Nordic City Report. Spring 2015

Transcription

1 Nordic City Report Spring 2015

2 Executive Summary During 2014, real estate transaction volumes have broken all records in every metropolitan region in the Nordics, and capital has flooded into the region in a phenomenon popularly described as a wall of money. The reason for this is that an increase in savings has led to a rise in available capital, and pension funds have been looking to invest a portion of that capital in real estate. The Nordic countries are considered to be safe markets due to their quick recovery from the financial crisis. More analysis of capital flow movements is available in this issue s theme article. On the downside, office rental markets in the Nordics have been less consistent in comparison to the real estate transaction market. Helsinki has recorded a slight rental decline during H although the vacancy rate has also decreased in some submarkets. This vacancy decrease is mostly due to shrinking supply caused by the continuing conversion of vacant outdated office space for predominantly residential use and limited new office development. In contrast, the Helsinki CBD has recorded a temporary increase in vacancies as several large tenants have relocated to newly developed office space in Töölönlahti. In Copenhagen, the office occupancy market has been more stable in terms of both rents and vacancies. Despite weak demand, a decline has been avoided due to a relatively low quantity of new European Office Property Clock Q Lyon Cologne Berlin, Frankfurt, Gothenburg, Stuttgart, Hamburg, Oslo, Malmö Helsinki St. Petersburg Munich Rental Growth Slowing Rents Falling Moscow Dusseldorf London WE Stockholm, Dublin, London City Luxembourg Rental Growth Accelerating Rents Bottoming Out Kiev Geneva, Zurich Manchester Edinburgh Warsaw Amsterdam, Milan, Madrid Barcelona, Paris CBD Athens, Brussels, Rome, Bucharest, Budapest, Prague, Copenhagen, Istanbul, Lisbon Economic Key Data Sweden Denmark Norway Finland GDP growth 2014 (%, change p.a.) GDP growth 2015(F) (%, change p.a.) Inflation 2014 (%, change p.a.) Inflation 2015(F) (%, change p.a.) Unemployment rate (%, seasonally adj.) Unemployment rate 2015(F) (%, seasonally adj.) Typical lease length (years) Property tax (%) Capital gains tax (%) VAT (%) Stamp duty (%) /2.0 Corporation tax (%) Source: Oxford Economics 2 Nordic City Report Spring 2015

3 Investment Volumes H m Europe: Rental Growth Rates (Q Q4 2014) 6, , , , , , Denmark Denmark Finland Finland Sweden Norway Sweden Norway Domestic XB Barcelona Berlin Brussels Budapest Copenhagen Edinburgh Frankfurt/M Gothenburg Helsinki Lisbon London Madrid Malmö Moscow Oslo Paris Rome Stockholm Warsaw -25 % -20 % -15 % -10 % -5 % 0 % 5 % 10 % 15 % * No residential, land and developments; deals above USD 5 million only; volumes grossed-up by country specific rate to count for cases not reported except for Hotel, and (from 2010) for all Retail, except Unit shops build and limited speculative development. Given the sluggish rental market for office space, investors have been focusing on the residential and high street retail sectors. Slightly slower activity has been noted in the Oslo office market, but this has not led to a rise in the vacancy rate. On the other hand, rents have increased slightly during 2014, while in 2015 a drop has been forecast as a relatively large volume of new office space is expected to enter the market. In Stockholm, the office rental market has been stable, both in regard to rental levels and vacancy rate. However, take-up has reached record levels, which can mainly be attributed to several major lease transactions in new office development projects during H The Gothenburg office market has continued its robust market trend. Rising rents and a decreasing vacancy rate have encouraged further new office development projects in attractive locations. Projects that were launched on a speculative basis have been fully let before completion due to a high demand for modern, efficient office space. Finally, the Malmö/Lund market has recorded an increase in vacancy rates despite the fact that take-up has increased. For the first time since 2008, the Malmö CBD now has a higher prime rent than the Västra Hamnen submarket. Åsa Linder Head of Research and Valuation JLL Sweden Nordic City Report Spring

4 Stockholm Office Market During H2 2014, the overall vacancy rate in the Stockholm region has remained unchanged at 9.1 percent, which is the lowest recorded vacancy rate since Prime rental levels have also remained stable in all Stockholm submarkets during H Demand for office space has been consistently high throughout Investment volumes during H2 were strong and Stockholm accounted for 32 percent of the total transaction volume in Sweden. Prime yield has remained stable in all submarkets with the exception of Rest of Inner City, where it has been adjusted downwards by 0.25 percentage points to 4.75 percent. Supply Stable vacancy rate and limitedd new build During H2 2014, the overall vacancy rate in Stockholm has remained stable at 9.1 percent, which is in fact the lowest vacancy rate recorded since During H2 2014, the vacancy rate in the CBD and Kista has increased, while it has decreased or remained unchanged in all the other submarkets. The CBD has accounted for the largest change due to a rise in tenant relocations. 56,000 sq m of new office space has entered the Stockholm market during H2 2014, of which 23 percent was speculative upon completion. Over 50 percent of the project volume can be attributed to one single project, the redevelopment of Träsket 17 in the CBD owned by Diligentia. For the year as a whole, a total of 8 projects, comprising 167,000 sq m of new office space, have been completed, in comparison to 46,000 sq m during 2013 and 109,000 sq m during Only 8 percent of the new office space was speculative upon completion during 2014 and most of this is related to H2. In 2015, 68,000 sq m of office space is scheduled for completion, of which three projects relate to Kista and the CBD, where the Pembroke project Mästerhuset in the CBD accounts for almost half the new office space. Another 130,000 sq m is expected in 2016, of which 53,000 sq m is currently speculative. Demand A decrease in project lettings Total take-up for office premises in Stockholm during H amounted to 135,000 sq m, which represents a 51 percent decrease compared to the previous half-year. The total take-up for 2014 reached 413,000 sq m, a 46 percent increase on an annual basis. The annual increase can be attributed to the number of major leases signed in new projects in Solna/Sundbyberg, where SEB and TeliaSonera, for example, took up leases during H Rest of Inner City has been the only submarket during this period to show an increase in demand among tenants, and Folksam has been responsible for the largest signed lease of 5,000 sq m. All other submarkets have recorded a drop in take-up volumes. The single Property data Office properties Q CBD Rest of Inner City Adjacent Suburbs Kista Solna/Sundbyberg Total Office stock Q (m2) 1,784,000 3,504,000 1,778, ,000 1,742,000 11,598,000 Total Est. Completions 2014 (m2) 30,000 55,000 13,000 8,300 61, ,300 Total Est. Completions 2015 (m2) 30, ,000-68,000 Total Est. Completions 2016 (m2) - 18,500 14,000 27,000 70, ,500 Vacancy rate (%) Short-term forecast (kgm) g g m m g - Prime rent (SEK/m2) 4,500 3,400 2,400 2,200 2,200 - Short-term forecast (kgm) k k g k k - Rent - Grade B properties (SEK/m2) 2,500-3,100 1,600-2,000 1,000-1,600 1,000-1,400 1,200-1,600 - Short-term forecast (kgm) g g g g g - Prime yield (%) Yield - Grade B properties (%) Nordic City Report Spring 2015

5 Representative office investment transactions Q3-Q Property Location Size (m2) Price (MSEK) Purchaser Vendor Kista portfolio Kista 73,000 2,000 Kungsleden Areim Part of Entré Lindhagen Rest of Inner City 37,000 1,700 Alecta Skanska Fastigheter Mentorn 1 CBD 17,700 1,560 AMF Fastigheter DnB Liv Eiendom Gärdet & Upplands Väsby portfolio Spread 59,000 1,425 FastPartner Fabege Point Liljeholmen (Stora Katrineberg 16) Rest of Inner City 40,000 1,100 Atrium Ljungberg LaSalle Investment Management largest lease transaction during H has been the 10,000 sq m of office space let by Fabege to Siemens in Evenemangsgatan, Arenastaden in the Solna/Sundbyberg submarket. The average size of office transactions has declined to 901 sq m in H2 2014, compared to 2,106 sq m in H and 944 sq m in H Most of the new tenants have preferred new build, especially major tenants who can create efficient, customized premises that enable cost-cutting and attract personnel. Investment Volumes High activity The total transaction volume in Stockholm during H has totalled SEK 29.3 billion, which is an increase of 5.4 percent compared to H and a rise of almost 100 percent since the equivalent period last year. The transaction volume in Stockholm has accounted for 32 percent of the total volume in Sweden during H For 2014 as a whole, the transaction volume in Stockholm totalled SEK 57.1 billion, compared to SEK 32.4 billion during Stockholm has accounted for nearly 40 percent of the total transaction volume in Sweden during 2014, which is roughly equivalent to The largest single transaction in Stockholm during H has been the sale by Areim of Kista One and Kista Science City to Kungsleden, which comprised four office buildings located in Kista with an acquisition price of approximately SEK 2 billion. Office properties, which have accounted for 51.4 percent of the total, have continued to dominate demand in the Stockholm market. 12 cross-border transactions have been completed in Stockholm during H2 with a total value of SEK 6.5 billion, which is the equivalent of 22.2 percent of the total volume. Three of these, worth a total of SEK 0.9 billion, have involved overseas buyers. During 2014, the total transaction volume in Stockholm, and especially in the rest of the country, has increased significantly. Stockholm is the most attractive market, but in order to find suitable investment objects, investors will need to widen their scope. This will probably reduce the number of transactions in Stockholm during At the same time, JLL expects cross-border volumes to increase due to the prevailing investment climate in Sweden, with a rise in interest from opportunistic investors. Prime yield has remained stable in all Stockholm submarkets with the exception of Rest of Inner City, where prime yield has been adjusted downwards by 0.25 percentage points to 4.75 percent. Rents No changes in 2014 During H2 2014, prime rental levels have remained stable in all the Stockholm submarkets, and there has been no significant change in prime rent throughout However, despite this stable trend, demand for prime office space has been strong and rental levels are expected to increase going forward, but at a slow pace. Market Outlook Rental growth in 2015? During 2014, the supply of office space in Stockholm has remained low and the total vacancy rate has remained stable at a record low of 9.10 percent. Demand for Stockholm office space has achieved its highest level since There have been no indications that this trend will drop off in the short term and the outlook for 2015 is positive, with expectations of an increasing rental growth driven by a consistently strong demand for prime office space and limited volumes of new build. Vacancies are likely to remain at the existing rate throughout the year with a possible increase in 2016 due to an increase in the amount of new office space entering the market. Representative office leasing transactions Q3-Q Property Location Tenant Leased area (m2) Property owner Uarda 1 (Hus B) Solna Siemens 10,000 Fabege Kv Tullgården (Folksam HQ) Rest of Inner City Riksidrottsförbundet 5,700 Folksam Fatburen Rest of Inner City Sungard 4,270 Crown Nordic Management Nod Kista Fujitsu 4,000 Atrium Ljungberg Humlegården 57 CBD Settervalls 3,600 SEB Trygg Liv Nordic City Report Spring

6 Gothenburg Office Market The Gothenburg property market is experiencing a vacancy squeeze not seen since the days of the IT bubble in New records in take-up and investment volume during 2014 are clear evidence of the current high level of interest in Gothenburg. Volumes will likely drop off in 2015, but this will be due to a lack of supply and not a decline in demand. Supply Outstripped by demand The overall vacancy rate in Gothenburg has continued decreasing during H2 2014, dropping to 5.90 percent, one of the lowest levels since the IT bubble in Several submarkets, especially the CBD and Rest of Inner City, have been experiencing unprece dented vacancy levels as supply struggles to keep up with demand. A total of 24,800 sq m of office space has entered the market during 2014, almost all of which had already been leased upon completion will see another 60,200 sq m of space completed, a substantially larger and greatly-needed volume. The bulk of this space will be located in the Rest of Inner City submarket in Gårda, Heden and Almedal districts. Demand Occupier activity at record levels Due to a very active occupier market, take-up has achieved a record high volume during 2014 of approximately 150,000 sq m. A substantial proportion of this volume has comprised leases in development projects, the most significant of which has been the SCA lease of 25,000 sq m in Mölndal during H1. Other notable leases during H2 have been letting to the Swedish Migration Board Migrationsverket of 9,500 sq m of space in the Platzer-owned property Gårda 1:15 in the Rest of Inner City submarket, and the letting of 4,700 sq m by Alten Sverige in Front Lindholmen in the Norra Älvstranden submarket. The current tenant, the IT consultancy Semcon, will be vacating the premises during H in favour of a single-tenant property under construction by Eklandia in the same submarket. Property data Office properties Q CBD Rest of Inner City Norra Älvstranden Rest of Hisingen Mölndal Western Gothenburg Eastern Gothenburg Total Office stock Q (m2) 872, , , , , , ,000 3,255,000 Total Est. Completions 2014 (m2) , , ,800 Total Est. Completions 2015 (m2) - 41,500 8,600 10, ,200 Total Est. Completions 2016 (m2) - 7, , ,500 Vacancy rate (%) Short-term forecast (kgm) k g g g g g g - Prime rent (SEK/m2) 2,600 2,300 2,100 1,000 2,000 1,150 1,100 - Short-term forecast (kgm) k g g g g g g - Rent - Grade B properties (SEK/m2) 1,800-2,300 1,300-2,000 1,300-1, ,000 1,000-1, , ,100 - Short-term forecast (kgm) g g g g g g g - Prime yield (%) Yield - Grade B properties (%) Nordic City Report Spring 2015

7 Representative office investment transactions Q3-Q Property Location Size (m2) Price (MSEK) Purchaser Vendor Krokslätt portfolio Rest of Inner City 36, Platzer Wallenstam ÅF-Huset (Kallebäck 2:5) Rest of Inner City 15, Pareto Project Finance Skanska Fastigheter Sörred 8:4 Torslanda, Hisingen 50,000 - Torslanda Property Investment Doughty Hanson & Co Real Estate Rents Upward pressure on several submarkets The CBD prime rental level has remained stable during H2 at SEK 2,600/sq m p.a. However, substantial upward trends have occurred in two submarkets. In Rest of Inner City, prime rent has increased to SEK 2,300/sq m p.a. as the newly constructed office buildings in the area have established a new market level. In Mölndal, prime rent has risen to SEK 2,000/sq m p.a. due to the addition of new grade A developments. Investment market High interest It is not only the rental market that has been active during the year. Investment in Gothenburg real estate has achieved SEK 13.3 billion during 2014, the highest volume ever recorded, of which approximately SEK 4.7 billion has been transacted during H2. The most active segment during H2 has been the office property segment with 26 percent, followed by residential property with 23 percent and hotels with 21 percent. The largest single transaction during H has been the acquisition by Victoria Park of two residential properties, comprising 112,000 sq m of residential space and 32,000 sq m of commercial space, in Lövgärdet north of Gothenburg from Stena Fastigheter for SEK 925 million. As a consequence of the high investor demand, prime office yield levels have decreased in several submarkets during the year. Most recently the CBD, Norra Älvstranden and the Western Suburbs have declined by 25 bps to 4.50 percent, 5.75 percent and 7.00 percent respectively. Market Outlook A strong market in 2015 Supply on the occupier market is expected to remain low in the short term as demand is showing no signs of decreasing. Of the approximately 60,000 sq m office space due for completion during 2015, over 80 percent has already been let. Despite a consistently high demand, the likely result of the lack of supply will be a drop in take-up levels with continuing upward pressure on rental levels in central submarkets. In the investment market, Gothenburg real estate has been very attractive, which is clearly evidenced by the high investment volume during Interest is showing no signs of declining during 2015, although volumes are expected to decrease compared to 2014 figures as a majority of the attractive office property development projects have already been sold. Representative office leasing transactions Q3-Q Property Location Tenant Leased area (m2) Property owner Gårda 1:15 Rest of Inner City Migrationsverket 9,500 Platzer Front Lindholmen Norra Älvstranden Alten Sverige 4,700 Internationales Immobilien-Institut (III) Nordstaden 28:2 (Sjöbefälsskolan) CBD Ghost 2,200 Serneke Gullbergsvass 1:2 CBD Manpower 2,000 SEB Trygg Liv Lyckholms Fabriker Rest of Inner City Advance 1,700 PEAB Nordic City Report Spring

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10 Malmö Office Market The overall vacancy rate has increased slightly in the Malmö/ Lund market during H Nevertheless, developers appear to have become more optimistic about the market s ability to absorb new office space, with a large number of new office developments in the pipeline. Prime rent in the Malmö CBD has increased to SEK 2,300 sq m, and the CBD is now the submarket with the highest prime rent for the first time in six years. The investment market has experienced an active H2 2014, with the residential segment still dominating the market. Supply An increase in new build with emphasis on the CBD During H2 2014, the overall vacancy rate in Malmö/Lund has increased by 0.6 percentage points to 10 percent, and most submarkets have experienced an increasing vacancy rate during this period. 8,200 sq m of office space has been completed, of which the majority had already been let on completion and only 5.00 percent speculative. The volume can be attributed to two particular developments the extension of Triangeln in the CBD owned by Vasakronan, which added 1,700 sq m of new space, and the first phase of the Skanska s Klipporna project, which added 6,500 sq m of new office space in the Malmö Suburbs submarket. Ten projects comprising a total volume of 81,900 sq m of office space are currently under construction in the Malmö/Lund market, of which about 50 percent was speculative at year-end This is a significant increase in new build of 71 percent compared to H1 2014, 50 percent of which is located in the CBD. During 2015, five developments comprising a total office space of 47,500 sq m are scheduled for completion. Skanska is currently developing Malmö Live, a hotel, conference and office complex that includes 10,000 sq m of office space, and another 7,000 sq m of office space in phase 2 of Klipporna in Hyllie. The third ongoing construction project is Niagara, an 18,500 sq m development in the CBD for Malmö University. The final two developments are Glasvasen, a six-floor office building with 6,000 sq m of space, currently un- der construction by Jernhusen in the CBD, and 6,000 sq m office space in phase 1 of the Midroc World Trade Center development project in Lund (Alléhuset). Demand Increase Total take-up has amounted to 53,500 sq m during H2 2014, which represents a 55 percent increase year-on-year and a 58 percent increase on an annual basis. The increase can be attributed to a number of major lease signed in Västra Hamnen and Malmö Suburbs during the period. Three of these have taken place in the Västra Hamnen submarket, the 6,000 sq m occupied by Saab Kockums in the Teliahuset in Dockan, the lease signed by Länsförsäkringar for 5,200 sq m in the Gängtappen Kockumshuset property, and the take-up of 4,500 sq m by Orkla Foods Sverige in Property data Office properties Q CBD Rest of Inner City Västra Hamnen Malmö Suburbs Lund Total Office stock Q (m2) 635, , , , ,000 2,084,000 Total Est. Completions 2014 (m2) 1, ,500-8,200 Total Est. Completions 2015 (m2) 34, ,000 6,000 47,500 Total Est. Completions 2016 (m2) ,400-34,400 Vacancy rate (%) Short-term forecast (kgm) g g g g g - Prime rent (SEK/m2) 2,300 1,350 2,100 2,300* 1,900 - Short-term forecast (kgm) g g g g g - Rent - Grade B properties (SEK/m2) 1,500-1,800 1,100-1,300 1,400-1,800 1,000-1,300 1,400-1,700 - Short-term forecast (kgm) g g g g - Prime yield (%) * Yield - Grade B properties (%) * Hyllie. Other Malmö Suburbs have substantially lower rents and higher yields. 10 Nordic City Report Spring 2015

11 Representative office investment transactions Q3-Q Property Location Size (m2) Price (MSEK) Purchaser Vendor Nya Vattentornet 3 Lund 26,000 - Partners Group NIAM Hermod 1 Hyllie 6,300 - Executive Property Midroc Isblocket (Vagnslidret 1) Hyllie 4, Kungsleden Otto Magnusson Byggnads AB Zebran 6 CBD 4, Private Private the Kranen 1 building in Dockan. All three properties are owned by Wihlborgs. Other notable leases were Ikano signing for 5,600 sq m in the second phase of the Skanska Klipporna development and P-Malmö signing for 2,300 sq m in the Vagnslidret 1 development, also known as Isblocket, both of which are located in Hyllie in the Malmö Suburbs submarket. Rents CBD regains position as submarket with highest prime rent Due to the rise in rental levels in new developments om the areas around Universitetsholmen and Södra Nyhamnen, the rental level for the Malmö CBD submarket has now been adjusted upwards to SEK 2,300/sq m p.a. This indicates a strong interest in this submarket, which had previously lagged behind the new developments in both Hyllie and Västra Hamnen. The submarket is currently also recording the highest development activity. The rise in rental levels has resulted in the CBD regaining its position as the submarket with the highest prime rent in the Malmö/Lund market. Västra Hamnen had previously held this title since early Rental levels in the remaining submarkets in the Malmö/ Lund market have remained stable during H Investment Market An active second half year After a quiet first half, H has been characterized by an active transaction market with high investment volumes. Transaction volume finished on SEK 6.3 billion for the period, which is a huge increase of 448 percent on H1 and of 188 percent year-on-year. The Malmö/Lund share of the total Swedish volume has been 7.00 percent, which is above the average of 5.80 percent. The total number of transactions during H has been 15, of which 5 transactions, 21 percent of the total volume, have been cross-border. By far the largest of these has been the residential portfolio that Akelius fastigheter acquired from Hugo Åbergs fastighetsförvaltning for SEK 2.8 billion, which included properties in Ribersborg and Almgården, the Kronprinsen skyscraper, and comprised a total rental area of 186,000 sq m. Yield has been estimated at approximately 4.50 percent. The largest office transaction during H2 has been the acquisition by Partners Group, a Swiss-based asset manager, of the Nya Vattentornet 3 property in Lund for SEK 474 million. The property was acquired from Niam, which is disposing of the remaining assets in its third fund, and comprises a total lettable area of 26,000 sq m, some of which includes premises occupied by Ericsson. Yield has been estimated at approximately 6 percent. As during the previous half year, the dominant property type has been residential with 61 percent of the volume, mainly due to the portfolio acquisition mentioned above. Office represented the second largest asset type, and accounted for almost 17 percent of the total volume. Prime yield levels have remained stable for all submarkets for the tenth consecutive quarter, with the CBD at 5.25 percent. Market Outlook Growing optimism amongst developers Malmö/Lund continues to be a diversified market in which new build is the driving force behind rental trends, while older stock is lagging behind in the competition for major tenants. A total volume of 81,900 sq m is currently in the pipeline, as mentioned in the previous section, which is the highest volume of new build since Q This increase can be attributed to rising optimism amongst developers and a belief that the market is ready for additional space after a quiet period. Meanwhile the vacancy rate in Malmö/Lund has continued to rise during H2 2014, despite the low level of completed speculative office space. Furthermore, approximately 50 percent of the space currently under production has been speculative, which in time may result in a higher vacancy rate. However, a significant proportion of this space is not scheduled for completion until 2016; hence the market will have some time to absorb it. Representative office leasing transactions Q3-Q Property Location Tenant Leased area (m2) Property owner Teliahuset Västra Hamnen SAAB Kockums 6,000 Wihlborgs Klipporna Hyllie Ikano 5,600 Skanska Kockumshuset (Gängtappen) Västra Hamnen Länsförsäkringar 5,200 Wihlborgs Nordic City Report Spring

12 Copenhagen Office Market There has been a strong investor demand for prime office properties properties in Copenhagen, and demand is currently much higher than the limited supply can accommodate. As a result, yields have decreased significantly, with prime office yields currently standing at 4.50 percent. This trend has been taking place while the occupier market continues to struggle due to limited employment growth. Supply A minor drop in vacancy rates The occupier market continues to struggle as labour market growth is still slow. As a result, vacancy rates have remained stable at approximately 10 percent in Greater Copenhagen, although they have decreased slightly both inside and outside the CBD. The largest decrease has taken place in the CBD where the vacancy rate currently stands at 8.50 percent. A large proportion of the elderly, outdated office space in the CBD area has been converted into residential units in recent years to satisfy a very high demand. There are a number of large office projects in the pipeline, but low construction activity and no speculative construction in the office segment has remained the overall trend. In 2015, approximately 175,000 sq m of office space is scheduled to enter the market in Greater Copenhagen, of which 40 percent is located in the new CBD (the Waterfront). Demand A slow increase in employment is expected to spur demand The demand side has been moving very slowly. There has been a small increase in activity caused by a slight rise in the employment rates in Copenhagen. Employment growth for Denmark during 2015 has been forecast at approximately 0.50 percent, which is very low, but it is expected to be higher in Copenhagen, a region with above-average growth. Among the major leases signed in Copenhagen during H was the take-up by KPMG of 8,725 sq m in the CBD. In early 2014, EY took over the Danish KPMG head office and KPMG s global operation has been busy establishing a new office in Copenhagen. Rents Stable rental levels Office rental levels have remained stable during H2 2014, and prime rent in Copenhagen currently stands at DKK 1,750/sq m p.a. Low demand has put pressure on rental levels and this has led to an increase in some locations in price price differentials between up-to-date, space-efficient office premises and more outdated, inefficient or inflexible office premises. Current demand is primarily for modern and space-efficient properties and it is this type of property that can sustain prime rental levels. Prime rents in the CBD currently stand at DKK 1,350 1,700/sq m p.a., exclusive of taxes and operating costs, with top rents of DKK 1,750/sq m p.a. Office rents in secondary CBD locations range from DKK 1,050 to DKK 1,200/sq m p.a. Property data Office properties Q Old CBD (City) New CBD (Waterfront) Rest of Copenhagen Ørestad Greater Copenhagen Office stock Q (m2) 5,730, ,000 11,795,000 Total Est. Completions 2014 (m2) 0 70,000 25, ,000 Total Est. Completions 2015 (m2) 5,000 20,000 20,000 30, ,000 Total Est. Completions 2016 (m2) 40,000 70,000 30,000 70, ,000 Vacancy rate (%) 8.5* 10.3 Short-term forecast (kgm) g g g g - Prime rent (DKK/m2) 1,350-1,700 1,750 1,100-1,650 1,300 - Short-term forecast (kgm) g g g g - Rent - Grade B properties (DKK/m2) 1,050-1,150 1, , Short-term forecast (kgm) g g g g - Prime yield (%) Yield - Grade B properties (%) * Total vacancy rate for all four submarkets. 12 Nordic City Report Spring 2015

13 Representative office investment transactions Q3-Q Property Location Size (m2) Price (MDKK) Purchaser Vendor Borups Allé 177 ("Fuglebakken") Frederiksberg 26, ATP Ejendomme EY Vognmagergade 8 Copenhagen 20, KVUC (Egenanvändare) Ejendomsselskabet Kongens Have A/S Axeltorv 2 Copenhagen 19,000 1,500 ATP, Industriens Pension, PFA Ejendomsselskabet Norden Landskronagade Copenhagen 14, PensionDanmark MP Pension Dampfærgevej 8-10 (Pakhus 12) Copenhagen 13, Jeudan Kongeegen Investment Market Strong demand in the investment market The total transaction volume has picked up again in Copenhagen during It has been very difficult to achieve reasonable investment returns in the classic asset classes such as stocks and bonds, and this has resulted in real estate becoming more attractive, with a number of new investors entering the Copenhagen investment market during However, the supply of prime properties has been very limited and total volume has not increased as much as demand. The slow movement in the office occupier market has reduced the appeal of this market compared to the residential and high street retail markets, and demand in the office market is still for prime properties. The largest investment transaction during H2 has been the Scala property, a new development in the centre of Copenhagen, which has been sold for MDKK 1,500 to three Danish pension funds two years ahead of completion. This property also includes a very attractive retail section on the ground floor. Yield for prime office in the CBD has decreased to 4.50 percent, while in the secondary CBD segment it has remained at 5.75 percent. Yield for prime office outside the CBD has dropped to 4.75 percent, while in the secondary segment outside the CBD it currently stands at 7.50 percent. Market Outlook Increasing investment activity and a recovery in the occupier market During 2015, the very high demand for prime office has been forecast to continue and activity is expected to spread to the more secondary markets. The drop in yields in all segments will cause investors to revise their risk profile slightly in order to secure reasonable returns. This trend will go hand in hand with an improvement in the occupier market as the overall economy continues to grow slightly. As a result, occupier demand for some secondary properties will lead to investment activity for these same properties. There is a great deal of available capital in the market but a limited number of opportunities to invest. This will ensure that Copenhagen properties become even more attractive for investors during 2015, as real estate performance in Copenhagen has historically offered very good risk-adjusted returns. Representative office leasing transactions Q3-Q Property Location Tenant Leased area (m2) Property owner Carl Jacobsens Vej 39 Copenhagen Bygningsstyrelsen 10,907 PensionDanmark Havneholmen 17 Copenhagen Pandora 10,000 Skanska Stamholmen 150 Hvidovre Bossard Denmark A/S 9,721 Industriholmen I ApS Dampfærgevej 28 Copenhagen KPMG 8,725 PFA Gyngemose Parkvej 50 Copenhagen ISS Facility Services A/S 7,698 PensionDanmark Nordic City Report Spring

14 Oslo Office Market Record low interest rates, lower bank margins and easily accessible financing have led to a booming transaction market during H Transactions have been recorded in all market segments, and the prime yield estimate has been revised downwards to 4.75 percent in the same period. The transaction volume for 2014 closed at approximately NOK 85 billion, including the Entra IPO. However, the outlook is slightly more mixed as macroeconomic expectations have been revised even further downwards. Supply Vacancy rates are stable The overall vacancy rate in the Oslo office market currently stands at 7.50 percent, which is the equivalent of approximately 700,000 sq m of vacant office space. The CBD vacancy rate has remained stable at just over 4.50 percent. Vacant space in the CBD and Rest of Inner City areas primarily consists of smaller premises, with only ten premises larger than 5,000 sq m currently vacant. For 2015, we are expecting the total average vacancy rate to remain stable at 7.50 percent due to the uncertain economic conditions caused by the dramatic drop in oil prices. Few new office developments have been completed during 2014, with only 60,000 sq m of new office space entering the market compared to 147,000 sq m in However, a higher volume of new office space is scheduled for completion during 2015 and 2016, 167,000 sq m and 94,000 sq m respectively. Demand Lack of large lease transactions During H2 2014, the new leases registered in Oslo have totalled approximately 260,000 sq m (including renegotiations), a drop of 90,000 sq m (or 26 percent) from the same period last year. The reason for the weak H2 is the consistent lack of large lease transactions, which is a result of the uncertain future and a rather limited number of large tenants, among other factors. Of the total absorption in Oslo, 50 percent is either related to the CBD or the inner city areas. This is a decrease since the last report, but demand for centrally located offices has remained robust. Of the other submarkets, Skøyen and Lysaker have accounted for 13 and 11 percent respectively, which is a significant increase compared to H Property data Office properties Q CBD Rest of Inner City Outer City West Outer City East / North/ South Total Office stock Q (m2) 3,250,000 1,050,000 1,050,000 2,600,000 8,300,000 Total Est. Completions 2014 (m2) ,000 Total Est. Completions 2015 (m2) ,000 Total Est. Completions 2016 (m2) ,000 Vacancy rate (%) Short-term forecast (kgm) g g g g g Prime rent (NOK/m2) 4,200 2,500 2,900 1,900 - Short-term forecast (kgm) g g g g g Rent - Grade B properties (NOK/m2) 2,500 1,600 1,450 1,300 - Short-term forecast (kgm) - Prime yield (%) Yield - Grade B properties (%) Nordic City Report Spring 2015

15 Representative office investment transactions Q3-Q Property Location Size (m2) Price (MNOK) Purchaser Vendor Nordic portfolio Norway and Sweden 4,650* Starwood Capital Group Fortin (DNB NOR Eiendomsinvest I ASA) Statoil HQ Outer City West 87,724 ~3,400** Madison International Koksa Eiendom & Investment Fund (set up by Arctic) Schweigaards gate CBD 32,000 1,750 KLP Eiendom ROM Eiendom Karl Johans gate 14/ Kirkegaten CBD 15, AVA Eiendom Genesta Grensen 17*** CBD 6, Meyer Bergman Promenaden Property (Søylen & Madison International) *The price relates to Norwegian properties in the fund. **Madison bought additional shares (59,5 percent) and now owns about 100 percent of the property. ***Office/Retail (ground floor). Rents Increasing rental levels During H2, the prime rent level has increased by almost 2.50 percent from 4,100 to 4,200 NOK/ sq m p.a. Submarkets located close to prime space have recorded similar growth over the same period. Other fringe areas have reported relatively flat trends during H Going forward, we are expecting rents in the inner city areas to remain at their current levels through 2015, with a decrease of percent in fringe areas (outer Oslo). A surplus of available sites and properties in the fringe areas in combination with falling yields has created some downward pressure, as lower yields are incentivising landlords to lower rents in order to fill their properties. As a result, we believe the rental market will reflect the business sector s somewhat sober outlook for Investment Market Record low yields, higher activity The year-end transaction volume for H has exceeded all expectations. As we forecast in the last NCR edition, there have been a number of large transactions in all market segments. Falling interest rates, tighter bank margins and rising values have been some of the drivers underpinning this trend. The prime yield estimate has been reduced by a further 25 bps during the period, from 5.00 percent to 4.75 percent. The 10-year SWAP rate has declined by 101 bps and now stands at 1.75 percent. In addition, we have seen a rise in demand for prime property from overseas investors. This has increased the number of buyers and brought more liquidity to the bargaining table, which is a positive trend. Market Outlook Decrease in oil prices affects the market During H2 2014, the leasing market has experienced a slight increase in the total average vacancy rate but a similar rise in overall rents. Upon closer examination, the forecast for 2015 is that rent levels in the fringe areas will decrease. The continuing uncertainty caused by the dramatic fall in oil prices has stagnated the oil and offshore industry, and cutbacks have already impacted several of the major players in this market. Thus, we are forecasting an increase in subletting in the western fringe areas where the oil and offshore clusters are located. For the same reason, this may result in tenants being more cautious going forward with regard to their space requirements and when to relocate. A typical scenario will be for tenants to extend their current contracts for short periods instead of signing new space, until the outlook becomes more stable. Another contributing factor is the fact that construction costs have remained stable while yield has fallen, which will indirectly enable landlords and developers to lower their rents and still remain profitable. We also forecast that the transaction market will remain strong for several reasons. There are a large number of sales in the pipeline by closed-ended funds and standard property funds, while pension funds along with other market players are ready to buy. Easily accessible financing and a weaker NOK will also have a positive impact on sales volumes. However, the uncertainty caused by falling oil prices may result in less activity from overseas investors, which will impact capital providers such as banks, and thereby local investors. In our view the outlook for 2015 is promising, but only time will tell. Representative office leasing transactions Q3-Q Property Location Tenant Leased area (m2) Property owner Storgata / Stenersgata 2-4 Inner City Riksrevisjonen 13,000 Thon Eiendom Økernveien Eastern Fringe Politiets Utlendingsenhet 12,500 Closed-ended fund, DTZ Innspurten 9 Eastern Fringe Nexans Norway 8,500 Catella Real Estate / OBOS Basale Stranden 5 CBD Google 2,500 Norwegian Property Sørkedalsveien 8 Inner City Bouvet 5,400 Stor-Oslo Eiendom & Blystad Eiendom Nordic City Report Spring

16 Helsinki Office Market In Q3 2014, marginal export-led growth indicated that the three-year stagnation period in the Finnish economy was ending, but growth during Q4 has reverted to zero, with current forecasts indicating only moderate growth for the next two years. Due to weakening demand, prime rents have decreased slightly in all the main submarkets of the Helsinki metropolitan area. At the same time, office supply has shrunk slightly as outdated product is taken off the market for redevelopment and development activity has remained limited. Despite the lack of confidence in the occupier market, the investment market has been telling a different story, with consistently strong demand and compression in prime yields. Supply Increasing conversion plans push vacancy slightly downwards The previous trend of rising vacancy rates has reversed to a slight decrease towards the end of The drop of 50 basis points since H has partly been due to an increase in conversion of old office space for other uses (mainly residential). At the same time, vacancies in the Helsinki CBD have risen slightly, which has partly been driven by occupiers relocating to new build in the Töölönlahti area. Otherwise the highest vacancy rates have been recorded outside the CBD, particularly in the Espoo submarkets, which are suffering from the negative impact of the challenges in the ICT sector. Vacancies have been forecast to increase throughout 2015 due to new space entering the market, with 90,000 sq m due for completion, of which around 25 percent remains unlet. The 2015 figure will be heavily impacted by the completion of the OP Vallila campus, comprising approximately 60,000 sq m. In 2016 only around 50,000 sq m of new space is expected to enter the market. Property data Office properties Q CBD Rest of Helsinki Esbo Vantaa Total Office stock Q (m2) 1,100,000 4,760,000 1,830, ,000 8,610,000 Total Est. Completions 2014 (m2) 0 40,000 15,000 10,000 65,000 Total Est. Completions 2015 (m2) 0 75,000 5,000 10,000 90,000 Total Est. Completions 2016 (m2) 0 30,000 10,000 10,000 50,000 Vacancy rate (%) Short-term forecast (kgm) g k k k k Prime rent ( /m2) Short-term forecast (kgm) g m m m - Rent - Grade B properties ( /m2) Short-term forecast (kgm) g g g g - Prime yield (%) Yield - Grade B properties (%) Nordic City Report Spring 2015

17 Representative office investment transactions Q3-Q Property Location Size (m2) Price (MEUR) Purchaser Vendor Polaris Vega Espoo 5,900 n/a AXA IVG Mannerheimintie 103a Helsinki 7,800 n/a Nordic and Baltic Property Group RBS Nordisk Renting Voimatalo Helsinki 9,300 n/a Niam AXA Microsoft Keilaniemi FG Espoo 17, AXA Exilion Brondankulma Helsinki 8,200 n/a AFIAA CBRE Nordic Property Fund Demand Cautious atmosphere amongst occupiers persists The weak economic situation, combined with the tension between Russia and Ukraine, has resulted in a more cautious approach amongst occupiers during Q4. Take-up in the Helsinki office market has been subdued, with some occupiers opting to put their relocation plans on hold until the market is more stable. Despite the slight upturn in vacancies, the Helsinki CBD s position as the best-performing submarket has remained unchallenged and the vacancy rise is expected to be temporary. Overall, decision-making has remained slow and the trend has been for smaller companies in particular to avoid signing longer leases. A continuing polarisation of the market has also been evident, with tenants upgrading to modern space and vacating secondary, outdated product that has very limited chances of being let in the current market climate. Rents Prime rents falling in all submarkets Rental costs for prime locations have dropped to 300/sq m p.a. for the first time in four quarters and are expected to remain at this lower level for the next year. The negative rental trend has also been evident in the other main submarkets. With economic conditions unlikely to improve for the next 12 months, occupiers have been less willing to pay top rates, and this has put pressure on landlords to reduce asking rents. Further rental decreases may occur if the state of the economy deteriorates but it is more likely that they will remain stable going forward. In recent months, rentfree periods and incentives have been introduced in the CBD and pressure on the landlord side has been highlighted in order to attract new tenants. Tenant incentives have continued to increase in other submarkets as well, and due to the subdued demand, landlords have been much more willing to fund tenant improvements in an effort to retain tenants when their leases expire. Investment Market Increasing demand underpins yield compression H has highlighted the contrasting climates in the occupier and investment markets. While occupier demand has remained sluggish and vacancies have stayed high, momentum in the investment market has continued throughout H This has resulted in an office transaction volume of approximately 320 million in the Helsinki metropolitan area, which is an increase of 7 percent compared to H At over 85 percent, the proportion of cross-border transactions has been high, with Nordic and Pan-European funds particularly active. Investment demand for prime office space has also remained strong and record yields have been recorded in the Helsinki CBD. In Q4 2014, for the first time in three quarters, prime yield has decreased from 5.10 percent to 5.00 percent, with further yield compression anticipated over the next 12 months. Market Outlook Economy and investment market moving in opposite directions As a result of the anticipated slow economic growth, the positive impact on the office market from the growing number of office occupiers and expansionary take-up is expected to remain limited. Competition for tenants has continued to tighten and asking rents have also dropped, while tenant incentives and rent-frees are becoming market practice. In addition, space in the CBD is facing downward rental pressure but the relatively limited supply of grade A premises should keep rental levels at approximately the current level. Supply is expected to increase throughout 2015 due to new build entering the market, while H is expected to be challenging as a result of the current economic and political headwinds. H should see an improvement in the market climate, although to some extent this will depend on wider geopolitical and economic conditions. Investment demand for core assets will remain strong, and due to the tight competition for prime space and an increasing risk appetite, secondary properties can also expect stronger market conditions. However, better economic fundamentals will be required before large-scale demand expands to secondary properties. Nordic City Report Spring

18 The wall of money moving towards European real estate Global savings are growing Over the last decade, global savings have increased rapidly and the shape of these savings is changing. According to HIS Global Insight, emerging markets will account for 50 percent of global GDP and roughly two-thirds of global growth between 2004 and A large chunk of these savings has been invested in pension funds in both emerging markets and in developed markets, through economic growth in the former and through changes in legislation in the latter. As a result, pension funds are increasing their allocation to alternative sectors, of which real estate is taking the lion s share of investment. It is this large wall of money that has been driving investment volumes in Europe and we expect it to continue doing so for the foreseeable future. Europe in focus Since the global financial crisis, the European real estate market has grown year-on-year to 208 billion (FY2014), which compares to a previous peak of 245 billion in Throughout 2014, the European market has been at the epicentre of global real estate, receiving 39 percent and 400 percent more investment from outside the continent than the Americas and Asia-Pacific respectively. Investors have come to Europe in 2014 for two main reasons. Firstly, the economic recovery in the US has already been priced in and competition in first and second-tier markets is high. Secondly, in Asia-Pacific, yields are already very low and growth is now slowing in China. At the same time, investors in these two regions have access to cheap capital and are looking to Europe for its relative value. In other words Europe, with its weak euro and relatively attractive yields, has been the hot spot for international capital in Looking at the Nordics Within Europe, the Nordics is the fourth largest region by investment and home to the fourth largest market in Europe over the last five years, i.e. Sweden. Given the regions macroeconomic stability and history of fiscal prudence, it has been labelled as one of Europe s safe haven markets, which also ensured that it was one of the first markets to recover from the global financial crisis. Between 2009 and 2011, investment in the Nordics increased by 132 percent, and only the German market bounced back more strongly with an increase of 150 percent. Furthermore, the region is home to Oslo and Stockholm, which between 2010 and H both figured in the top 30 global cities by investment volume. Q4 13 Q4 14 % (y-o-y) % (y-o-y) UK 27,024 27,264 1% 65, ,511 24% Germany 10,790 13,217 22% 28,292 35,213 24% France 5,548 9,122 64% 18,478 25,079 36% Nordics 6,293 7,178 14% 16,946 20,583 33% S.Europe 2,907 5,582 92% 7,784 14,374 85% Benelux 1,859 3, % 6,519 11,299 73% CEE 1,640 2,848 74% 5,078 7,730 52% Russia 1, % 5,409 1,448-73% Other 4,373 3,090-29% 11,596 11,502-1% EMEA 62,291 72,702 17% 165, ,447 26% The positive market fundamentals in the Nordics also stand out against a sluggish Europe. Sweden s GDP is set to grow by 18 percent and the remaining three markets by 16 percent between 2014 and 2022, compared to a euro-zone increase of only 13 percent. Furthermore at city level, the GDP of the combined Nordic capital cities has been forecast to grow by an average of 23 percent, more than Paris and the German big 7 markets, and the population growth of the combined Nordic capital cities is ahead of all the other capital cities in Western Europe bar London. 18 Nordic City Report Spring 2015