confidence or long lease contracts, property that is to be completely renovated or converted and shopping centres. Many sales involve buyers wishing to take over neighbouring property with a view to carrying out larger developments. Investors have increased their focus on property development. Several are planning large investments in their own portfolios and are cutting down on purchasing plans. Others are selling in order to release funds for investment in their own portfolios. Good growth in several rental markets and an increasing need for commercial property are providing good opportunities for strong returns through property development. Billion NOK Sales volume as of mid May 2013 Segment # NOK bn. Office Hotel Retail Logistics Other Total Source: UNION Annual transaction volume in NOK billions Only deals larger than NOK 50 million are included Source: UNION from DNB Næringsmegling before 2008 Mid and Northern region 1 % Source: UNION 28 South - West region 14 % E 15 Portfolios/ Conf./Others 31 % Other South - East region 1 % bnok Oslo/ Akershus 53 % 50 10

11 Investor distribution and yields Transaction volume mid May (NOK billions) by investor category and yields by level last 12 months The life insurance companies are the biggest net sellers so far this year Our expectations for 2013 are that the property companies and syndicates (including club deals) will be the largest net buyers, while Norwegian funds, life insurance companies and property users will be net sellers. The property companies are increasingly focusing on property for development, with Mustad Eiendom's purchase of Granfoss Næringspark providing an example of this trend. Most purchases have, however, been of a much lower value. These acquisitions are based on expectations of a solid rental market. In line with our expectations, Norwegian funds have been net sellers and since our last report it has emerged that Aberdeen Eiendomsfond Norge II will in fact be wound up before At the time of writing, the syndicates are working on obtaining equity for projects worth many billions, and it is probable that their purchasing will exceed NOK 3 billion before the summer holidays. In recent years, there has been a clear tendency for foreign investors to account for a higher percentage of the equity in the acquisitions. This is primarily taking place through fund products, but also through club deals. Exceptionally, foreign investors are making direct acquisitions as fund players, examples being Patrizia of Germany's purchase of Lille Grensen 5 from Eiendomsspar and Sarasin-Catella's purchase of Kirkegaten 17 from Stor-Oslo Eiendom. Among the life insurance companies, KLP and OPF have been net buyers recently, while Storebrand and DNB have been net sellers. We expect more acquisitions from life insurance companies, but that overall they will be net sellers this year. Demand for the "long and secure" seems to be a little less now, but still sufficient for many property users to have an attractive option to release funds through sale lease-back transactions. The pie chart on the right shows transactions from May 2012 by yield level. As a large number of the sales in the past year have been associated with sites and development property, yield has not been relevant. The conclusion from the pie chart is that a high percentage of the sales have been in property with low risk and that there have been few sales of cash flow properties with "ordinary property risk". 11 Investor categories Bought Sold Net bought Bought Sold Property companies 62% 37% Norwegian funds 0% 4% Syndicates 9% 3% Foreign, incl. funds 0% 0% Pension funds/insurance 6% 40% Private investors 9% 5% Property users 8% 11% Other or confidential 6% 1% Total Source: UNION Transactions last 12 months by yield level Source: UNION 8 % or higher net yield: 14 % 7 to 8 % net yield: 32 % 88 transactions with yield data last 12 months 6 % or lower net yield: 25 % 6 to 7 % net yield: 30 %

12 THE TRANSACTION MARKET Oslo/Akershus Foreigners account for increasing percentage of equity Since 2010, the value of commercial property sales in Oslo/Akershus has been NOK 80 billion, corresponding to 56% of the transaction volume in Norway (only transactions over NOK 50 million). In addition to this is the Oslo/Akershus share of the geographically-spread portfolios that have been sold, including many shopping centres and retail properties. The last 12 months have seen sales of commercial property amounting to approx. NOK 21 billion in the two counties. Average yield in this period was 6.4%, against 7.1% for the rest of Norway. Last year there was an unusually high proportion of residential-related transactions, while there were relatively few sales in warehousing/industry and individual retail properties. As of mid-may, we have recorded 20 transactions totalling NOK 6.0 billion. Measured in value, sales of larger office properties such as the Deloitte building in Bjørvika and the Aibel building in Asker have been dominant. Approx. 70% of the monetary volume has been in offices. As usual, there have been a number of transactions in which the parties involved do not wish us to publish concrete information, but we can mention that this year there have been sales in hotels, cinema property, warehousing/industry, sites and several development properties, a number of them residential-related. The table on the right covers the buying and selling for the various investor categories since May last year. Unlike the normal situation, life insurance companies have been net sellers and property users have been net buyers. The City of Oslo and Fagforbundet Industri Energi are two of the six players that have acquired property for their own use in the last year. Property companies have bought as many properties as they have sold, but larger individual sales mean that they are shown as the largest net sellers. Similarly, the acquisition of the Statoil building at Fornebu represents almost 60% of the syndicates investment volume in the last 12 months. The proportion involving foreigners appears to be low, but they have contributed a significant proportion of the equity for many purchases in Oslo/Akershus. Segmentation in Oslo/Akershus in the last 12 months Source: UNION Proportion bought/sold in the last 12 months Investor categories Bought Sold Net bought Bought Sold Property companies 41% 58% Norwegian funds 1% 5% Syndicates incl. club deals 26% 5% Foreign, incl. funds 2% 2% Pension funds/insurance 8% 15% Private investors 6% 8% Property users 11% 6% Other or confidential 6% 3% Total 100% 100% Source: UNION Other 31 % Logistics/ Industrial 5 % Last 12 months bnok 21.0 Retail + hotel 2.3 % Office 62 % 12

13 THE TRANSACTION MARKET - OFFICE Keen interest in office purchasing including development cases Since 2009, office sales have represented 40% of the transaction volume in Norway with 214 sales worth NOK 63 billion in total. The positive development in rents (especially in Oslo) has made offices a winner in terms of yield over the last year and noticeably more players are looking to buy office properties with short contracts or "development cases". We are experiencing keen interest in office properties in the Oslo area that are located in established office clusters or close to the city centre. Interest in buying appears to exceed the volume available for sale. In early 2013, many potential buyers found that there was not enough property for sale, or that prices were too high for properties in a secondary location or with a short contract. Several of the transactions appear to have been triggered by buyers who for strategic reasons are able to make exceptional offers, either because they wish to use the property themselves or because they are building themselves up in defined locations. The syndicates have also been active in "creating office transactions". Our test of the banks for a 5-year loan for the purchase of an office property in central Oslo with seven years remaining on the lease and 2% deduction per year (market rent, normal good standard etc.) showed that the banks would set an average equity requirement of 31%. The responses varied between 25% and 40%. On the basis of a 70% loan over five years, the banks would take an average margin of 2.48%. The responses here varied between 200 and 275 points. There is an excessive variation in the loan terms being achieved by different customers. We are still assessing prime yield at 5.25%. However, the Deloitte building in Bjørvika is believed to have been sold at an even lower yield level based on positive expectations of the property s long term rental development. When dealing with financially sound players, the banks are able to extend themselves further for the purchase of offices in low-risk areas. Several banks have given loan to value of 75-80% this year. If we take as a basis a four-year loan and a bank margin of 200 points, it is possible to receive a finance rate of approx. 4.2% (before set-up charges). Office transactions from 2009 to May 2013 Source: UNION Source: UNION Prime yield and 10-year swap rate (as of May 2013) % Number of Transactions NOK billions May May year swap rate Prime yield Source: UNION/DNB Markets 13

14 THE TRANSACTION MARKET - RETAIL New players and concentration on shopping centres Proportion bought and sold - since May 2012 Since January last year, sales of shopping centres have totalled more than NOK 17 billion in 14 transactions. Fredriksborg and NorgesGruppen established Scala Retail Property last year, which has bought four medium sized centres. Thon and Reitan have also established a joint venture (Thon Reitan AS) this year in connection with the purchase of three centres from Storebrand for approx. NOK 1.7 billion. Since Joh. Johansen, the Varner brothers and Petter Stordalen joined the owners of Sektor last year, the company has bought three centres from DNB Liv for NOK 2.2 billion and a further four centres this year from Storebrand for NOK 1.75 billion. Concentration gives these players advantages in their negotiating position with tenants, finance terms and operation. Yet another life insurance company is in the process of reducing its exposure to shopping centres. KLP went the other way in buying 50% of Nordbyen shopping centre in Larvik at the end of last year. Salto Eiendom and AKA provide other examples of purchase and concentration on retail property over the last year. (NOK billions) Investor categories Bought Sold Net bought Bought Sold Property companies 93% 19% Norwegian funds 1% 0% Syndicates 3% 2% Foreign, incl. funds 0% 0% Pension funds/insurance 2% 34% Private investors 1% 0% Property users 0% 0% Other or confidential 0% 0% Total Area-adjusted shopping centre growth only marginally above CPI o Despite the growth in population, employment and buying power, private consumption only increased by 2.9% last year. o Growth in shop sales has been rising slowly, but is clearly lower than anticipated. Virke, the Enterprise Federation of Norway, has lowered its growth estimate for retail trading for 2013 from 5.0% last autumn to 3.5% now (large variations for different product groups). o Sales in the shopping centres rose 2.5% last year according to Kvarud Analyse. With regard to sales-based rents, the growth in shopping centres was only 1.3%, corrected for changes in area. This level was only marginally higher than the November adjustment for CPI of 1.1%. In the first four months of the year, sales growth in the shopping centres was 2.1% and only 0.7% when corrected for changes in area and shopping days. 14 Source: UNION Lower sales estimates for retail trading Yearly growth in turnover(%) E 2013E Groceries Clothes Shoes (1.1) 1.0 Furniture (0.6) (1.3) Electronics (3.1) (1.3) 3.1 (1.1) Building equipment 1.4 (3.9) Sport equipment (1.4) Total - Retail Source: Hovedorganisasjonen Virke, March 2013

15 THE TRANSACTION MARKET - LOGISTICS Properties in warehousing, combination, terminals and industry Fewer logistics buys from syndicates this year The transaction volume has displayed a falling tendency since early We recorded 50 sales in 2011, 21 last year and only 2 completed by mid-may this year. At the time of writing, however, it has been confirmed that Oslo Pensjonsforsikring and partners are buying a portfolio of 7 logistics properties in the Trondheim region for NOK 928 million. OPF will take a stake of 80%. We consider prime yield for logistics to be stable at 6.5%, but the yield level has been increasing for properties without long contracts or the best location. The banks have increased the equity requirement and bank margins for warehouse properties. We have recorded the yields from 14 sales since 2012 and the average has been 7.2%. The level reflects the tendency for sales to be "low risk properties" and for syndicates to be the largest net buyers in this segment. Slowly declining vacancy since February 2012 The red graph in the figure on the right shows the number of vacant premises in warehousing/combination in Oslo/Akershus by month. As of May, there were 130 premises advertised, against 168 in May Because of seasonal variations in the data, we have added the blue columns, which show the 12- month rolling average. The seasonally adjusted tendency has been falling since February We are assuming a slight decline in vacancy measured in area alone. Rents in the Oslo area are normally in the range 600 1,000 NOK/m² per year. In prime areas such as Alnabru, the rent per m² will often be higher for new builds with a high level of customisation, office sections, refrigerated warehouses etc. Generally speaking, more and more of the warehouse function is being pushed eastwards and out of Oslo. There has been a considerable amount of new establishment along the E6 to the north and south of Oslo. We expect a continued high volume of new built and that the rental risk for properties outside the most attractive areas is increasing. 15 Purchases/sales in NOK billions last 12 months as of mid-may Investor categories Bought Sold Net bought Bought Sold Property companies 14% 34% Source: UNION Number of vacant premises in Oslo/Akershus Norwegian funds 0% 0% Syndicates 52% 30% Foreign, incl. funds 0% 5% Pension funds/insurance 0% 7% Private investors 5% 6% Property users 25% 5% Other or confidential 4% 13% Total Source: UNION/FINN 12-month trend Advertisements

16 THE TRANSACTION MARKET - HOTEL 10 out of 13 hotel sales in the last three years have been in the large cities In the last three years, sales of hotel property in Norway have amounted to NOK 4.8 billion in 13 transactions. Many of the hotels have been sold with long lease contracts and we have recorded yields from 5.2% to 7.10%. Well located hotels with long leases are by many considered to be a safe haven. Profitability is good for some (especially the larger city hotels). Buyers in the last 12 months include two pension companies. As of mid-may, we had only recorded one confidential hotel transaction in Oslo so far this year. It has now become known however that Olav Thon is buying the 247-room Britannia Hotel in Trondheim. When part of the Britannia Hotel was sold last year, the property value was approx. NOK 370 million. Thon plans to put the Britannia Hotel and three other luxury hotels into a separate group. The spa hotel Farris Bad in Larvik has also come up for sale. This hotel has a long lease contract with Choice. Key figures Norway/Oslo January to March January - March Ch. YoY RevPAR YTD (NOK) Norway (4%) Oslo (11%) Hotel turnover (NOK) mill. Norway (4%) Oslo (5%) Price per room (YTD) Norway (1%) Oslo (2%) Source: Statistics Norway 16 % Slightly improved profitability, but large variations o Revenue per available room (RevPAR) increased by 1.3% last year and Horwath Consulting's industry survey shows that profitability increased from 4.1% in 2011 to 4.4% last year (based on responses from 234 hotels). o The selective survey showed that the hotels used 25.5% of income on rent last year compared with 24.6% in Several landlords achieved income growth above the consumer price index, although there are significant differences. As many as 36% of the hotels surveyed had a deficit last year. o Profitability varied from 1.1% for hotels with fewer than 60 rooms to 5.0% for hotels with more than 100 rooms (Horwath Consulting). o Statistics Norway's hotel statistics consistently show negative development for the first quarter compared with the same period last year, with a slight decline in room rates and lower occupancy. Room occupancy January to March, by year Norway Oslo Source: Statistics Norway

17 THE TRANSACTION MARKET - RESIDENTIAL The right residential spots are achieving high sales prices Consistently rising housing prices and record population growth have contributed to a continuing high level of interest in residential development. In the Oslo area, there have been many success stories connected with apartment developments and the rental market is holding up very well. Last year, we recorded more than 30 residential-related transactions with a combined value of more than NOK 10 billion. So far this year, we have noted a further 13 residential-related sales totalling NOK 1.5 billion. As it is highly likely that we have not managed to identify all the "residential transactions" for the whole of Norway, the volume in real terms has clearly been higher. The largest sale we know of this year is JM's purchase of Bergerveien 12 in Billingstadsletta for approx. NOK 250 million. A very recent example from central Oslo shows that developers are willing to stretch themselves considerably to buy the right properties for conversion. Many expect to be able to pass rising building costs on to the customers in the form of increased sales prices. Rent level in NOK per month for apartments in Oslo NOK /month NOK 1,000 Lower growth in housing prices and rental levels o The apartments that were sold in Oslo in May this year had an average price of 48,113 NOK/m². This level is up 8.2% since May So far this year, growth has been 3.8% and appears to have been more moderate. o Housing prices for Norway in general have increased by 6.5% since May o Statistics Norway's latest estimate from 30 May indicates housing prices rising by 5.3% this year, 4.3% next year, 3.4% in 2015 and 2.9% in DNB Markets expect slightly falling housing prices from o The statistics of Boligbygg KF show that the average rent for apartments/bedsits in Oslo was NOK 11,800 per month in Q This level was stable compared with the previous quarter, but has increased by 4.4% since Q and by as much as 63% since its lowest level in Q Housing prices from 2005 to April 2013, in 1,000 NOK/m² Sep-05 Dec-06 Mar-08 Jun-09 Sep-10 Dec-11 Mar-13 Oslo Stavanger Bergen Trondheim Norway Source: Opinion Source: EFF/NEF/Econ/FINN, April

18 THE TRANSACTION MARKET - BERGEN Transactions above NOK 50 million in Bergen/Hordaland and office rental market in Bergen Many sales in low-risk and residential sites Transactions above NOK 50 million from May 2012 If we include the sale of the shopping centre Oasen, which was part of a geographically-spread portfolio, there have been sales of commercial property in the Bergen area totalling approx. NOK 5 billion in 24 transactions since January last year. Of this, about NOK 1.5 billion was in connection with shopping centres and NOK 500 million to residential development. Bergen has been known as a closed market. During the period under review, however, 8 out of 24 transactions culminated with a buyer based outside Bergen and a further two were bought by nationwide residential developers. This year, among others, Sparebanken Vest has sold 66% of its future head office in Jonsvollsgaten 2, a new building of 19,400 m². We assess prime yield at 5.75% and assume a gradually narrowing difference from Oslo. In the past year we have recorded evidence that long public contracts in particular can give an even lower yield. Since 2010, main low-risk properties have been sold and the average yield in 27 sales has been 7.0%. Expectation of stable rents* o DN Nov. 2012: the average price for central and modern office premises is a fairly constant 1,475 NOK/m² per year. o For Bergen as a whole, a large number of lease contracts are being signed in the range of 1,400 to 1,600 NOK/m² per year. o Market rent levels are expected to primarily see stable development. Good properties in the centre can reach up to 2,400 NOK/m² per year*. o Office vacancy has had a slightly rising tendency and is now at about 7%. * Kyte Næringsmegling April 2013 Rents (NOK/m 2 per year) - by half-year from 2005 NOK / m2 18 Source: UNION Average rents for modern, central office premises ex VAT and joint costs (Nov) Source: Dagens Næringsliv Logistic/ Other 28 % Retail 12 % bnok 3. 2 Office 60 %

19 THE TRANSACTION MARKET - TRONDHEIM Transactions above NOK 50 million in the Trondheim area and the office rental market in Trondheim Strong interest from Oslo investors in long lease contracts The largest transaction in the Trondheim region so far this year is the sale of a portfolio of seven logistics properties (including three new builds) with a total area of approx. 60,000 m². There were several sellers and a combined property value of NOK 928 million. OPF has bought an 80% share in the portfolio, which has 17 years left on the lease contracts. Since May last year, we have registered 14 transactions totalling NOK 3.75 billion. As many as eight of the sales culminated with a buyer with a base or head office in the capital, and six of these purchases had a property value of more than NOK 200 million. The "Oslo buyers" represented about 70% of the volume in terms of value. As the pie chart shows, a very diverse range of properties have been sold, but as much as 60% of the volume measured in value is in connection with properties with at least 10 years left on the lease contracts. We assess prime yield to be 6.10% at present, with the average yield since 2010 being 7.5%. Growing rent levels for central and modern premises o As of April, 112 vacant office premises were advertised, up from 93 in April Measured in area, however, vacancy in existing buildings fell by about 10,000 m² to approx. 65,000 m². New building of approx. 70,000 m² in 2013/2014 indicates that marginal growth in vacancy is probable. o Two different rent trends for attractive and older, ineffective space. We note that most contracts signed are in the range of 1,200 to 1,700 NOK/m² per year. The levels are often higher for new builds. o DN Nov. 2012: the average rent for central, modern business premises has risen from 1,650 at the end of 2011 to 1,700 NOK/m² per year. *Kilde: UNION/FINN 19 Transactions above NOK 50 million from May 2012 NOK / m2 Source: UNION Rents (NOK/m 2 per year) - by half-year from 2005 Average rents for modern, central office premises ex VAT and joint costs (Nov) Source: Dagens Næringsliv Office 24 % Health & Educaton 10 % bnok Lots, Residential and Other 25 % Logistics/ Industrial 25 % Retail and Hotel 17 %

20 THE TRANSACTION MARKET - STAVANGER Transactions above NOK 50 million in the Stavanger area and office rental market in Stavanger/Forus Cash flow properties dominate the sales market Transactions above NOK 50 million from May 2012 In the past year, the transaction market in the Stavanger region has been characterised by the sale of properties with long lease contracts to financially-oriented buyers. If we ignore transactions under NOK 50 million and residential sites, there have been few transactions where the buyer's intention has primarily been property development. Instead, the transaction market has been characterised by the sale of new build projects with lease contracts signed for the entire space. In the last four years, there has been annual growth in employment and population of approx. 2% in the region. Conditions for property development should therefore be good and a total supply of new office space of about 200,000 m²* is expected for the period In terms of transactions actually completed, the volume so far this year has been modest. In the last three years we have recorded 30 transactions with a combined value of NOK 7.5 billion. Average yield has been 6.9% and the square metre price has exceptionally reached as much as about NOK 30,000. We are still assessing prime yield at 6.0% Highest rent growth in central Stavanger Rents (NOK/m 2 per year) - by half-year from 2005 o DN Nov. 2012: the average rent for modern, central offices premises is estimated at 1,900 NOK/m² per year, up from 1,750 in June o The range for high standard offices in central Stavanger is from 1,800 to 2,650 NOK/m² per year*. o At Forus, the range for high standard premises is 1,600 to 1,900 NOK/m² per year*. o Several large growth companies have chosen new builds and the supply of office building is considerable. Office vacancy has been rising over the last year and is now 5.8%. The level is expected to rise to approx. 6%. However, vacancy is low in the city centre. *Source: EiendomsMegler 1 NæringsEiendom May NOK / m2 Source: UNION Average rents for modern, central office premises ex VAT and joint costs (Nov) Source: Dagens Næringsliv Other 53 % bnok 2. 4 Office 33 % Logistics 14 %

21 Akersgata 11 Oslo UNION Norsk Næringsmegling handled the leasing of a total of 1,200 m² on behalf of private investors. 21

22 RETURN ON INVESTMENT Return on funds up 3.2% in first quarter o Last year, the property index on the Oslo Stock Exchange rose 19.0%. There has been a further increase of 7.4% for the year to date, as of 21 May. The price of oil has shown a falling trend and many experts anticipate a continuing slow decline over the coming years. Even so, the main index has risen 12% for the year to date, as of 27 May, which means that it is just 5% below the all-time high. o UNION's Fund Index is an index of return on investment (including dividend) in Norwegian leveraged funds that invest in commercial property in Norway. The funds are weighted in relation to value-adjusted equity. Unlike the stock exchange indices, the fund index is not based on actual sales but on valuations. The starting dates of the property funds vary. The index is based on eight funds with values totalling approx. NOK 32 billion. o Since the winter report, UNION's fund index has been updated for both Q4 last year and Q1 this year. After a significant downturn in Q4, the index rose by 3.2% in Q1 to a level of 98.4, i.e., just under 2% lower than the start date in Q After the growth during Q1, the index is approx. 34% below the peak of Q and approx. 43% above the bottom in Q The fund index would have been at 91 without the two UNION-managed funds. o Storebrand Eiendomsfond, which is managed by UNION Eiendomskapital, is now approx. 20% above the start date in Q4 2005, approx. 25% below the peak of Q and approx. 43% above the bottom in Q o UNION Eiendomsinvest Norge, which is managed by UNION Eiendomskapital, is now approx. 44% above its starting level in Q The fund rose 2.1% in Q1. o Properties that are suitable for residential development have increased in value in recent years, while those with a risky location and short contracts have fallen in value. The positive development in market rent levels for offices in Oslo has helped office-properties with short lease contracts but attractive locations in the capital to regain value. 22 Oslo Stock Exchange main index and property index Source: Oslo Børs, 21. May 2013 UNION's fund index and UNION-managed funds Source: UNION OSE 4040 Real Estate OSEBX UNION's fund index Storebrand Eiendomsfond UNION Eiendomsinvest Norge

23 RETURN ON INVESTMENT Statistics and forecasts for return on total capital (unleveraged returns) Rent growth contributes to increased future returns o The IPD index shows that return on total capital for commercial property in general was 4.7% in Norway in For comparison, the annual level has been 6.7% (CAGR) over the last three years and 8.7% over the last ten years. Since 1999, total returns have been 9.1% (CAGR), of which 2.2% has been value capital return/value growth. o For office alone, total return last year was 5.0%, compared with an annual level of 7.3% over the last three years and 8.1% over the last ten years. Office was the segment with the highest returns last year. Several office properties were written up in value in 2012 on the basis of the positive development in market rent levels, particularly in Oslo. Office had an income return of 5.9%. o Data for return on investment in 2012 is based on valuations of 488 properties in Norway with a combined value of NOK 118 billion. A summary of the key figures is available at o The figure below right shows economic growth in Norway and our forecast for total return on an imaginary portfolio that is broadly composed in terms of property segments and geography. We anticipate an average annual total return of 8.5% in the next three years. o Somewhat simplified, the forecasts mean that investors get direct returns, consumer price index (CPI) growth of 1.9% and the benefits of a strong office rental market. We have also assumed increased adaptation costs in order to achieve the market rent. For well-located retail properties with sales-based rents, we expect the growth in rents to be slightly above CPI. o The bank margins on new loans have begun to fall, while interest rate forecasts indicate a slight rise. Overall, we anticipate rather stable yield levels. Total return Total property/office 20% 15% 10% 5% 0% - 5% - 10% Source: IPD Norden GDP-growth and UNION Gruppen's ROI forecast R e t u r n IPD Norwegian Real Estate Index IPD Norwegian Office ,8 10,8 7,0 7,6 10,4 15,2 17,6 18,3-4,6 4,5 8,2 7,4 4,7 8,1 8,2 9, E Property return (un-leveraged) -1-2 GDP growth (excluding oil & gas) GDP growth 23 Source: IPD Norden/UNION/Statistics Norway

24 Østbanehallen UNION Norsk Næringsmegling, on behalf of ROM Eiendom, handled the leasing of a total of 4,500 m² in Østbanehallen, which is opening in summer 2014 with new catering and shopping concepts. 24

25 AREA ABSORPTION BY OFFICE CLUSTER Change in leased area from February 2010 to February 2013 Outer West Nydalen Asker/Bærum Inner City North Outer North and East Lysaker Skøyen PS! In the presentation, Lysaker-Fornebu is counted as one area. Inner City West City Centre Inner City East Bryn/ Helsfyr Fornebu Outer South Increase app. 85,000 m² Increase app. 70,000 m² Increase: 25 40,000 m² Increase: 10 25,000 m² Decrease up to m² Decrease of more than 10,000 m 2 Source: UNION 25