MARKET UPDATE

Labour marketGDP: Mainland Norway vs. Eurozone

Number formatting: SI style (English version)

Latest figures – Norway

Latest transactions

Latest lease contractsSUPPLY* IN OFFICE CLUSTERS IN GREATER-OSLO

Asker

Billingstad

Sandvika

Majorstuen

Nydalen/Sandaker

Økern/Løren/Risløkka

Bryn/HelsfyrCBD

Bjørvika

Kvadraturen

Skøyen

Fornebu

LysakerInner city

0 - 5 %

5 - 10 %

10 - 15 %

> 15 %

*Advertised office space of the total office building mass in greater-Oslo. This includes potential advertised new projects.

Tenant Address Cluster Size (m²)

Statens Legemiddelverk Strømsveien 96 Bryn/Helsfyr ~ 6 500

Bydel St. Hanshaugen Holberg Terrasse Inner City ~ 3 500

Skatt Øst Elias Smiths vei 14-26 Sandvika ~ 3 000

Skala Prosessteknikk Grenseveien 92 Bryn Helsfyr ~ 1 500

Volvat Medisinske senter Stortingsgaten 30 CBD ~ 800

Address/property Buyer SellerPrice

(NOK mill.)

The Fortin fund Starwood Capital Group Fortin ~ 4 600*

Gaustadallèen 21 Arctic Securities DNB Markets ~ 700

Lysaker PolarisStorebrand Eiendomsfond

NCC 785

Sannergata 2 Hemfosa Fastigheter Pareto PF ~ 670

Portfolio deal Hemfosa Fastigheter Entra ~ 1 375

FEBRUARY 2015

• The key policy rate is 1.25 %, and there is aconsiderable probability of a rate cut in thenear-term future.

• According to Statistics Norway (SSB), mainlandGDP growth was 2.6 % in 2014. In tandem withthe anticipated fall in oil investments, economicgrowth for 2015 is revised down from 2.1 % to1 %.

• Inflation is running close to the central bank’starget: In January, the twelve-month growth inthe CPI and the CPI-ATE indices were, 2.0 % and2.4 %, respectively.

• The swap rates have increased somewhat fromhistorically low levels in the past month. The10-year swap rate is currently 1.80 %, while the5-year swap rate is 1.34 %.

• According to SSB, the unemployment rate (LFS)was unchanged at 3.7 % in October. Due to theexpected downturn in the Norwegian economy,the unemployment is expected to increasemoderately in the time ahead, peaking at 4.0 %in 2016.

• In January, the price of brent crude oil dippedbelow the 50-dollar mark. Recently, the pricehas increased moderately, and is currentlyhovering above 55 dollar.

• According to Eiendomsverdi, the twelve-monthgrowth in house prices was 8.5 % in January. InOslo, the increase was 10.2 %.

• In January, the ECB decided to expand itsquantitative easing program to includesovereign bonds. This might affect the supply ofcapital in the Norwegian market.

Source: FINN.no/Malling & Co

Magnus Poulssons vei 7, LysakerMalling & Co Næringsmegling is leasing 9 500 m² on behalf of a syndicate arranged by Pareto.

-6,00%

-4,00%

-2,00%

0,00%

2,00%

4,00%

6,00%

Mainland-Norway Eurozone

Source: Statistics Norway/IMF

-2,0 %

-1,0 %

0,0 %

1,0 %

2,0 %

3,0 %

4,0 %

5,0 %

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

E

20

15

E

20

16

E

20

17

E

Unemployment rate Employtmenth growth

Source: Statistics Norway

*Refers to the estimated property value of the Norwegian share of the portfolio

Commercial Real Estate

Transaction volume (>50 MNOK)Office rents in Oslo (NOK/m²/yr)

Topic of the month:

Eiendomshuset Malling & CoDronning Mauds gate 10, Postboks 1883 Vika, NO-0124 Oslo, NorwayT: +47 24 02 80 00 – F: +47 24 02 80 01 – E: post@malling.no – www.malling.no

Key facts real estate Advertised office volume in Oslo (m²)

0

100 000

200 000

300 000

400 000

500 000

600 000

700 000

800 000

900 000

1 000 000

Q1

20

11

Q2

20

11

Q3

20

11

Q4

20

11

Q1

20

12

Q1

20

12

Q3

20

12

Q4

20

12

Q1

20

13

Q2

20

13

Q3

20

13

Q4

20

13

Q1

20

14

Q2

20

14

Q3

20

14

Q4

20

14

Q1

20

15*

< 5 000 m² > 5 000 m²

Office letting market• The office supply in the defined office clusters

declined from 12.0 % in December to 11.6 % inJanuary. Of this share, approximately 28 % isnew office projects.

• The total volume of signed lease agreements in2014 was 510 000 m². This is down 200 000 m²from 2013, and is the lowest volume inArealstatistikk’s register (which covers the timeperiod from 2008).

• Campus Kristiania is looking for a new location.They demand between 3 500 and 4 000 m²,and wish to relocate in 2015. Synnøve Finden islooking for a logistics property along the mainroad E6. They demand between 2 500 and3 000 m², and wish to relocate before October.

• Bydel St. Hanshaugen has signed a leasecontract in Holberg Terrasse (about 3 500 m²) inthe inner city. The relocation is scheduled tooccur this summer.

• Following Skatt Øst’s contract signing inSandvika, the first construction phase ofSandvika Business Center is initiated. Of the10 000 m² that is constructed in the first phase,Skatt Øst will lease 3 000 m² from November2016.

Transaction market• So far in 2015, we have registered a transaction

volume of approximately 8 billion NOK dividedinto 17 transactions.

• Although conclusions should be drawncautiously at this early stage of the year, itseems as if the trend of increased foreignpresence in the Norwegian market iscontinuing. Hemfosa Fastigheter, a Swedishproperty company, has spent approximately2 billion NOK in the Norwegian market so far.We have, however, registered a somewhatmore cautious approach from some foreigninvestors.

• We estimate the prime yield to be 4.50 %,down 25 basis points since the last update inDecember 2014. Schweigaardsgate 21-23 wasacquired at a yield close to 4.75 % last autumn,and we know of investors who are willing toprice prime properties even sharper.

• Concerning the normal yield, we have adjustedthis down from 6.50 % to 6.25 %. Due to thescarcity of prime properties, we expect thenormal yield to fall further.

• The investment syndicates are as active as thefunding costs are low: Platou Real Estaterecently bought Haslevangen 45/47 on a yieldof 7.5 %.

A reflection on the 2014 commercial real estate market

PER FEB. 2015 PER FEB. 2014

Prime yield* 4.50 % 5.00 %

Normal yield* 6.25 % 6.75 %

5 yr swap rate (per Feb. 10th)**

1.33 % 2.46 %

Average of 15 % highest rents in Oslo*** (Q4)

3 350 NOK/m²/yr. 3 130 NOK/m²/yr.

Office contracts signed(Oslo)*** (Q4)

144 070 m² 213 660 m²

Largest office contract (Oslo)*** (Q4)

10 011 m² 27 180 m²

Avg. contract length (Oslo)*** (Q4)

5.1 yrs. 5.3 yrs.

OFFICE CLUSTERPER FEB. 2015

Prime / normal*PER FEB. 2014

Prime / normal*

CBD (Vika/Aker Brygge/Tjuvholmen)

4800 / 2800-3200 4500 / 2600-3200

Skøyen 3300 / 2100-2400 3000 / 2100-2400

Central Oslo 3500 / 2000-2400 3200 / 2000-2400

Bjørvika 3500 / 2700-3000 3500 / 2700-3000

Lysaker 2350 / 1600-1800 2350 / 1600-1800

Fornebu 2150 / 1500-1700 2100 / 1400-1600

Nydalen/Sandaker 2200 / 1500-1700 2200 / 1500-1700

Økern/Løren/Risløkka 2200 / 1000-1500 1900 / 1400-1600

Bryn/Helsfyr 2200 / 1550-1750 1950 / 1550-1750

Source: Malling & Co

*Source: Malling & Co **Source: Kommunalbanken ***Source: Arealstatistikk Q4 2014

Source: Malling & Co

Source: FINN.no/Malling & Co

*Definitions: Prime rents are consistently achievable headline rental figure that relates to a new, well located, high specification unit of a standard size commensurate demand within the predefined market area. The prime rent reflects the tone of the market at the top end, even if no new leases have been signed within the reporting period. One-off deals that do not represent the market are discarded. Normal rents should reflect the interval where most contracts are signed in the specified market area.

*Per January 15th 2015

Definition: Normal yield is defined as the net yield of a well maintained building situated in the fringezone with strong tenants on a 5 – 8 year’s contract.

“In order to understand the future, we need to understand the past” a saying goes. We have thereforedevoted this “topic of the month” to a summary of the past year.

2014 was characterized by an active transaction market. Basically all the “usual suspects” were present inthe market: Property companies, investment syndicates, funds as well as life and pension funds allcontributed to an eight-year high transaction volume of 57 billion NOK. The office segment was – asalways – the most attractive segment to invest in while logistics properties experienced the surge inattractiveness seen in Europe over the last few years. 2014 also marked the year the foreign investors’entry: Their share of the buyers side in the transaction market is now greater than one fourth. It seemsreasonable to assume that the foreign investors will manifest their position in the Norwegian marketfurther in the coming time, now that they have overcome the obstacles the lack of knowledge about themarket represents. This reasoning is supported by the participants at the Nordic Meeting hosted byMalling & Co in the early days of February. Here, the main message was that foreign investors are eagerto increase their presence in the Norwegian market. In addition to the already established foreigninvestors, some new faces were present at the conference, representing this steadily increasing interestfor Norwegian commercial real estate. In sum, it seems “everybody” wants commercial real estate.

However, some challenges are present in the transaction market. First, the supply of prime properties isfairly low, which might result in more deals being conducted off the market. Second, the worsenedeconomic outlook has taken its toll on the optimism in the market. In particular, the rental market, whichwas anticipated to be weak last year, seems to be more fragile now.

As mentioned, the activity in the rental market was low last year. This was anticipated due to the expirystructure of the existing lease contracts. The unanticipated factor was the declining oil prices, which ledto a significant number of tenants subletting (parts of) their locations. This will probably affect rents inthe coming time, but so far we have not seen the full effect. We should bear in mind that prices haveincreased rapidly over the last few years: From 2010, rental prices in real terms have increased by about20 % in Oslo’s office market. Furthermore, the supply in the Oslo region has increased, but onlymoderately. This, accompanied by low construction activity in 2016 and 2017, might result in anotherperiod of growth in rental rates.

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10

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30

40

50

60

70

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Registered Estimate

Bill

ion

NO

K