Market Report Winter 2013

Transcription

1 sk profil 2010 Market Report Winter 2013 Attractive yield gap after bank margin

2 LEADER Transaction trends and sales triggers for was a good year for almost everyone in the Norwegian commercial property market. The mainland economy grew more than 3% last year, oil investments are at record levels and the consensus is that there will be a moderate economic upswing over the next few years. Good growth in employment, and not least general business optimism, contributed to a high demand for leased space and a constantly rising trend for rents. Low interest rates have helped to maintain property values. On the minus side for 2012, we can note a disappointingly low growth in sales in the shopping centres, low consumer price index, rising bank margins and a continuation of the uncertainty and economic downturn in Europe. For those connected with commercial property, 2012 was a positive year. For example, most contractors have seen a strong growth in their backlog of orders after a reduction in 2009 and the banks are increasing dividends to shareholders. There were many, and often large, transactions for the lawyers, brokers and facilitators. In this report, we present a detailed summary of the transaction market in The following section however represents an outline of relevant trends and sales triggers for Based on who is assumed to be selling property, it is natural that a very high proportion will be linked to the four largest metropolitan areas. High volume of bond finance. Key conditions for continuing high volume are the extent to which investors other than life/pension companies wish to invest in bond issues and a clarification of the new solvency rules for life insurance companies. Traditional bank finance will however continue to be by far the most widely-used option. Continued sharpening up of the property portfolios provides buying and selling opportunities. Creative brains will be able to finalise swap transactions. Margin increases connected with refinancing may trigger some sales. With refinancing, many properties have such large margin increases that the investors must put in more equity to get cash flows back to zero. When investors decline to provide more equity, a sale can be the solution. Increasing risk mark-ups over the last two years have made it more difficult for buyers and sellers to agree on prices for ordinary property with leases of normal lengths and secondary locations. This means that development cases (especially offices and apartments) and low-risk properties will continue to represent a high proportion of sales volumes. There is good interest in development property, partly because it is more realistic to achieve gains through property development than via falling interest rates. There are also increasing numbers in the commercial property market who want a slice of the residential cake. The syndicates are on their way back and will represent the biggest net buyers, along with the property companies. Users of property, property funds and the life/pension companies will probably be net sellers. Overall, we expect a high transaction volume both in 2013 and over the next few years. Increasing bond financing will allow bigger transactions to occur and also relieve traditional bank finance. We also have good reason to believe that more players will perform strategic readjustments of their portfolios. Norwegian Property s sale of Drammensveien 149 in Skøyen for NOK 695 million to Orkla Eiendom was the first of the big sales in With a view to the next few years, it is probable that many funds and syndicates that were established in the years before the financial crisis will wish to sell, provided that they can realise a gain. We believe that there will be a rising long-term trend. Property investment has become more accessible and the asset class more liquid. At UNION, we also expect the average holding period to be on the way down, because investors increasingly want profits to be realised, not managed.

3 1/LEADER/PAGE 2 2/CONCLUSIONS/PAGE 4 3/MACRO/PAGE 6 4/INTEREST RATES AND LOAN FINANCE TERMS/PAGE7 5/THE TRANSACTION MARKET IN GENERAL/PAGE 9 6/THE TRANSACTION MARKET IN OSLO AND AKERSHUS/PAGE 11 7/BERGEN, TRONDHEIM AND STAVANGER/PAGE 12 8/RETURN ON INVESTMENTS IN COMMERCIAL PROPERTY/PAGE14 9/THE OFFICE RENTAL MARKET IN OSLO, ASKER AND BÆRUM/PAGE 17 10/RENT ESTIMATES/PAGE 21 3

4 Conclusions The transaction market (from NOK 50 million) o Last year, the transaction market was marked by a high sales volume in offices, shopping centres and residential-related property and a low volume in logistics. o Including the latest information received, we have registered 174 transactions for a total of NOK 56.4 billion. Ten "billion kroner transactions" made up almost half of the total volume, measured as value. o Since the second half of 2011, the property companies have bought more properties than they have sold. Several life insurance companies reduced their exposure in property through the second half of last year. The syndicates made fewer purchases to begin with in 2012, but increased their buying noticeably towards the end of the year. o The yield mark-up for various types of risk increased further, especially when related to location and short contracts. This trend has made it somewhat more difficult to get buyers and sellers to agree on a price for "ordinary" property (ordinary lease lengths and secondary locations). A strikingly high number of transactions are in either low-risk or development. o Last year's average transaction (excluding sites/development) had a net yield of about 6.85%, about 100 points below a "normal" yield. Assuming a 5-year swap rate, the average transaction in 2012 had a yield gap after bank margin of 1.88%. o The declining interest rates and high demand for quality property have contributed to low-risk property maintaining a very good price in spite of the banks' increased lending margins. Autumn transactions indicate a level of prime yield of 5.25%. We consider that this level has been stable through the autumn. o UNION Bank Survey Q1 2013: Most new lending have own capital of 33%, a bank margin of 2.47% and a duration of 4 years. o The number of bond finance issues in commercial property increased from 2 in 2011 to over 20 in Bond finance is relieving traditional bank finance and helps to provide conditions for large transactions. Traditional bank finance is still dominant, however. Office rental market Oslo, Asker & Bærum o Office vacancy increased by approximately 40,000 m² last year. With the updated figures for office space, however, vacancy is now "only" 6.9% in mid-february. We expect the vacancy percentage to slowly decrease over the next few years. o The lack of available vacant larger premises and rising building costs will probably force new builds at high rent levels. o We expect a relatively high level of new builds to continue after 2013, with an average annual level corresponding to approximately 125,000 m². Completions are unusually high in 2012/13, with a total of about 500,000 m² of new offices. o Some new build projects have been finalised since the autumn report. These include Fornebuporten with 33,000 m² of offices expected to be completed in 2015 and a further 33,000 m² in o Rents have been continuously rising since winter For the next few years, we expect an annual growth in rents of about 5%. o We believe that renegotiations are consistently providing growth in rent levels, including in the outer areas. o Top rents have risen by 32% since they bottomed out. We expect further growth in the top segment, but a more moderate rise, because the difference from the alternatives is beginning to be high. o The market is being driven up by general optimism and growth in the economy. On average, tenants are signing leases on larger areas than previously. o In practice the transition from enclosed offices to open-plan has not had as marked an effect on space effectiveness as many had expected. Space in use is being kept up because more space is being used for meeting rooms etc. We appear to have a "prosperity supplement" in Norway. o The centre has been the biggest winner of tenants over the last three years. The surrounding areas are now seeing rising demand and are more able to participate in the rent rises. 4

5 Newly established shopping centre player In 2012, Scala Retail Property bought four shopping centres at a combined value of NOK 1,100 million. UNION Corporate assisted in establishing the company and has acted as purchase and finance consultant. 5

6 MACRO Norwegian economy - prospects for Moderate long-term upswing for Norway o Statistics Norway expects the moderate upswing to continue throughout the forecast period, up to and including According to Statistics Norway's estimates, there is clear upside potential in private consumption, while the price of oil will not necessarily fall over the next few years. o Low interest rates, private consumption and high oil investments contribute to growth. o Norway's mainland exports are expected to marginally rise over the next few years. Mainland exports are normally reckoned to be the weakest link in the Norwegian economy. Last year, mainland exports were 8% higher than in Over the first three quarters of last year, exports of services were 17% higher than in the corresponding period in Good growth globally (3-4%), moderate in the USA (about 2%) and weak in the eurozone (0.4% in 2013) GDP growth, YoY % Change E 2013E 2014E USA Japan (0.7) China Euro Zone 1.5 (0.3) UK 0.9 (0.2) Norway - Mainland Sweden Norwegian trading partners* S ource: Nordea, December *Norges B ank, October 2012 o CPI adjustment was 1.1% in November last year. Statistics Norway expects the CPI to rise by only 1.4% this year. Good overall conditions for commercial property Among the negative conditions, we find continuing low growth in the consumer price index and high credit margins. Statistics and forecasts for macroeconomic conditions, however, clearly indicate that overall we will have good external conditions for commercial property over the coming years. There is an increasing need for commercial property, financial capabilities are strong and there is optimism among the great majority of companies. Some of the more important positive conditions for commercial property include: o A strong economy, contributing to favourable growth in population, employment and private consumption. Also makes it more probable that we will see few bankruptcies and less risk associated with rent revenues o Growth expectations and general business optimism. o Low interest rates over the long term. 6 Norway Key figures (annual percentage change) YoY % Change E 2013E 2014E 2015E GDP - Mainland GDP CPI Private consumption Public consumption Oilrelated investments Non-petroleum exports Employment Unemployment (level) S o urc e: S tatis tic s N o rway, D ec ember 2012

7 Interest rates and loan finance terms UNION Bank Survey Q Attractive yield gap after bank margin Nordea's interest rate forecast of 15 January 2013 While several banks wished to stabilise or reduce their exposure in commercial property, the volume of bond loans issued by players in commercial property has increased considerably. The monetary volume passed NOK 13 billion last year and the number of bond issues increased from 2 in 2011 to more than 20 (source: DNB et al.) Seen in context with data from the UNION Bank Survey, our figures show that the average length of bond loans issued last year was 6 years, as against 4 years for ordinary bank finance. Otherwise, 3 out of 9 banks say that they are generally open to new customers. Only 2 banks are completely closed to the idea and 4 say they will take new customers as an exception. Interest rate levels have risen marginally since the autumn report in October. Nordea forecasts a slower growth in interest rates than previously expected, but for 5-year swap rate to rise to 3.56% over the next two years, with the 10-year swap rate rising correspondingly to 3.92%. In the figure below right, we have put interest rate data together with information from our transaction database and bank survey, so as to present the yield gap after bank margin for the average transaction. The columns show average yield in the last 30 transactions at any given time. Average yield in sales has been falling and is now 6.77%. This trend does not reflect a yield fall, but that many properties with low assumed risk have been sold. The graphs show different yield gaps based on loan finance with 5-year swap rate. So far this year, the 5-year rate has averaged 2.64%. The majority of new loans now have a bank margin of 2.47%, which represents almost half of the financing rate of approximately 5.1%. Net yield gap after bank margin has increased from 1.30% in Q to 1.66% now. Since winter 2011, the bank margin has risen almost 100 points, while the net 5-year swap rate has been reduced by about 150 points. In other words, there has been an improvement in what the investors are left with. If we assume a more normal property purchase, with net yield of 7.5%, the yield gap after bank margin is now as much as 2.4%. 7 Nordea - January 2013 Spot 3M Jun-13 Dec-13 Dec-14 3 month NIBOR Leading rate Spread yrs swap yrs Gov Spread Mix of 70% 10 yrs swap and 30% 3 month NIBOR Average yield for the last 30 transactions, by 5- year swap rate, bank margin and yield gap. 7 % 6 % 5 % 4 % 3 % 2 % 1 % 0 % Q Q Q Q Q yrs swap minus 3 month NIBOR Q Q Q Q Q Q Q Q years swaprate Average bank-margin Yield-gap after bankmargin Yield-gap before bankmargin Yield-gap after bankmargin Yield-gap after margin with yield 7,5 %

8 Kirkeveien 59 Vinkelgården UNION Norsk Næringsmegling handled the sale on behalf of T6 Holding AS and private owners. The 2,077 m2 building is being completely renovated. DNB Bank ASA will be the new tenant of the entire property.

9 THE TRANSACTION MARKET 2012 volume & segment Many offices, shopping centres and residentialrelated. Little warehousing Demand last year was very largely directed at low-risk and at development. Since October, we have registered as many as 70 transactions over NOK 50 million, although some of these had had offers accepted earlier in Even so, it is clear that we had a well-functioning transaction market in the fourth quarter, in spite of loan financing issues and the fact that several sales, such as Lade Arena in Trondheim, were not completed. Our summaries only show confirmed transactions and will always represent minimum figures. There have also been some large sales in which those involved are reluctant to give information, foe various reasons. The number of transactions we registered was only just higher than in 2011, but measured in value, the volume increased by approximately 55%. We registered 10 "billion kroner transactions" last year, against only one in The 20 largest sales represented about 60% of the volume in terms of value. Office: We registered 14 more office transactions than in As many as 51 of the 64 sales were in the four largest metropolitan regions. The two sales of the DNB headquarters in Bjørvika and the Statoil building in Fornebu represented about 37% of office volume in terms of value. Average yield was approximately 6.5% and reflects the fact that a high level of low-risk property was sold. We registered as many as 28 office sales with net yield below 6%. There may have been an element of too low rent with some of these properties, but generally speaking, the combination of well-located property and good tenants has triggered a greater willingness to pay. There have been many bidding rounds associated with office sales. Including the sale of the shopping centre company Sektor, shopping centres for at least NOK 13.5 billion were sold in 11 transactions. In other transactions in retailing that we registered, the average yield was 6.9%. In the "Others" category, we recorded 18 sites, 5 in education and a large number of properties that are planned to be developed for multi-use purposes. Well over 30 of last year's transactions (over NOK 10 billion) were related to a greater or lesser extent to residential. 9 NOK billion Annual transaction volume in NOK billion Only transactions over NOK 50 million 15 Annual transaction volume in NOK billion (2012) Source: UNION E Source: UNION from DNB Næringsmegling for the years before 2008 Segment # NOK bn. Office Hotel Retail Logistics Other Sum Mid and Northern region 9 % 39 South-West region 11 % Other South- East region 5 % Portfolios/Conf /Others 26 % 2012 NOK 56.4 bn 50 Oslo/ Akershus 49 % Source: UNION

10 THE TRANSACTION MARKET 2012 investor distribution & yields The syndicates came back With regard to activity in the various investor categories, the most important trend over the last two years has been that the property companies have gone from being net sellers to net buyers. Excluding the sales of the DNB headquarters in Bjørvika and the Statoil building in Fornebu, the property companies had net purchases totalling about NOK 10 billion last year. On average, the property companies bought with a net yield of 7.3% last year and sold with a net yield of 6.7%. Our assumption is that the property companies are now very interested in buying development property. Norwegian funds were net sellers last year. Since several funds have mandate periods that are reaching their conclusion, we expect them to continue to be net sellers. Note that we have put the life and insurance companies' funds into the category "Life insurance and pension companies, including own funds". In several of the sales, there have also been different investor categories represented on the buying and selling sides, so that categorisation has not always been clear cut. The syndicates made few purchases in the first half year, but bought at an increasing pace towards the end of the year, completing a minimum of 38 purchases last year. The purchase of the Statoil building at Fornebu (club deal) was the only really big buy we recorded among the syndicates. UNION and five other organisations bought for a total of NOK 0.5 billion or more last year. We do not believe that loan finance issues will put a serious brake on the syndicates in the near future. The syndicates will probably increase the number of purchases this year. Niam's sale of Sektor contributed to foreigners being net sellers last year. The life insurance companies scaled back on commercial property in the second half year. Leaving aside the purchase of the DNB headquarters in Bjørvika, the life insurance companies would have been net sellers for NOK 2.1 billion last year. "Users of property" are typically net sellers via sale lease-back transactions. Since there is great demand for "long and secure", it is probable that the situation will continue. Proportion bought, sold and net purchases in NOK billion 10 Investor categories Bought Sold Net bought Bought Sold Property companies 55 % 53 % Norwegian funds 1 % 3 % Syndicates 16 % 4 % Foreigners, incl. Funds 3 % 16 % Pensionfunds/Insurance 15 % 10 % Private investors 4 % 5 % User of the property 4 % 5 % Other or confidential 2 % 4 % Total Source: UNION Transactions by yield level in 2012 Between 6 and 7 % net-yield: 29 % 6 % or lower net-yield: 24 % 99 Transactions with yield-data From 7 to 8 % net-yield: 33 % 8 % or higher net-yield: 14 % Source: UNION

11 THE TRANSACTION MARKET 2012 Oslo/Akershus Prime yield 5.25%. Average yield: 6.5%. Segmentation in Oslo/Akershus In Oslo/Akershus, the transaction market in 2012 was marked by several large transactions and development properties in offices, many sales in residentialrelated property and few sales in other property segments. Some shopping centres and retail properties in the region were however sold as part of geographically-spread portfolios. The office sales of the DNB headquarters, Statoil in Fornebu, Stortorvet and the swap transaction between KLP and Norwegian Property together represented about NOK 10.8 billion, or about 40% of the annual total. The sale of IT Fornebu for about NOK 3.9 billion represented the last "billion transaction". In total, we registered 82 transactions over NOK 50 million in Oslo/Akershus, against 100 in Even so, the sales volume in terms of value increased by 17%. Last year's 82 sales involved 54 different buyers, the overwhelming majority of which were local. The table below right, the property companies appear as major net sellers. However they bought as many properties as they sold. Excluding the sales of the DNB headquarters, Statoil at Fornebu and IT Fornebu, the property companies as a whole were net buyers to the tune of about NOK 4 billion. There were at least 7 office sales in Oslo/Akershus last year with net yields under 5.6%. In our view, certain office sales in the fourth quarter indirectly confirmed a prime yield level of 5.25% Our assumption is that the level has been stable through the second half year. Buyers of prime office property can still get a 75% loan and a finance interest rate below 5%. Average prices per square metre in office sales were in the range NOK 15,000 to NOK 60,000, with an average of approximately NOK 30,000. Average yield in Oslo/Akershus sales (regardless of segment) was 6.50% in 2012, against 6.70% in The change does not reflect a falling yield level but an even higher ratio of lowrisk property being sold. In the larger transactions valued at over NOK 300 million, there was an average yield of 6.10%, reducing to 5.6% in transactions worth over NOK 500 million. Source: UNION Proportion bought and sold 2012 (NOK billion) Investor categories Bought Sold Net bought Bought Sold Property companies 42 % 71 % Norwegian funds 1 % 3 % Syndicates 19 % 2 % Foreigners, incl. Funds 2 % 1 % Pensionfunds/Insurance 25 % 11 % Private investors 4 % 5 % User of the property 5 % 5 % Other or confidential 3 % 3 % Total Source: UNION Other 37 % Logistics/Ind./ Retail/Hotel 5 % 2012 NOK 27.8 bn. Office 58 % 11

12 Bergen, Trondheim and Stavanger Logistics/ Other 22 % Bergen Other 30 % Trondheim Stavanger Logistics/ Industrial 14 % Retail 33 % 2012 NOK 2.7 bn. Office 45 % Hotel/ Retail/ Logistics 18 % 2012 NOK 4.1 bn. Office 52 % Office 19 % 2012 NOK 2.5 bn. Retail/ Hotel/ Other 67 % Source: UNION Source: UNION Source: UNION Key figures Prime yield office Average yield in transactions in (all segments) Number of sales in 2012 (over MNOK 50) Bergen 5.75 % 7.1 % 17 Trondheim 6.00 % 7.5 % 15 Stavanger 6.00 % 6.9 % 11 Office vacancy as of Febr. 2013* Average rents for modern, central office premises** Rental growth in second half of 2012 Bergen 6.3 % % Trondheim 5.8 % % Stavanger 5.2 % % Office rent trends by half-year since 2005 Average rents for modern, central office premises ex VAT and joint costs (NOK per m 2 /yr) Stavanger Bergen Tro n dheim * Source: Kyte næringsmegling for Bergen, Eiendomsmegler 1 Næringseiendom for Trondheim and Stavanger **Source: Dagens Næringsliv Source: Dagens Næringsliv 12

13 UNION Eiendomsinvest Norge AS Total return on investment about 40% since being founded in December Three properties realised with a return of 56%. UNION Eiendomskapital is responsible for the purchase, management, development and realisation of properties. 13

14 RETURN ON INVESTMENT Net return on funds up 2.0% through the first three quarters of last year Property index up 19% in 2012 Main index and property index as of o After the Oslo Stock Exchange property index fell 20.1% in 2011, it saw a rise of 19.0% through the course of last year. Similarly, the main index fell by 12.5% net in 2011 and rose by 15.4% last year. The property and main indices are up 2.2% and 6.2% respectively so far this year (as of 12 February) OSE 4040 Real Estate OSEBX o UNION's Fund Index is an index of return on investment (including dividend) in Norwegian leveraged funds investing 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 estimates of value. The starting dates of the property funds vary. The index is based on eight funds with property values totalling approximately NOK 33 billion Source: Oslo Stock Exchange o The fund index rose by 2.0% over the first three quarters of last year, but fell by 0.9% in Q3 seen in isolation. The index is now at 101, or 1% above its starting point in Q This level is about 33% below the peak of Q and about 47% above the bottom in Q Incidentally, the fund index would have been at 93.2 without the two UNION-managed funds. o Storebrand Eiendomsfond, which is managed by UNION Eiendomskapital, is now 23.1% above its starting level in Q4 2005, about 23% below the peak of Q and about 47% above the bottom in Q o UNION Eiendomsinvest Norge, which is managed by UNION Eiendomskapital, is now 38.9 % above its starting level in Q The fund index rose by 10.8% over the first three quarters of last year, and by 0.4 % in Q3 seen in isolation. o Somewhat simplified, valuations in 2012 have shown that properties with a low assumed risk have maintained their value well, while properties with a risky location and/or short lease have been written down. 14 UNION's fund index and UNION-managed funds UNION's fund index 200 Storebrand Eiendomsfond 175 UNION Eiendomsinvest Norge Source: UNION

15 RETURN ON INVESTMENT Statistics and forecasts for return on total capital Rent growth contributes to increased future returns o The IPD index shows that return on total capital for commercial property in general was 7.4% in Norway in For comparison, the annual average level (CAGR) has been 6.7% over the period and 9.0% over the last ten years ( ). o For office alone, total return in 2011 was 8.4%, compared with an annual level of 6.8% over the three years For the ten-year period , the annual average level was 8.1% o Data for return on investment in 2011 is based on valuations of 569 properties in Norway with a combined value of NOK 125 billion. A summary 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. o The forecast was prepared in May 2012 based on the banks' expectations that long rates would rise in the autumn. We therefore assumed that rising interest rates would affect yield levels and valuations in the second half of On the contrary however, it has become clear since May that interest rates have fallen further and several banks have now lowered their interest rate forecasts. In practice, this means that the level of 5% for 2012 now appears to be on the low side. o Putting it simply, we would expect rent growth in both office and retail property to contribute to increased returns on investment over the next two years. Slowly rising interest rate levels (unlike the banks, the market expects only marginal rate growth) and increasing adaptation costs for new tenants are also tending to hold back the level of return. Total return Total property/office 20 % 15 % 10 % 5 % 0 % -5 % -10 % Source: IPD IPD Norwegain Real Estate Index IPD Norwegian Office UNION Gruppen's forecast for return on total 20 investment 17,6 18,3 R e t u r n ,8 10,8 7,0 7,6 10,4 15,2-4,6 4,5 8,2 7,4 5,0 8,0 9, E 2013E 2014E GDP growth Property return (un-leveraged) GDP growth (excluding oil & gas) GDP growth (forecast) 15 Source: IPD Norden/Statistics Norway/UNION

16 Kværnerhallen UNION Norsk Næringsmegling has handled the leasing of 11,300 m² in Kværnerhallen on behalf of OBOS Forretningsbygg. Only 3,700 m² is vacant. 16

17 THE OFFICE RENTAL MARKET OSLO, ASKER, BÆRUM Change in leased area from September 2009 to September 2012 Outer West Nydalen Outer North and East Bærum/Asker Inner City North Skøyen Inner City West Lysaker City Centre Inner City East Bryn/ Helsfyr Outer South Fornebu Increase above 60,000 m² Increase: 40-60,000 m² Increase: 25-40,000 m² Increase: 10-25,000 m² Increase up to 10,000 m² Decrease up to 10,000 m² Decrease of more than 10,000 m² NB! In the presentation, Lysaker-Fornebu is counted as one area! Oslo West appears to have a slightly negative trend in leased area, but still has a lower level of vacancy than many areas with growth. Source: UNION In several areas, such as Inner City North, Inner City East and Asker/Bærum, there is great variation in terms of trends in leased area between different zones within the area. 17

18 COMPLETION OF NEW OFFICE BUILDINGS , secure projects only Nydalen Bærum/Asker Outer West Inner City North Outer North and East Lysaker Skøyen Inner City West City Centre Økern/Hasle/ Løren Inner City East Bryn/ Helsfyr Fornebu Outer South Approx. 94,000 m² Approx. 40,000 m² 20,000 to 25,000 m² 10,000 to 20,000 m² 5,000 to 10,000 m² No new buildings Source: UNION Gruppen 18

19 THE OFFICE RENTAL MARKET OSLO - LONG TERM Demand is starting to outstrip supply. Rents will continue to slowly rise. 12,0 % GDP Mainland Norway 10,0 % 8,0 % 6,0 % Forecast GDP Mainland Norway Vacancy rate Forecast vancancy rate 4,0 % Rental price nominal values 2,0 % 0,0 % Forecast rental price nominal values Rental price CPI-adjusted -2,0 % - The figure illustrates our expectations for general trends in the office rental market in Oslo, Asker and Bærum in the coming years. We have taken as a basis statistics, forecasts and covariance data for: o Norwegian economy o Rent statistics inc. data on levels in contracts that are expiring o Supply capacity - Office area/demolition/rebuilding o Demand, employment in the office industries and area absorption o Vacancy The financial crisis of 2008 triggered fears of a wave of bankruptcies and high levels of vacancy. The volume of vacant office space rose rapidly through 2008 and into Many property owners accommodated the demands of tenants so as to avoid having empty premises. Rents fell consistently by about 10-15% from the middle of 2008 to their lowest point at the start of Most rents remained level throughout 2010, but in the last two to three years there has been an 19 upward trend, especially in the centre and CBD. The rising trend has now spread to most areas and segments. Space-efficient properties of a high standard in particular have seen levels rise. Moreover, most renegotiations are giving a higher rent level. We have not made any significant changes to our scenario in the last two years, and the effects of 22 July have kept vacancy slightly lower than expected. In spite of the large supply of new buildings last year, vacancy only rose by about 40,000 m² last year. With the updated figures for office space, vacancy is now "only" 6.9% as of February Demand has been rising, partly because of the increasing average area in new lease contracts. From now on, the decreasing volume of new building being completed, as well as various conversion projects, will contribute to gradually falling vacancy levels. We expect a modest reduction in vacancy this year and a faster reduction from next year. Our estimate is that vacancy will fall to 5% by Our scenario includes a rise in rents of about 5% per year: a little faster in the central areas and slightly slower in the outlying zones. The rise in rent should be seen in the context of a gradually rising standard and increasing adaptation costs. We continue to register very different responses for different properties, especially from the point of view of location.

20 THE OFFICE RENTAL MARKET - SHORT TERM Oslo, Asker and Bærum Why rents will continue to rise! Competition for tenants is still tough and it often takes a long time to get users in place, even in attractive property. The most important arguments for continued rent growth are: I) Position in the cycle: rents have shown a consistently rising trend over the last 11 quarters (see below right), vacancy will fall in the future and Norway is expecting several years of (moderate) economic upturn. II) Preferences and movement patterns: tenants are prioritising premises with good logistical locations and a high level of space efficiency and standard over the lowest possible price. The movement pattern is from cheaper to more expensive areas. III) Demand exceeding supply in certain areas: demand is in the process of outstripping supply (increasing average area in new contracts) and in some places vacant space is already in imbalance. IV) The lack of available vacant larger premises and rapidly rising building costs will probably force new builds at high rent levels V) Rising level of expiring leases: the average proportion of expiring contracts continues to rise this year. This development contributes to renegotiations from a consistently higher starting point. Renegotiations typically give consumer price index + a few per cent for minor adaptations. The most important arguments against continued rent growth are: I) Some rents have risen a great deal: Our annual trend for average rents (based on data from Eiendomsverdi Næring) is up as much as 9% over the last year and a half, and top rents in the CBD (ignoring new buildings) are up as much as 32% since they bottomed out (see above right). Such a high pace of growth for the top rents cannot continue in the longer term, because the difference from the alternatives would become too great. II) The lack of larger or suitably priced premises in the centre could eventually result in movement to cheaper outlying areas 20 NOK / m2 NOK / m CBD rent for top standard/location existing building (NOK per m² per year) Source: UNION Average office rent in Oslo in NOK per m² per year 12-month trend since Q Q3 10 Q2 11 Q1 12 Q4 12 Source: Eiendomsverdi Næring AS

21 UNION Gruppen's rent estimate as of Feb Top standard and best localizationexisting premises New premises -Top standard and best localization High standard - typical rent level Normal standard - typical rent level Rent levels in new contracts above 500 sqm. in NOK per sqm. per year excluding VAT and common cost Number of advertised premises Vacancy February 2013 Change in vacancy last 12 months CBD - Vika, Aker Brygge & Tjuvholmen % -0.1 % City centre excluding CBD % 0.7 % Inner City West incl. Majorstua % -1.2 % Inner City North incl. Ullevaal stadion % 1.6 % Inner City East incl. Kværnerbyen % -7.8 % Skøyen % 0.0 % Lysaker ,0%* -1.3 % Fornebu Nydalen % -0.8 % Bryn / Helsfyr % -0.9 % Outer West incl. Ullern and Smestad % -1.4 % Økern - Hasle - Løren Outer North and East incl. Furuset ,9%** 1.0 % Outer south incl. Ryen % -2.2 % Asker/Bærum excl. Lysaker/Fbu % 1.3 % * Vacancy for the combined Lysaker-Fornebu area. ** Figures for Outer North including Økern Hasle Løren Ulven. Only confirmed new buildings have been included in the vacancy figures. We have also excluded space that will become vacant more than a year in the future. Green indicates a rising rent tendency, black a flat trend and red a falling rent tendency. We have tried to estimate rent levels as accurately as possible. However factors such as storey in the building, view etc. will naturally affect rent levels. There will also be differences within each area. For example, the level for new buildings in the centre could vary from NOK 3,300 at its highest in Bjørvika to barely NOK 2,000 in the cheapest parts of the city centre. In the rent table, we have indicated for the various areas the locations we consider to be top level with "inc. location". In Other Central for example we take Bjørvika as the top location. 21

22 St.Olavs gate 24 UNION Norsk Næringsmegling is handling the leasing of 1,660 m² on behalf of St. Olavsgate 24 AS. 22

23 A LEADING NORWEGIAN REAL ESTATE PLATFORM UNION Gruppen is an independent and leading operator in the Norwegian commercial property market. Our services include commercial property brokerage, consultation, marketing analyses and valuations, corporate finance and investment management. Since 2002, we have sold property to a value of NOK 62 million, and in the last four years we have leased 500,000 m². On behalf of investors, we manage commercial property to a value of NOK 9 billion, with the focus on active management and value-creating activities. UNION Gruppen CEO Øystein A. Landvik 100% owned by five active partners 47 employees in total ANALYSIS UNION NORSK NÆRINGSMEGLING Trond Aslaksen UNION EIENDOMSKAPITAL Bjørn Henningsen/ Lars Even Moe UNION CORPORATE Terje Nesbakken/ Hroar Nilsen Transactions Leasing Investment management Property management Investor service Corporate finance Equity sales 23

24 UNION Gruppen - Bolette Brygge 1 - PO BOX 1715 Vika Oslo, Norway Tel: Fax: post@union.no UNION GrUppeN Graf