Market report summer 2016 lr 7 juni

www.malling.no

MARKET REPORT SUMMER / FALL 2016

PAGE 2 MARKET REPORT WINTER 2015 / 2016 / MACRO

peter t. malling sr.chairman — eiendomshuset malling & co

PAGE 2 MARKET REPORT SUMMER / FALL 2016 / INTRODUCTION

BACK TO BASICS

The media has featured several bright minds predicting a downturn in office rents, with individuals pointing out that the trend in office rents is strongly correlated with growth in the Norwegian economy. Although data series show

that there is a correlation here, there are some variations that we would like to point out, especially in Oslo. While the housing market is booming (at least in Oslo for the time being), the office market is slightly more moderate. Recent

rental statistics show that rents are flattening out in most areas of the capital. This is happening after growth in some areas, and decline in other areas that are more exposed to the Oil & Gas sector.

However, it is important to remember that Oslo is one of the fastest growing cities in Europe. This creates structural changes in the market, which is positive for the majority of office buildings located near public transport hubs.

Although headlines about major new leases have been few and far between, space in the market is slowly but steadily being absorbed by small and medium enterprises. In addition, office space is being converted for other uses, and for

residential purposes in particular. This neutralises the new-build effect on the office market to a significant extent and keeps supply in check – at least for the foreseeable future. This is contrary to many other “macro-level” predictions of

significant rent decreases following the drop in the oil price and a weakened economic environment.

That being said, it is not necessarily easy to be a property owner with empty office space. There is still some availability in the market to compete against – not to mention a number of new projects that will be ready for

construction as soon as large anchor tenants are secured. In order to be competitive, many property owners have to invest substantial amounts in meeting tenants’ customisation requirements. In line with a general cost-cutting mentality in several industries, tenants have also become more aware of how they use their space. If every person

saves just a few square metres each, this may constitute a significant reduction in space absorption.

Although our main scenario for future office rental rates is relatively flat for the coming year, there are still effects that could have consequences. A further decline in the Norwegian economy beyond what is expected, combined with any

fall in house prices, may reduce many of the positive effects and amplify the negative. On the other hand, a scenario in which employment suddenly increases sharply will be challenging to resolve in the short term in many areas. In such a scenario, it is difficult to envisage anything other than rental growth for the key areas of the city where the vacancy

rate is around 6 %. In the meantime, however, most property owners remain satisfied, and perhaps even a little surprised, that the development in rental prices is flat.

All of this is of course also positive for the transaction market, as assets maintain their value when there is balance and a positive outlook in the rental market.

We hope you enjoy our latest market report. Remember that Malling & Co is here to support you in all your needs in dealing with commercial real estate, including transaction support, tenant representation, development, energy and

environment services, research services, rental services, valuations and asset management.

We are settling in after a fantastic 2015 in the transaction market, and it was a good year for the rental

market as well. But with a challenging macro-economic environment and increasing unemployment rates in 2016,

one would think it’s all doom and gloom across Norway – but is it really?

—

CONTENTSIntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Macro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Oslo office market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Stavanger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Drammen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Industrial & Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 The transaction market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38Guest column – Thomas Eitzen on bank lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40About Malling & Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

EDITING COMPLETED May 23rd 2016DESIGN OG LAYOUT Børresen & Co

CONTENTS / MARKET REPORT SUMMER / FALL 2016 PAGE 3

› Statistics Norway (SSB) estimates that the mainland GDP growth will be 1.4 % in 2016, 2.3 % in 2017 and 2.4 % in 2018 and 2019. These figures are higher than consensus forecasts, but the Central Bank forecast (from the SAM model) predicts a gradual increase throughout 2016 and a fourth quarter growth over four quarters of 1.6 % for mainland GDP by the end of 2016. The estimates were adjusted up from those given in the Monetary Policy Report (Norwegian Central Bank) issued in March.

› The proposed revised national budget revealed on 11 May showed that the government is increasing the use of returns from the Oil Fund by NOK 10.4 billion this year in order to stimulate the economy. The overall size of the budget stimuli is estimated to comprise 7.5 % of GDP in 2016, with the delta from last year’s spending amounting to 1.1 % of GDP. This reflects the stability mechanism in the Norwegian fiscal policy, and the willingness to utilise the emergency kit when necessary.

› Since our last report in late November 2015, the Brent crude oil price fell from around 50 USD/barrel at the beginning of November to just below 30 USD/barrel in mid-January, and is now back up to just below 50 USD/barrel. Future contracts are hovering at just above 50 USD/barrel throughout most of 2016. The market is pricing Brent crude delivery in 2017 and 2018 at around 52 and 54 USD/barrel respectively.

› Oil-related investments peaked in 2013, and have declined continuously since the fourth quarter of 2013. This trend is expected to continue, but the decline is expected to flatten out towards 2018. Estimates for decreases in oil investments are 13.5 % in 2016, and 3.7 % in 2017 (SSB March 2016).

› According to the Norwegian Welfare Administration (NAV) Business Survey from spring 2016, only two of Norway’s 19 counties report a negative outlook. Akershus and Oslo have the most positive enterprises, with net employment outlooks of 19 % and 16 % respectively. The overall result is two percentage points better than last year, with an overall positive employment outlook of 10 % (companies increasing employment minus companies downsizing).

MACRO – NORWAYOIL FUND EMERGENCY KIT ENABLES EXPANSIONARY FISCAL POLICY

MAIN FIGURES (ANNUAL PERCENTAGE GROWTH UNLESS OTHERWISE NOTED) 2015 2016E 2017E 2018E 2019E

Consumption in households etc . 2 .0 1 .2 2 .8 2 .9 2 .7

General government consumption 1 .8 2 .7 2 .1 2 .1 2 .1

Gross fixed investment -4 .0 -1 .0 2 .5 2 .6 3 .5

– Extraction and transport via pipelines -14 .7 -13 .5 -3 .7 1 .8 3 .2

– Gross investments mainland Norway 0 .2 3 .2 4 .4 2 .5 3 .2

Exports 2 .3 1 .8 1 .4 1 .8 1 .8

– Crude oil and natural gas 0 .9 0 .8 0 .1 0 .1 0 .1

– Traditional goods 5 .5 2 .8 3 .2 3 .7 3 .4

Imports 0 .6 1 .6 2 .8 3 .3 3 .6

GDP (Total) 1 .6 1 .1 1 .9 1 .9 2 .0

Unemployment rate (level) 4 .4 4 .7 4 .5 4 .3 4 .1

Employed persons 0 .6 0 .2 1 .4 1 .5 1 .3

CPI - yearly growth 2 .1 2 .4 2 .0 2 .1 1 .9

Core inflation (CPI-ATE) 2 .7 2 .5 1 .8 1 .7 1 .6

Yearly salary incl . pension cost - yearly growth 2 .8 2 .5 2 .4 2 .7 3 .1

Real after-tax lending rate . banks (level) 0 .1 -0 .6 -0 .4 -0 .3 0 .2

NOK per Euro (level) 9 .0 9 .3 9 .2 9 .1 9 .0

Current balance (Bn . NOK .) 282 .6 146 .9 153 .9 179 .6 179

Current balance (in % of GDP) 9 .0 4 .7 4 .7 5 .2 5 .0

Since the summer of 2014, Norway has experienced a slowdown in the economy caused by the significant drop in the oil price. The mainland GDP

growth was 1.0 % for 2015 – the lowest level since the financial crisis of 2009. During late 2015 the growth was almost zero, but has since increased

somewhat, to an estimated 0.3 % in the first quarter of 2016. Despite the fact that Norway as a whole is experiencing weak or no growth, different

sectors and regions are developing quite differently. This polarisation is also apparent when comparing the CRE sector in different regions.

—

Source: Statistics Norw

ay (March 2016)

2000 Unemployment rate (L .axsis) Employed work force seasonally adjusted (R .axsis)

Labour force seasonally adjusted (in 1 000 people) (R .axsis)

MAINLAND GDP GROWTH NORWAY


ay (March 2016)

7 .0 % 5 .5 %

4 .5 %

4 .0 %

3 .5 %

3 .0 %

2 .5 %

2 .0 %

1 .5 %

2 900

2 700

2 600

2 800

2 500

2 400

2 300

6 .0 %

5 .0 %

4 .0 %

3 .0 %

2 .0 %

1 .0 %

0 .0 %

-1 .0 %

-2 .0 %

THE LABOUR MARKET PAST 5 YEARS

Feb .

11

Feb .

12

Feb .

13

Feb .

14

Feb .

15

Jun .

11

Jun .

12

Jun .

13

Jun .

14

Jun .

15

Oct

. 11

Oct

. 12

Oct

. 13

Oct

. 14

Oct

. 15

Feb .

16


ay

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

E

2017

E

2018

E

2019

E

1 .40

% 2 .30

%

2 .40

%

2 .40

%

PAGE 4 MARKET REPORT SUMMER / FALL 2016 / MACRO

Sum Nibor + DNB 5Y 3 month Nibor Key policy rate

› The April 12-month CPI and CPI-ATE were 3.2 % and 3.3 % respectively – higher than the inflation target. The CPI-ATE is now expected to reach the 2.5 % target by the first quarter of 2017, and continue its decrease below target in 2018 and 2019.

› The Norwegian Central Bank cut the key policy rate to 0.50 % in March due to a weaker growth outlook and inflation expected to reduce towards the long term target of 2.5 % in 2017. The Norwegian Central Bank projections for the key policy rate show expectations of a further decrease during 2016, and the possibility for negative interest rates if necessary. Regarding the latter, the Norwegian Central Bank has expressed a desire to move cautiously in negative interest rate territory. Considerations of financial stability may influence the setting of the interest rate at slightly higher levels than inflation and the output gap alone would suggest.

› The correlation between the oil price and the Norwegian krone is high, and as the oil price has climbed to just below the USD 50 mark, the krone has appreciated accordingly; around 4 % against the Euro and around 8 % against the US dollar. Several analysts believe the krone will continue to appreciate in line with the increase in the oil price, despite the fact that further key policy rate cuts are expected during the autumn. As at COB on 23 May, the EUR traded at NOK 9.36, USD at NOK 8.35 and GBP at NOK 12.09.

› Although the unemployment rate (Labour Force Survey, LFS) has increased by almost 1.5 percentage points over the past two years, the trend seems to be flattening out. In addition, there are significant differences in the unemployment figures for the various regions. While employment is still rising and keeping unemployment stable / slightly down in Oslo and Akershus, western and southern Norway are experiencing an increasing unemployment rate in line with downsizing in the Oil & Gas sector. However, unemployment overall seems to have stabilised at just below 5 % (LFS), and is expected to decrease in the coming years.

› According to SSB’s prognosis, wage growth is expected to end at 2.5 % in 2016, just above the CPI forecast, resulting in almost zero real wage growth. Wage growth is also expected to be moderate in 2017, and to gradually increase to just above 3 % in 2019. Moderate wage growth is important in order to maintain and increase Norwegian competitiveness. Reduced employment growth and low real wage growth will reduce household consumption growth to 1.2 % for 2016.

› A weaker Norwegian krone and expansionary fiscal policy are creating higher demand in some sectors and regions. While the southern and western areas of the country are struggling, traditional industry and export are faring better. Fishing is doing particularly well, and currently enjoying 43 % higher prices for fresh salmon compared to last year, and a value increase of 37.3 % in export compared to April of last year.

› The Oslo Stock Exchange Broad Index (OSEBX) opened the year 15 % down in January. At present (as at 23 May), the OSEBX is back at just above 600 points, where it started in the beginning of January.

› Interest rate swaps have shown a downward trend throughout the first quarter. The 10 year swap hit a low of 1.39 % at the start of April, and is currently (as at 23 May) at 1.68 %.

› While residential prices are decreasing in Stavanger, Oslo prices continue to rise. The lack of sufficient supply to meet the demands of an increasing population is putting pressure on the market in the capital. April figures presented by Eiendomsverdi showed a 12-month increase of 10.5 % in Oslo and a 12-month decrease of 7.2 % in Stavanger, while prices rose 5.8 % on average for Norway as a whole. The huge regional differences in the residential market are an important indicator of how much better Oslo is doing compared to other parts of the country.

THE MONEY MARKET

Source: DN

B Markets

6 .0 %

5 .0 %

4 .0 %

3 .0 %

2 .0 %

1 .0 %

0 .0 %

May

12

May

11

May

13

May

14

May

15

May

16

CPI CPI-ATE Inflation target

INFLATION (12-MONTH)


ay

Jan .

10

Jan .

12

Jan .

14

Jan .

11

Jan .

13

Jan .

15

Jan .

16

Jul .

10

Jul .

12

Jul .

14

Jul .

11

Jul .

13

Jul .

15

Apr

. 10

Apr

. 12

Apr

. 14

Apr

. 11

Apr

. 13

Apr

. 15

Apr

. 16

Oct

. 10

Oct

. 12

Oct

. 14

Oct

. 11

Oct

. 13

Oct

. 15

4 .0 %

3 .5 %

3 .0 %

2 .5 %

2 .0 %

1 .5 %

0 .5 %

0 .0 %

1 .0 %

Residential Other buildings Construction other


ay

250 250

200 200

150 150

100 100

50 50

0 0

Q1 1

992

Q1 2

005

Q1 1

993

Q3

2005

Q1 1

994

Q1 2

006

Q1 1

995

Q3

2006

Q1 1

996

Q1 2

007

Q1 1

997

Q3

2007

Q1 1

998

Q1 2

008

Q1 1

999

Q3

2008

Q1 2

000

Q1 2

009

Q1 2

001

Q3

2009

Q1 2

002

Q1 2

010

Q1 2

003

Q3

2010

Q1 2

004

Q1 2

011

Q1 2

005

Q3

2011

Q1 2

006

Q1 2

012

Q1 2

007

Q3

2012

Q1 2

008

Q1 2

013

Q1 2

009

Q3

2013

Q1 2

010

Q1 2

014

Q1 2

011

Q3

2014

Q1 2

012

Q1 2

015

Q1 2

013

Q3

2015

Q1 2

014

Q1 2

016

Q1 2

015

Q1 2

016


ay

House price index (2005=100) House price index Oslo and Bærum (2005=100)

HOUSE PRICE INDEX (2005 = 100) CONSTRUCTION NEW ORDERS (2010 = 100)

MACRO / MARKET REPORT SUMMER / FALL 2016 PAGE 5

Source: IMF W

orld Economic O

utlook (April 2016)

ANNUAL GDP GROWTH (PERCENT)

2015 2016E 2017E 2018E 2019E 2020E

Global 3 .1 3 .2 3 .5 3 .6 3 .8 3 .8

The US 2 .4 2 .4 2 .5 2 .4 2 .1 2 .0

EU 28 2 .0 1 .8 2 .0 1 .9 1 .9 1 .8

The Eurozone 1 .6 1 .5 1 .6 1 .6 1 .6 1 .5

Advanced economies 1 .9 1 .9 2 .0 2 .0 1 .9 1 .9

Emerging and developing Europe 3 .5 3 .5 3 .3 3 .3 3 .3 3 .4

Germany 1 .5 1 .5 1 .6 1 .4 1 .3 1 .3

France 1 .1 1 .1 1 .3 1 .5 1 .7 1 .8

The UK 2 .3 1 .9 2 .2 2 .2 2 .1 2 .1

Sweden 4 .1 3 .7 2 .8 2 .5 2 .3 2 .2

Denmark 1 .2 1 .6 1 .8 2 .0 2 .1 2 .1

Italy 0 .8 1 .0 1 .2 1 .0 1 .1 0 .9

Japan 0 .5 0 .5 -0 .1 0 .4 0 .7 0 .7

China 6 .9 6 .5 6 .2 6 .0 6 .0 6 .0

Russia -3 .8 -1 .9 0 .8 1 .0 1 .5 1 .5

Middle East and North Africa 2 .3 2 .9 3 .3 3 .4 3 .6 3 .7

› The Swedish Central Bank has reduced the key policy rate further into negative territory at -0.50 %, while giving notice of even further increases in the quantitative easing program, which will total SEK 200 billion by the end of H1 2016, and is expected to reach SEK 245 billion by the end of the year. The loose monetary policy is a direct effect of the international environment in which the Swedish economy competes, since GDP growth in 2015 was 4.1 %, and forecasted at 3.7 % in 2016, and such a strong stimulus would not traditionally be seen in a mature economy experiencing such healthy growth figures. The long-term forecast for the key policy rate is expected to reach 0.7 % in mid-2019, which historically speaking is still very low.

› The Eurozone recovery is limping along, but the ECB is utilising or signalling the use of all available resources in the tool kit. At its March 2016 meeting the ECB cut the rates, increased the quantitative easing program by EUR 20 billion to EUR 80 billion per month, expanded into what is known as the Corporate Sector Purchase Programme, and launched four new targeted liquidity loan structures. At the meeting, it was also signalled that the rates will be kept at current levels or lower for an extended period of time. GDP growth in the Eurozone is predicted to be 1.5 % in 2016 and 1.6 % in 2017.

› The UK economy is faring far better than most other countries, but is now facing a very possible exit from the European Union, nicknamed Brexit. As the British go to the polls on June 23, they will have the whole of Europe – and the world – on the edge of their seats. There is a widespread fear that, in the event of an exit, the British economy will suffer, and that the entire European Union will crumble under the pressure of such a devastating blow from such a large and important member.

› The US economy is flexing its muscles in an otherwise bleak economic environment among its peers. Over the past six months, the unemployment rate has been stable at around 5 %, and a further reduction towards 4 % unemployment over the coming years is not unlikely as productivity growth has been very low since the financial crisis. In December 2015 the FED finally raised interest rates to 0.25-0.50 % after seven years of a zero rate policy. However, the expected increases after this have been pushed back, and now the consensus is an expected increase of 25 basis points in July 2016, possibly June if the numbers come in on the positive side, with another four increases in 2017. Real GDP growth is predicted to be 2.3 % in 2016, and 2.4 % in 2017.

› China is a very important player in the global economy, and the slowdown in recent years has yet again sparked a debate over the robustness of the Chinese growth case. The potential bubbles in the housing market, stock market and credit markets, while being dependent on a transition to a more service-oriented and domestic consumption-reliant economy, are weighing down the majority of the global economy. The forecast for GDP growth in 2016 is set at 6.5 % by the IMF, and is in line with the forecast of the Chinese government. The IMF predicts 6.2 % for 2017, and 6.0 % for the following four years.

MACRO – GLOBALTOO SLOW FOR TOO LONG

The slow and fragile economic recovery is continuing in most of the world. According to the IMF, the baseline projection for global growth in 2016 is

a modest 3.2 %, broadly in line with last year, and a 0.2 percentage point downward revision relative to the IMF World Economic Outlook Update in

January. The recovery is projected to strengthen in 2017 and beyond, driven primarily by emerging markets and developing economies, as conditions in

stressed economies gradually start to normalise. However, uncertainty has increased, and risks of weaker growth scenarios are becoming more tangible.

—

Source: Eurostat (March 2016)

UNEMPLOYMENT RATE IN SELECTED COUNTRIES/AREAS

0 %

5 %

10 %

15 %

20 %

25 %

30 %

Icel

and

Japa

n

Ger

man

y

Nor

way

The

US

The

UK

Den

mar

k

Swed

en

Irela

nd

EU 2

8

Finl

and

Fran

ce

Euro

zone

Italy

Port

ugal

Spai

n

Gre

ece

PAGE 6 MARKET REPORT SUMMER / FALL 2016 / MACRO

FORNEBUPORTEN, FORNEBU

Malling & Co Forvaltning is responsible for the financial management of 67 000 m2 office space.

MACRO / MARKET REPORT SUMMER / FALL 2016 PAGE 7

2015 2016

*Net employment outlook is derived by taking the percentage of employers anticipating an increase in hiring activity and subtracting from this the percentage of employers expecting to see a decrease in employment at their location in the next 12 months .

Top 4 All Bottom 4*Norwegian Labour and Welfare Administration, Business Survey 2016

Increasing unemployment at country levelComparing April figures from 2015 with those from 2016 reveals that registered unemployment has increased from 2.9 % to 3.1 %. This increase amounts to 5 835 persons, where Rogaland and Hordaland stand for 103 % of this increase, meaning that the net effect in other regions is actually negative. Oslo has decreased from 3.6 % last year to 3.4 % this year, despite the fact that Oslo has been hit quite hard by downsizing in the Oil & Gas industry in absolute numbers. Looking at Statistics Norway LFS estimates, the increase in unemployed persons amounted to approx. 130 000 persons in February – 17 000 more than one year ago. By comparison, according to the latest reports from Statistics Norway, around 25 000 persons have lost their jobs in the Oil & Gas industry between 2013 and 2015.

EMPLOYMENT AND DEMAND FOR OFFICE SPACEEMPLOYMENT MARKET IN OSLO STILL GOING STRONG

As we reported in our winter report, the employment market has been affected by the economic downturn in Norway following the

significant drop in the oil price in the summer of 2014. Since November, the unemployment rate seems to have stabilised and is

currently at 4.6 % (Labour Force Survey, LFS), and the employment market in Oslo seems to be even better than it was one year ago.

Forward-looking surveys also seem slightly more positive compared to the situation a year ago – at least for Oslo.

—

NET EMPLOYMENT OUTLOOK* – DEVELOPMENT OVER TIME (SEASONALLY ADJ.)

Source: Manpow

er Employm

ent Outlook Survey (Q2 2016)

0 %2 %4 %6 %

8 %10 %12 %14 %

16 %

Q2

2010

Q3

2010

Q4

2010

Q1 2

011

Q2

2011

Q3

2011

Q4

2011

Q1 2

012

Q2

2012

Q3

2012

Q4

2012

Q1 2

013

Q2

2013

Q3

2013

Q4

2013

Q1 2

014

Q2

2014

Q3

2014

Q4

2014

Q1 2

015

Q2

2015

Q3

2015

Q4

2015

Q1 2

016

NET EMPLOYMENT OUTLOOK NEXT 12 MONTHS, NAV*

Source: NAV Business Survey 2016 (M

ay 2016)

UNEMPLOYMENT AND EMPLOYMENT IN NORWAY


ay (March 2016)

Unemployment rate Expected unemployment rate Employment growth Expected employment growth

- 1.0 %

- 2.0 %

0.0 %

1.0 %

2.0 %

3.0 %

4.0 %

5.0 %

25 %20 %15 %10 %5 %0 %

0 % 5 % 10 % 15 % 20 %-5 %-10 %

-5 %-10 %-15 %

NET EMPLOYMENT OUTLOOK* – REGIONAL COMPARISONS (SEASONALLY ADJ.)

Source: NAV Business Survey 2016 (M

ay 2016)

Public administration

Transport and storage

Accomodation and food service

Construction

Information and communication

Education

Mining & Quarrying

Total

2003

2004

2005

2006

2007

2010

2011

2012

2013

2014

2015

2016

E

2017

E

2018

E

2019

E

2009

2008

OSLO OFFICE MARKET

Q2

2016

Akershus

Oslo

Nord-Trøndelag

Sør-Trøndelag

Hedmark

Telemark

Vestfold

Østfold

Buskerud

Finnmark

Aust-Agder

Troms

Nordland

Oppland

Vest-Agder

Hordaland

Møre og Romsdal

Sogn og Fjordane

Rogaland

Total

Real estate, professional, adm . support

PAGE 8 MARKET REPORT SUMMER / FALL 2016 / OSLO OFFICE MARKET

Employment outlook stabilising and turning positive for most regionsIn previous reports we have used figures from the Manpower Employment Outlook Survey (MEOS), which identifies net expected staffing for the next quarter (see definition at the bottom of the page). NAV* also issues a similar report, but with a 12-month perspective, and in this report we have used NAV’s latest Business Survey issued in May, together with the MEOS study from Manpower issued in March. The MEOS Q4 2015 report for Norway, issued on 9 September, showed the weakest outlook since Q4 2009, with a seasonally-adjusted Net Employment Outlook (NEO) of 3 %. However, the results now seem to have stabilised, and looking at the newer NAV study, the situation is better now than in the spring of 2015 for 14 of Norway’s 19 counties. According to the NAV study, Rogaland is the only county with negative net employment outlook of -5 %. In terms of size, the MEOS study reveals the highest net employment outlook for small (< 10 employees) and medium-sized (50-249 employees) enterprises.

Positive indicators for OsloSeveral factors support a positive outlook for the Greater Oslo region. Oslo and Akershus are the best regions in the NAV report, with a net employment outlook of 19 % and 16 %, respectively. Increasing employment figures from Statistics Norway’s Labour Force Survey, low and slightly decreasing registered unemployment from NAV and strong population growth are all positive factors for commercial real estate. Surprisingly, and in comparison, the MEOS report shows a net employment outlook of only 4 % for Greater Oslo, but this is probably explained by the sample, the differences in outlook timing, and when the survey was conducted. A closer look at the figures from NAV reveals that there has been an increase in vacant positions of 16 % in Oslo and Akershus. As pointed out in the previous report, it seems that the negative effects of the Oil & Gas sector are limited, and that Oslo has a more diversified portfolio of business sectors that makes Oslo more capable of absorbing a downturn in one sector.

*Norwegian Labour and Welfare Administration

FYRSTIKKALLÉEN 1-3, HELSFYR

Malling & Co Næringsmegling has been commissioned to lease approximately 31 000 m2 of office space.

Illustration: Kristin Jarmund Arkitekter AS

OSLO OFFICE MARKET / MARKET REPORT SUMMER / FALL 2016 PAGE 9

KJØLBERGGATA 31, TØYEN

Malling & Co Corporate Real Estate is mandated to sell 6 200 m2 of office and retail space.


Office searches are increasing and average size is upFrom the beginning of January to 23 May, almost 50 searches for a total of around 122 000 m2 were registered in our database. Volumes have more than doubled compared to the same period last year, and we have to go back to 2010 to find a larger average size per search. Last year, the average search was for approx. 1 800 m2, and so far in 2016 the average registered search is for 2 600 m2. The trend is exactly as anticipated, as more large tenants will move or at least probe the market as their lease contracts are due to expire in the coming years.

Office clusters are winnersIn our reading and mapping of all office search enquiries, it is obvious that proximity to public transport and the city centre are key factors in attracting tenants, including the larger ones. One of the largest searches was undertaken on behalf of IBM, who are currently located at Rosenholm Campus in south-east Oslo. The company are now searching for new premises in office clusters from Bjørvika to Sandvika, close to public transport.

Central location and public transport stand out as key factorsMost office searches mention proximity to public transport as being crucial. In terms of location, the trend towards the city centre is continuing, and so far in 2016 almost 90 % of searches have mentioned the city centre as a relevant location. The eastern fringe zone seems to be in fairly stable demand, and the western fringe clusters, and Fornebu in particular, are still struggling to attract the large majority of tenants. Further progress on the new metro line, and the new municipal agency established solely for this purpose, will be an important factor in Fornebu hopefully attracting more tenants.

TENANT REPRESENTATIONSEARCHES FOR OFFICE SPACE WITH ESTATE AGENTS

Currently aiming at 2017 and 2018, 2019 and 2020 to comeIn 2016 so far, 52 % of demand is concentrated towards 2017 or 2018. As we know of several tenants that are expected to start their searches soon, volumes are still expected to be good. That being said, competition is still fierce, and tenants still have several projects to choose from within the established office clusters. Landlords should therefore prepare their projects and examine which factors will be important in ensuring they can beat the competition in the final round. In the final phase of preparing this report, Statsbygg announced Monday 23 May a search for 25 000 – 35 000 m2 office space on behalf of the Directorate for Labour and Social Affairs (Arbeids- og velferdsdirektoratet) with a timeline between 2018 and 2020. Statsbygg will publish more large searches this year.

About the analysis and databaseTenant representation agents map tenants’ requirements regarding location and facilities, and manage the actual search for new commercial space. This applies to office space, combined premises, and retail and warehousing/logistics premises. Larger tenants are more likely to use tenant representation agents, but many small and medium-sized enterprises also obtain assistance during their relocation processes. We register and systematise all market searches covering the Greater Oslo area. This makes it possible to analyse one of the main sources of demand in the market. Our figures show that rental searches account for between 15 % and 50 % of the total annual volume (measured in square metres) of signed office lease agreements. Our analysis of market searches goes back to 2009 and includes almost 1 000 searches to date, two thirds of which are pure office market searches. This enables us to study the demand side trends in detail and to help our clients to offer and invest in the right project for the end user.

0–2 000 m2 ‹ 2 000–5 000 m2 > 5 000 m2

Source: Malling &

Co

OFFICE MARKET SEARCH DATA 2009–2016* (M2)

<1000 1 000–2 499 2 500–4 999 > 5 000

350 000

300 000

250 000

200 000

150 000

100 000

50 000

02009 2010 2011 2012 2013 2014 2016*2015

Source: Malling &

Co

30 %

35 %

40 %

45 %

25 %

20 %

15 %

10 %

5 %

0 %4 years after3 years after2 years afterThe year afterSame year

*As at 23 May 2016 *As at 23 May 2016

DISTRIBUTION OF TIME BETWEEN PUBLICATION OF MARKET SEARCHAND DESIRED LEASE STARTUP 2015–2016*


Completed/confirmed Estimate

INNER CITY

OSLO EAST

OSLO OUTER EAST

OSLO OUTER SOUTH

OSLO OUTER WEST

BÆRUM

ASKER

The construction volumes for 2016 and 2017 remain almost unchanged from the level reported in our last market report six months ago.

The most important reason for this is that few large tenants are moving in this period. Large companies are usually desirable as anchor tenants

to fill up new projects, and these have, until recently, been harder to attract. The low level of construction activity now appears to be turning

around, since several major tenants have contracts expiring from 2018.

Source: Malling &

Co/Norsk Eiendom

sinformasjon/N

ordecaSource: M

alling & Co

COMPLETION OF NEW OFFICE BUILDINGS IN GREATER OSLO (IN M²)

COMPLETION OF NEW OFFICE BUILDINGS THAT WILL BE FINALIZED 2016-2018

350 000

300 000

250 000

200 000

150 000

100 000

50 000

0

1996

1997

1998

1999

20002001

20022003

20042005

20062007

20082009

2010 20112012

20132014

20152016

20172018

15 000 m2

The size of the bubble represents the volume of new office buildings in each office cluster .

2016 2017 2018

Signed contract

Vacant

CONSTRUCTION ACTIVITY IN GREATER OSLOCONSRUCTION EXPECTED TO INCREASE IN 2018 AND 2019

Annual average 1996-2016

2019


Another possible explanation for the low level of construction activity is the past years weak economic outlook affecting the labour market and tenants’ incentives to start a costly moving process. The Norwegian economy has been experiencing weak growth since the summer of 2014. Oil prices have plummeted and oil investments have dropped sharply. As pointed out in the Macro section of this report, Oslo seems to be more mildly affected and things seem to look brighter in this area. This may also affect the desire for new projects and initiate additional construction in the times ahead.

The volumes that will complete in 2016 and 2017 constitute only half of the average for the past 20 years, but we expect the volumes to increase for 2018 and 2019. Approximately one third of the volume of 200 000 m2 currently under construction is vacant. The only two office buildings we are certain will be completed in 2018 are “Lamell B” in Hasle Linje and “Diagonale” in Bjørvika.

Almost without exception, the projects currently in pipeline are all within the office clusters. Most of the projected office buildings are in developing areas in the eastern fringe zones, especially Økern/Løren/Risløkka and Bryn/Helsfyr. A handful of projects are under construction, while 136 000 m2 of planned additional office space is waiting for tenants, and another 265 000 m2 is planned a little further into the future. Nearly 560 000 m2 in the eastern fringe zone has not completed the zoning process.

The largest area with development potential in the western axis of Greater Oslo is Fornebu, with several plots and old buildings to be replaced.

Aker Solutions will move 1 400 employees from Snarøyveien 36 at Fornebu into the new Fornebuporten building (Widerøeveien 5) in June 2016. Vacancies are increasing in office areas in the western fringe, especially at Lysaker and Fornebu, due to several tenants sub-letting parts of their space due to workforce reductions in the Oil & Gas sector. This is forcing many new projects to be put on hold. In Asker, Ferd Eiendom has initiated the construction of “Asker Tek”, after Indra Navia signed a lease agreement for 6 600 m2 of the office building’s total of 14 500 m2.

In the city centre, the inner city and Bjørvika are the largest developing areas. Skanska and Manpower will move into “Sundtkvartalet” at the start of 2017, while TV2 will move into “Diagonale” at the start of 2018. In CBD, both Cort Adelers gate 33 and Dronning Mauds gate 11 are under total refurbishment and expansion, where the law firms Steenstrup Stordrange and Wikborg Rein will move into their respective buildings in the summer of 2017. Storebrand is still waiting for clarification on their new project in Ruseløkkveien 26 (whether this will be a refurbishment or new build).

Only a very few office projects currently in pipeline are being built on speculation. Although this is not particularly common, there are fewer associated risks in the city centre. However, financing is difficult to obtain for projects without a certain level of cash flow. The pipeline projects being built on speculation are of a smaller size, which means that they can focus on smaller tenants that are easier to find. Dronning Eufemias gate 42 and Dronning Eufemias gate 6B, both located in Bjørvika, are under construction with no signed lease agreements at the time of writing. “Youngskvartalet”, another centrally-located office expansion, is being constructed on speculation.

Under construction Waiting for tenants Proposed Zoning not completed

NEW OFFICE CONSTRUCTION VOLUME AND PROJECT STATUS IN DIFFERENT CLUSTERS (M2)

Source: Malling &

Co

Vika/Aker Brygge/Tjuvholmen (CBD)

Kvadraturen

Billingstad

Outer city west

Majorstuen

Oslo centre

Sandvika

Lysaker

Oslo outer south

Nydalen/Sandaker

Oslo outer west

Skøyen

Asker

Bjørvika

Fornebu

Oslo outer east

Inner city

Bryn/Helsfyr

Økern/Løren/Risløkka

0 100 000 200 000 300 000 400 000

Zoning is not completed for almost

400 000 m²


ØKERN PORTAL

Malling & Co Næringsmegling has been commissioned to lease approximately 45 000 m2 of office space.

Illustration: Luxigon



ØKERNVEIEN 9, TØYEN

Malling & Co Corporate Real Estate advised in the transaction of 14 500 m2.


SUPPLY IN THE RENTAL MARKETLIMITED SUPPLY IN CITY CENTRE, DEVELOPERS DESPERATE FOR ANCHOR TENANTS IN EASTERN FRINGE

Number of m2 offered within 12 months Number of m2 offered beyond 12 months Supply central (incl . Skøyen) Supply fringe zone east Supply fringe zone west

Below 1 000 m2 1 000–5 000 m2 5 000–10 000 m2 Larger than 10 000 m2 Central Fringe zone east Fringe zone west

SUPPLY IN CENTRAL OSLO, EASTERN AND WESTERN FRINGE ZONE PER 15 MAY 2016

Source: Malling &

Co/FINN

.no

16 %

14 %

12 %

10 %

8 %

6 %

4 %

2 %

0 %

Q1 2

011

Q2

2011

Q3

2011

Q4

2011

Q1 2

012

Q2

2012

Q3

2012

Q4

2012

Q1 2

013

Q2

2013

Q3

2013

Q4

2013

Q1 2

014

Q2

2014

Q3

2014

Q4

2014

Q1 2

015

Q2

2015

Q3

2015

Q4

2015

*

STATUS OF OFFICE SPACE OVER 2 000 M² OFFERED ON FINN.NO, PER 15 MAY 2016OFFICE SPACE FOR RENT IN OSLO (M²) PER SIZE INTERVAL PER 15 MAY 2016

Source: Malling &

Co/FINN

.no

Source: Malling &

Co/FINN

.no

1 000 000900 000800 000700 000600 000500 000400 000300 000200 000100 000

0

50 000

100 000

150 000

200 000

250 000

0

Now

Q1 2

011

Q3

2016

Q4

2016

Q1 2

017

Q2

2017

Q3

2017

Q2

2018

Q4

2017

Q1 2

018

Q3

2018

Q1 2

019

Q4

2018

Pip

elin

e

Q2

2011

Q3

2011

Q4

2011

Q1 2

012

Q2

2012

Q3

2012

Q4

2012

Q1 2

013

Q2

2013

Q3

2013

Q4

2013

Q1 2

014

Q2

2014

Q3

2014

Q4

2014

Q2

2015

Q1 2

015

Q3

2015

Q4

2015

Q1 2

016

Q2

2016

OFFICE SPACE FOR RENT (M²) DIVIDED INTO OFFICE CLUSTERS PER 15 MAY 2016

Source: Malling &

Co/FINN

.no

160 000140 000120 000100 00080 00060 00040 00020 000

0

Økern/

Løren/R

isløkk

a

Inner

city

Bryn/H

elsfyr

Lysa

ker

CBD

Skøye

n

Kvadra

turen

Sandv

ika

Bjørvik

aAske

r

Nydale

n/San

dake

r

Billings

tad

Forne

bu

Majorst

uen

In May, the aggregated supply of office space in Greater Oslo was almost 1.1 million m2, a decrease of 9 % since May 2015. The average space per advert was 1 400 m2, a slight decrease from last year. The number of ads for spaces larger than 5 000 m2 was 38, while 14 premises were larger than 10 000 m2. Almost half of all the premises larger than 2 000 m2 within the office clusters are currently vacant or will become vacant by the end of this year, and 13 % will become vacant during 2017. 36 % of this vacant office space is in the western axis of Greater Oslo. Vacancies in the western axis in November 2015 comprised only 27 % of the total vacant space.

The total supply of office space allocated in our 14 defined office clusters in Greater Oslo was almost 800 000 m2 as at May 2016 – a decrease of 7 % since May 2015. Within a 12 month perspective, the vacant office space was just over 500 000 m2. The aggregated supply rate for office clusters in Greater Oslo is therefore 10.5 %, and the vacancy rate is 7.0 %.

As at May 2016, sub-letting constituted 17 % of the total vacancy in the western fringe zone. Our mapping of tenants shows that one in five tenants are in the Oil & Gas sector, and therefore directly affected by the lower oil

investments. Sub-letting poses a threat to achievable rents, since tenants in general are more inclined to accept lower rents. On the other hand, limited flexibility in lease terms and fit-outs often make sub-letting more difficult and not necessarily of interest to all tenants. We expect sub-letting to continue to be a significant part of the supply in the western office clusters, and a few more projects are expected to hit the market soon. Aker Solutions will move from Snarøyveien 36 to Fornebuporten this summer, vacating 36 000 m2. If all this space is offered on the market, vacancy at Fornebu will then increase by 6 percentage points.

How we measure supply We split total supply in two; supply and vacancy. Supply includes all projects regardless of delivery date, and vacancy comprises all projects available within 12 months, excluding unbuilt projects. In more detail, we define supply as all office space that is available in the market, including existing buildings and new constructions. Projects offered in specific processes to tenants looking for space, but which are not available on the online marketplace FINN.no, are not included in the figures. This means that the potential supply is higher than which is reported, however vacancy is a more exact measure. Our list of potential new build projects is comprehensive, and will probably affect the market for many years to come.


6

4

2

7

108

12

3

13

11

1

I N N E R C I T Y

B Æ R U M

A S K E R

O S L O O U T E R E A S TO S L O O U T E R W E S T

O S L O O U T E R S O U T H

C E N T R A LO S L O

5

14

14 %SUPPLY RATE PER MAY 2016






*Advertised office space at FINN.no of the total office building mass in Greater Oslo. This includes potential advertised new projects.

**Advertised office space within 12 months at FINN.no of the total office building mass in Greater Oslo.

0–5 %

Indicates trend past 6 months.

Map colour indicates vacancy rates per May 2016

5–10 % 10–15 % Above 15 %

VACANCY** AND SUPPLY*

11 %SUPPLY* IN DEFINED OFFICE CLUSTERS– Up approx . 0 .8 percentage point past 12 months .

7 %VACANCY** IN DEFINED OFFICE CLUSTERS– Down approx . 0 .5 percentage point past 12 months .

LYSAKER

5

SKØYEN

6

MAJORSTUEN

7

3 %***SUPPLY RATE PER MAY 2016

FORNEBU

4

3 %VACANCY RATEPER MAY 2016

3 %***VACANCY RATEPER MAY 2016





ASKER

1

BILLINGSTAD

2

SANDVIKA

3


*** High risk for increase in vacancy


6

4

2

7

108

12

3

13

11

1

I N N E R C I T Y

B Æ R U M

A S K E R

O S L O O U T E R E A S TO S L O O U T E R W E S T

O S L O O U T E R S O U T H

C E N T R A LO S L O

5

14






KVADRATUREN

9

INNER CITY

10

NYDALEN/SANDAKER

12

BRYN/HELSFYR

14










Source: Malling &

Co/FINN

.no

CBD

8

BJØRVIKA

11ØKERN/LØREN/

RISLØKKA

13


FURTHER DEVELOPMENT OF THE RENTAL MARKETFOUNDATION FOR FUTURE RENTAL GROWTH

› Rents are flattening out: Average rents for the first quarter show that rents are flattening out, even in the west where achievable rents have been decreasing 5-10 % over the past 12-18 months.

› Vacancy is decreasing: We have observed that vacancy is decreasing, and that construction is low compared to the historical average.

› Strong population growth: Oslo is still growing and has the highest growth of all the counties in Norway.

› Employment market is good: The employment market in Oslo shows strength and the downturn in the Oil & Gas sector seems to have had a limited negative effect on unemployment. Employment figures are still rising in Greater Oslo.

› Low new construction and high conversion rates: Compared to historical figures and population growth, new office construction seems too low to keep the total office stock sufficient in terms of demand, especially for high-quality properties in the city centre.

› Sub-letting is limited: Sub-letting seems to have stabilised and is concentrated in the western fringe.

› Economic growth is expected to pick up slowly: The revised national budget suggest increased public spending, and the key policy rate is expected to reduce further.

› Ongoing clustrification effect: Analysing possible supply and current demand reveals a high probability of pressure in the city centre office market. Large tenants are still moving from the outer fringe to central locations. Environmental focus and the availability of public transport are becoming increasingly important.

› Increasing numbers of large tenants moving: After two years with few large tenants in the letting market, things are starting to change as the number of large lease contracts expiring will increase towards 2020. This will probably increase the new constructions completed in 2-5 years, and will probably create higher demand.

Short-term trend for rents (1 year): STABLE› Tenants and landlords are still reluctant and risk averse, and this will probably characterise the market throughout 2016› Vacancy is expected to continue on a downward trend in office clusters throughout the year

Long-term trend for rents (1-3 years): UP› As take-up is expected to pick up and gradually decrease vacancy, market sentiment is expected to turn around in 2017, for the city centre in particular› Starting with moderate rental increases in all areas, the city centre is expected to increase 5-10 % throughout 2017› A slower economic recovery than expected may extend the period of flat rent development

TREND 1 YEAR TREND 1–3 YEAR

VACANCY CITY CENTRE

VACANCY FRINGE

RENTS CITY CENTRE

RENTS FRINGE

Low uncertainty

Moderate uncertainty

High uncertainty


TORGGATA BAD, CENTRAL OSLO

Malling & Co Næringsmegling has been commissioned to lease approximately 1 900 m2 of restaurant space.

Illustration: Radius/Pulse Communications


In order to map the state of the rental market, we track the activity on Norway’s dominant online market place FINN.no. Utilizing these

numbers, we find that the average total supply (as a percentage of the total volume) in our defined office clusters over the past 12 months

is 10.7 %. The supply includes new builds and is not time-constrained. If we limit our analysis to the vacancy rate, defined as the office

locations available within 12 months, the vacancy has decreased from 7.5 % to 7.0 % the past 12 months. The largest vacant office

locations are Lysaker, Billingstad and CBD as of May 2016. The office supply – in aboslute terms – is greatest at Økern/Løren/Risløkka,

Central Oslo and Lysaker. In relative terms, the office supply is greatest at Økern/Løren/Risløkka, Lysaker and Billingstad.

THE RENTAL MARKETGREATER OSLO

Per May 2016 Per May 2015

Normal rent (NOK/m²)* 1 600 – 1 800 1 600 – 1 800

Prime rent (NOK/m²)* 2 100 2 100

Supply** 14 % 24 %

Vacancy** 9 % 6 %


Normal rent (NOK/m²)* 1 250 – 1 500 1 250 – 1 500


Supply** 15 % 6 %

Vacancy** 13 % 4 %

ASKER

Comment:Asker Tek secured Indra Navia for their planned new build to be completed in the end of 2017, and there is still some vacancy for new tenants . The rental market in Asker is slightly challenging at present, and the number of anchor tenants available to initiate new build projects is limited . The planned development of Føyka may suffer further delays, since conflict between the municipality and landowner is heading in the direction of the expropriation of land to accommodate the sports facilities that will be lost at Føyka .

Comment:Varner moved into their new headquarters at Nesøyveien 4 in December 2015 . Lilleåsen 2, a new combined office and retail project of 3 250 m2, is currently in the market . Construction will start as soon as tenants have signed lease contracts . Washtec has signed a sub-lease contract in Slependveien 108 . JM and Ferd acquired Bergerveien 12 in Q4 2015 with plans for a new residential project, and Asker Eiendom/Eiffel Eiendom acquired Bergerveien 5 (the former Varner headquarters), partly with the same purpose . This will decrease the available office stock at Billingstad .

BILLINGSTAD

*See definition of «normal» rent and prime rent on page 26.**See definition of supply and vacancy on page 18.

A SELECTION OF THE LATEST MAJOR LEASE CONTRACTS

Tenant Moving to address / Office cluster Moving from address / Office cluster Space

Skatt Øst Schweigaards gate 17-19 / Inner city Renegotiation ~ 23 000 m²

NorgesGruppen Karenslyst Alle 12-14 / Skøyen Renegotiation ~ 14 500 m²

Posten Biskop Gunnerus gate 14 / Inner city Renegotiation ~ 10 000 m²

Norsk Moteforum Snarøyveien 30 / Fornebu Sjølyst plass 3 / Skøyen ~ 9 000 m²

Elkjøp Nydalsveien 18 / Nydalen Solheimveien 6 / Lørenskog ~ 7 000 m²

Spaces Tollbugata 8 / Kvadraturen New ~ 6 200 m²

TV2 Diagonale / Bjørvika Karl Johans gate 14 / Inner city ~ 6 100 m²

GE Oil & Gas Eivind Lyches vei 10 / Sandvika Renegotiation ~ 4 700 m²

Oslo Røde Kors Christian Kroghs gate 2 / Inner city Christian Kroghs gate 15 / Inner city ~ 3 500 m²

GE Healthcare Vitaminveien 1A / Nydalen Sandakerveien 98-100 / Nydalen ~ 3 500 m²

Itera Nydalsveien 28 / Nydalen Sognsveien 75C / Ullevål ~ 2 500 m²

Carnegie Fjordalléen 16 / CBD Grundingen 2 / CBD ~ 2 500 m²



Normal rent (NOK/m²)* 1 600 – 1 800 1 600 – 1 800


Supply** 13 % 10 %

Vacancy** 3 % 4 %


Normal rent (NOK/m²)* 1 700 – 1 900 1 800 – 2 000


Supply** 16 % 17 %

Vacancy** 14 % 14 %


Normal rent (NOK/m²)* 1 500 – 1 700 1 500 – 1 700


Supply** 3 % 15 %

Vacancy** 3 % 8 %


Normal rent (NOK/m²)* 2 000 – 2 300 2 100 – 2 400


Supply** 12 % 12 %

Vacancy** 7 % 12 %

SANDVIKA

LYSAKER

Comment:The first construction phase (7 500 m²) of Sandvika Business Center in Elias Smiths vei 14-26 has been initiated, and will be completed in Q4 2016 . Hamang Terrasse 55 is currently being converted to a residential property . There are plans to convert the Hamang – Hestehagan area when the new E16 road is completed in 2019 . Along with less office space at Billingstad, this will contribute to the development of Sandvika as the main office cluster in the area .

Comment:Lysaker has been struggling with high vacancy, but this is no longer increasing . Approximately 9 500 m² of a total vacancy of 80 000 m2 is vacant due to sub-letting . In total, we have counted 16 premises of more than 2 000 m² that are available for rent . During Q1 2016, nine contracts have been signed (new contracts and renegotiations), comprising approx . 7 000 m2 . Rents seem to have stabilised, and vacant space with proximity to the train station is still achieving good rents .

Comment:As mentioned in our last report, Moteforum will move from Skøyen to Snarøyveien 30 in Q1 2017 (9 000 m²) . The second stage of Fornebuporten, comprising 26 000 m² of office space, will be completed this summer . 36 000 m² will become vacant in Snarøyveien 36 when Aker Solutions moves 1 400 employees to Fornebuporten . Discussions about the Fornebu Metro have been lengthy, but progress is finally being made following Oslo Municipality’s decision to establish a separate agency for the development of the Metro line . The new realistic timeline for the grand opening is 2024/2025 .

Comment:Schage Eiendom is planning a new office building in Drammensveien 145-147, which is expected to be completed the end of 2018 . Veidekke will start the development of a new headquarters and apartments in Nedre Skøyen vei 24-26 in 2019 . Norwegian Property has leased out most of Verkstedveien 1 . Møller Eiendom is in the market with Harbitzalléen 3-7 (26 000 m²), a new build project that may be completed by the end of 2018 . Aberdeen has renegotiated their contract with NorgesGruppen for their 14 000 m2 headquarters for another five years .

FORNEBU

SKØYEN



MAJORSTUEN

KVADRATUREN

CBD

INNER CITY


Normal rent (NOK/m²)* 1 800 – 2 200 1 800 – 2 000


Supply** 4 % 3 %

Vacancy** 4 % 3 %


Normal rent (NOK/m²)* 1 800 – 2 300 1 800 – 2 250


Supply** 9 % 6 %

Vacancy** 9 % 5 %


Normal rent (NOK/m²)* 2 800 – 3 200 2 800 – 3 200


Supply** 11 % 12 %

Vacancy** 10 % 10 %


Normal rent (NOK/m²)* 2 100 – 2 600 2 100 – 2 500


Supply** 7 % 7 %

Vacancy** 6 % 7 %

Comment:The refurbishment and conversion of Sørkedalsveien 8 is ongoing and will be completed in Q2 2017 . 4 500 m² of office space is still vacant . Oslo Pension Fund bought the project from StorOslo Eiendom late in 2015 . Nordea recently moved into Essendropsgate 7-9, a major refurbishment project undertaken by Vedal Construction with a total cost of approx . NOK 600 million (20 000 NOK/m²) .

Comment:The co-working concept Spaces, owned by Regus, recently announced that they will lease 6 000 m² in the refurbished Tollbugata 8, which will be finalised in August 2017 . Examples of other major refurbishment projects that are still available are Øvre Vollgate 9 and Kirkegata 15 . Kongens gate 21 is for sale, and new owners are refurbishing the property of 22 000 m² . New tram lines through Prinsens Gate, to be finalised in 2017, will strengthen Kvadraturen and create better connections to Bjørvika and CBD .

Comment:Ruseløkkveien 26 is being vacated, and most of the building is now empty . However, proposed plans from Storebrand for a larger new build of 59 500 m² are being opposed by the city planning authorities, which could lead to a refurbishment of the existing 47 200 m² instead . Dronning Mauds gate 10 will probably be the next big refurbishment project in the area, and refurbishment will most likely begin late in 2017 . Almost 10 000 m² will be vacated in Drammensveien 60 when Skanska moves to Sundtkvartalet in December 2016 .

Comment:Central Oslo is the largest office area, with an office supply of 100 000 m² . Vacancy has been low and stable at around 6-7 % of the total office stock over the past 12 months . New buildings account for a small share of the supply (16 %), e .g . Torggata 15, the construction of an office building initiated for completion in Q4 2017, and Youngstorget 3 . Schweigaards gate 33, an office building of 22 000 m², is expected to come onto the market soon and will be completed in 2018 .



BJØRVIKA NYDALEN/SANDAKER

BRYN/HELSFYR


Normal rent (NOK/m²)* 2 700 – 3 000 2 700 – 3 000


Supply** 9 % 13 %

Vacancy** 2 % 2 %


Normal rent (NOK/m²)* 1 000 – 1 500 1 000 – 1 500


Supply** 20 % 21 %

Vacancy** 5 % 6 %


Normal rent (NOK/m²)* 1 500 – 1 700 1 500 – 1 700


Supply** 5 % 8 %

Vacancy** 5 % 7 %


Normal rent (NOK/m²)* 1 550 – 1 750 1 550 – 1 750


Supply** 13 % 8 %

Vacancy** 9 % 7 %

Comment:The smaller projects Dronning Eufemias gate 42 (4 250 m²) and Dronning Eufemias gate 6B (3 700 m²) will be completed in 2016 and 2017, respectively . Diagonale will be completed in early 2018, and TV2 is still the only announced tenant . The HAV Eiendom project Fiskebrygga, a proposed 22 000 m² office project, has been challenged by the city planning authorities to reduce the project’s height and include residential units in the project . Eufemia (21 000 m²) is still waiting for an anchor tenant so the project can be initiated, while construction of the new Munch museum is ongoing .

Comment:Several new projects are currently being planned in Økern . One of the largest projects, Økern Grønn Portal, is about to hit the market after zoning was finally approved by the city council . The project will comprise approx . 45 000 m2 of new office space . The Hasle Linje project still has available space totalling around 13 000 m2 . The new Økern shopping centre (including office space, a hotel and waterpark, etc .) is still in the planning phase, and construction is currently expected to start in 2017 . OBOS acquired 280 decares from Fabritius and Storebrand of Ulven AS, and is planning 3 000 apartments and 200 000 m² of commercial real estate .

Comment:Elkjøp’s headquarters will move to Nydalsveien 18 (Spikerverket) in 2017 . The refurbishment of Torgbygget in Nydalsveien 33 will be completed in Q3 2016, including a new west-facing subway entrance . SATS/Elixia and Regus recently moved into the newly refurbished office building Nydalsveien 28 . Skanska Commercial Development is planning a new project of 24 000 m2 of office space in Vitaminveien 4 . Skanska may initiate construction as early as Q4 2016 if an anchor tenant is secured .

Comment:Vacancy has increased somewhat over the past 12 months, and rents are stable . Several other projects are currently in pipeline with either new constructions, refurbishments or a combination of both . The new build project Fyrstikkalléen 1 was recently approved and will enter onto the market . NCC Property Development is planning five new office blocks at Valle Hovin totalling 60 000 m², and aims to start the project in 2016 . Østensjøveien 16 was recently re-zoned, allowing for an office building of 11 400 m² . Construction will be completed in 2018/2019 at the earliest .


ØKERN/LØREN/RISLØKKA


INNER CITY

OSLO WEST

OSLO EAST

OSLO OUTER EAST

OSLO OUTER SOUTH

OSLO OUTER WEST

BÆRUM

ASKER

10

6

4

2

14

7

9

8

12

3

13

11

1

5

OFFICE RENTS: MALLING & CO ESTATE AGENT CONSENSUS (NOK/M²/YEAR)

# OFFICE CLUSTER «NORMAL» RENT* PRIME RENT** FUTURE OUTLOOK PRIME RENT PAST 12 MONTHS

1 ASKER 1 600 – 1 800 2 100 0 %

2 BILLINGSTAD 1 250 – 1 500 1 800 6 %

3 SANDVIKA 1 600 – 1 800 2 250 0 %

4 FORNEBU 1 500 – 1 700 2 000 -7 %

5 LYSAKER 1 700 – 1 900 2 250 -4 %

6 SKØYEN 2 000 – 2 300 3 000 -9 %

7 MAJORSTUEN 1 800 – 2 200 2 800 0 %

8 CBD 2 800 – 3 200 4 800 0 %

9 KVADRATUREN 1 800 – 2 300 2 800 0 %

10 INNER CITY 2 100 – 2 600 3 500 0 %

11 BJØRVIKA 2 700 – 3 000 3 500 0 %

12 NYDALEN/SANDAKER 1 500 – 1 700 2 300 5 %

13 ØKERN/LØREN/RISLØKKA 1 000 – 1 500 2 200 0 %

14 BRYN/HELSFYR 1 550 – 1 750 2 200 0 %

* Normal rents reflect the interval where most contracts are signed in the specified market area . ** Prime rents are consistently achievable headline rental figure that relates to a new, well located, high specification unit of a standad 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 .

Bubble size represents total office stock in each cluster.

500 000 m2

Source: Malling &

CoPAGE 26 MARKET REPORT SUMMER / FALL 2016 / OSLO OFFICE MARKET

HAVNESPEILET, SANDNES

Malling & Co Corporate Real Estate is handling the sale of 6 500 m2 office and restaurant.


Stavanger city office Hinna Park office Forus office Stavanger fringe zone office

Sandnes office Combination Workshop/Production

Warehouse

500

700

900

1 100

1 300

1 500

1 700

1 900

2 100

2 300

2 500

2 700

“Normal” rent Prime rent *See definition of prime and «normal» rent at page 26 .

Source: Malling &

Co

STAVANGERVACANCY IS STILL A CHALLENGE

As pointed out in the Macro section of this report, decreases in oil prices and offshore investment have taken a toll on the Stavanger region. Cost-cutting and downsizing processes are continuing, but will hopefully end soon as the oil price seems to be gradually stabilising at around 50 USD/barrel. The downturn is still significantly affecting the CRE market in Stavanger, and vacancy is still rising. Unemployment is currently 4.7 % (registered) and is expected to increase even further. Almost 12 000 individuals are registered as unemployed in Rogaland (April figures from NAV*), compared to 8 000 one year ago and 4 300 three years ago, just before the cost-cutting programmes in the Oil & Gas sector were implemented. That being said, measures are being taken to make the region less dependent on the petroleum industry. Stavanger Municipality and Innovation Norway are supporting new initiatives and businesses, and application figures have doubled many times over.

Office vacancy in Stavanger is still rising, and at least 10 % of the vacant space is sub-letting. Forus is the area with most vacant space in absolute numbers, with almost 140 000 m2 vacant. In relative terms, Hinna has as much as 29 % vacant. However, it should be noted that Hinna is a small area in terms of total stock, resulting in very high vacancy figures in relative terms. Rents are even more difficult to report in a downward market, as there is less activity and many re-negotiations. Rents at Forus are dropping below 1 000 NOK/m2/year, but the city centre is doing significantly better with top rents of around 2 400 NOK/m2/year.

Many tenants are reluctant to take new positions in the letting market. For example, CBRE represented a large office search for 10 000 m2 in March, for a highly-attractive tenant in the current market. The process ended with the re-negotiation of the existing premises, which seems to be a trend in the current market.

Looking at the CRE market in Stavanger from Oslo, we see a market destroyed by massive over-development and a lack of sobriety in the view on the market’s ability to absorb all the constructed space. When we mapped the entire market in 2012 before the downturn, the largest identified risk was the ability to absorb all the new, upcoming projects. Although very few projects have been finalised in the past year, new projects are still being offered in the market. Øgreid is planning a refurbishment and additional 8 000 m2 in Straensenteret, one of the most attractive locations in the city centre. According to the plan, this project will be finalised in 2018. SR-Bank is about to start construction of their new headquarters in the city centre, with a gross area of 23 000 m2 (including dark space). We have seen very little construction in the city centre over the past decades, but we believe some new construction may vitalise the CBD going forward. The new seaside headquarters for Sandnes Sparebank in Sandnes was recently finalised, and is currently for sale with a WAULT of 11 years. Malling & Co is handling the sale.

We have registered a transaction volume of NOK 1.5 billion (transactions above NOK 50 million) in the Stavanger region so far in 2016, spread across six transactions. One of these transactions was undertaken at a cap rate of 5.7 %, similar to a prime object sold in Q4 of 2015. Disregarding Statens Hus, the government building sold at a yield of 5.1 %, we estimate 5.7 % to be representative of the prime yield level in Stavanger. However, the prime yield level could very well increase to around 6.00 % by the end of the year. We still estimate normal yield at between 7.25 % and 8.25 %. Rom Eiendom recently acquired the City Terminal for NOK 80 million, and has plans for future development.

*Norwegian Labour and Welfare Administration

INDICATIVE RENTS IN THE STAVANGER REGION DIVIDED INTO AREAS AND SECTORS (NOK/M²/YEAR)

PAGE 28 MARKET REPORT SUMMER / FALL 2016 / STAVANGER

E39509

E39

44

13

*Advertised office space at FINN.no of the total office building stock in the Stavanger areaavailable within 12 months.

**Hinna is a small area in terms of total stock, resulting in very high vacancy figures in relative terms.

Source: Malling & Co/FINN.no

Risavika Sandnes Forus Stavanger fringe zone Stavanger city Dusavika Hinna

STAVANGERCITY

RANDABERG

SOLA

SANDNES

TANANGER

RISKA

8 %

29 %**

16 %

14 %

8 %

2 %

1 %

STAVANGER / MARKET REPORT SUMMER / FALL 2016 PAGE 29

The rental market2016 started with moderate activity in the rental market, while we expect higher activity throughout the rest of the year due to multiple ongoing processes. The market has so far been primarily characterised by combination properties, but there is now a significant focus on business users and office premises. Together with several of the major property developers, Malling & Co. has established a concept with the provisional title KD25 – Business Destination Drammen 2025, as a measure to generate greater interest and activity in Drammen. The project will focus on establishing new office businesses in Drammen. This is a long-term idea, with investments in new projects and developments to make Drammen a more attractive city for larger firms with greater expertise. We have observed that more companies are expanding and seeking larger premises while simultaneously demanding improved standards and greater flexibility and efficiency. Efficient premises in close proximity to main thoroughfares and parking coverage are particularly attractive. Older premises usually require full renovation to meet tenants’ increasing demands for a high standard and efficient floor plans.

Office rent levels in central areas of Drammen vary between 1 000 and 1 650 NOK/m2/year in existing premises. New builds are in the range of 1 650 to a top rent of 2 300 NOK/m2/year. Being an old river delta, the property grounds in Drammen city are expensive to prepare for new developments, making it difficult to compete on price with new development projects in Asker, for example. On the other hand, properties in Central Drammen can offer urban qualities. Warehouse rents vary between 600 and 850 NOK/m2/year in the Drammen region. In central retail properties, we have observed rents of around 1 500 to 1 800 NOK/m2/year.

The transaction marketThe transaction market was very good throughout 2015, and we are seeing continued strong interest in the acquisition of commercial properties, primarily from investors and developers, but also from own users / tenants. Financial investors and syndicates are seeking central properties, including retail, office and logistics premises. The properties should preferably be close to public transportation and close to the excellent infrastructure and road network in and around the city of Drammen. Solid tenants and long-term leases are crucial in order to obtain the sharpest yield levels. Local investors are to a greater extent searching for properties where there is potential for development with regard to the lease term, the composition of tenants, and upgrades, etc. Own users / tenants themselves are somewhat active, particularly with regard to combination properties with both office and warehouse space. In line with developments in the city, we are increasingly seeing that older downtown buildings are being considered for conversion to residential premises, and further population growth is expected in the region. There is also significant demand for the purchase of smaller plots. Supply is limited, however, especially close to central throughways.

Latest news› Several contracts of a significant size have recently been signed. › Over the past year, Malling & Co. has been working on the letting of Grønland 1 (G1). The building was constructed in 2005 and has a total size of around 5 000 m2. The property is now almost fully let, with tenants including Synergy, Atea and RFD. › Jysk are moving into Ingeniør Ryberg Gate 110 at Åssiden, where they will occupy an area of approximately 2 000 m2 of retail and combination facilities. › Trysilhus are moving into 1 500 m2 of Union Eiendomsutvikling’s Grønland 67 / Energibygget. › Ticon has started construction of Bjørnstjerne Bjørnsons gate 110, an 8 900 m2 office project with the possibility for testing and light manufacturing areas. There will also be 4 500 m2 of underground parking. Four major tenants have already signed lease agreements. Ing. Ivar Pettersen will move from Engene at Bragernes, and GK Inneklima AS will move from Åssiden, as well as co-locating several internal business areas. From Lier we have Assemblin AS coming in, while Block Watne will co-locate their Asker and Drammen divisions. Developments are also underway at the neighbouring property, where Tesla Motors is now expanding its business at Bangeløkka. The remaining land is able to accommodate a new building with four floors comprising approximately 5 000 m2 in total, if needed. › Fiskum Næringspark is now establishing a large business park along the E134 in Øvre Eiker municipality. The area comprises a total of around 162 acres, and will target bulk retail and general businesses.

DRAMMENBENEFITING FROM THE SPILLOVER EFFECT FROM HIGH INVESTMENT ACTIVITY IN OSLO

Our Drammen office is continuing to experience a high level of activity following a record year in 2015. The city is located less than 40 km west of Oslo,

and can be categorised as something between a city and a suburb of Oslo. The city is capitalising on its seaside location and role as a hub for both

railways and the main road systems connecting all major cities and densely-populated areas on the west side of Oslo. The total stock of 1 300 commercial

properties in the Drammen area (including Nedre Eiker and Lier) is approximately 750 000 m² office space, 600 000 m² retail premises and 800 000 m²

industrial/logistic/combined premises. The vacancy in Drammen is approximately 8 % for office space and 4 % for industrial/storage premises.

—

Office «normal» rent Retail «normal» rent Industrial «normal» rent

Office prime rent Retail prime rent Industrial prime rent

*See definition of prime and «normal» rent at page 26 .

RENTS IN THE DRAMMEN REGION – OFFICE, RETAIL AND INDUSTRIAL

Source: Malling &

Co

6 000

5 000

4 000

3 000

2 000

1 000

0

Bragern

es

Strømsø

/ Holm

en

Åssiden

Gulsko

gen Lier

Nedre

Eiker

Øvre Eike

r

PAGE 30 MARKET REPORT SUMMER / FALL 2016 / DRAMMEN

E18

E18

23

E134

Strømsø / Holmen Bragernes Gulskogen / Konnerud Åssiden Tangen / Glassverket

DRAMMENBENEFITING FROM THE SPILLOVER EFFECT FROM HIGH INVESTMENT ACTIVITY IN OSLO

LIER

NEDRE EIKER

KOBBERVIKDALEN

DRAMMENCITY

3 %

9 %

16 %

8 %

9 %

*Advertised office space at FINN.no of the total office building stock in the Drammen area available within 12 months. Source: Malling & Co/FINN.no

DRAMMEN / MARKET REPORT SUMMER / FALL 2016 PAGE 31

High street shoppingIn recent years, the extensive developments in Nedre Slottsgate and Øvre Slottsgate from Egertorget to Prinsens gate have also had a positive impact on rental prices in the surrounding streets. Corner premises in Prinsens gate and Nedre Slottsgate / Øvre Slottsgate are now significantly more attractive, with luxury retailers such as Bottega Veneta and Burberry on the other side of the street. Kongens gate 21 is for sale, and further developments will depend on the buyers and zoning. We are experiencing a growing interest in retail premises in Grensen, and consequently expect an increase in the rental prices. GlasMagasinet is under refurbishment, and in the autumn of 2017 Illums Bolighus will move from Vika and open their store here. Increasing footfall in several shopping areasFootfall is a common way to measure the attractiveness of a street. According to Gehl Architects, Karl Johans gate is by far the most popular street in Oslo, followed by Grensen. The comprehensive survey was conducted between 2012- and 2014, and since then Aker Brygge, Torggata and Bogstadveien/Hegdehaugsveien have experienced a significant boost. Storebrand’s refurbishment of Vikaterrassen will be completed in August 2016. This will most likely have a positive effect on footfall at the next survey. Customers are returning to Bogstadveien According to several shops in Bogstadveien, the street has experienced a boost following completion of the digging work at the end of 2014. It is also positive for the shopping street that Bogstadveien parking garage has now opened to the public, and the entrance has moved from Underhaugsveien to Bogstadveien. H&M Group, already established in the shopping street with H&M, COS and Monki, continues to expand with Weekday in the newly-refurbished Bogstadveien 54.

Online shoppingConsumers’ shopping habits have changed dramatically in line with developments in technology in recent years. However, this does not seem to be discouraging new international fashion brands from looking to establish stores in Norway, and the high streets are still an important marketing channel for brands. The share of turnover from online shopping is still so small that it does not pose a major threat to stores, but the direction of the trend is clear.

OSLO RETAILDEVELOPMENT CONTINUES IN KARL JOHANS GATE AND THE SURROUNDING STREETS

In spite of the economic downturn, we have seen great interest from international fashion brands who wish to open stores in Oslo.

Increased tourism and a weak Norwegian krone have also had a positive impact on the stores’ turnover.

—

Oslo Norway


ay

GROWTH IN RETAIL SALES PER CAPITA

-1 %

0 %

1 %

2 %

3 %

4 %

5 %

2009 2010 2011 2012 2013 2014 2015

Karl Jo

hans g

t .

(Egertorg

et)

Grense

n

Jernban

etorget

Aker B

rygge

Torggata

Bogsta

dveien

Markve

ien

Source: Gehl Architects

5 0000

10 000

15 00020 000

25 000

30 000

35 000

40 000

45 000

50 000

Retail sales Index Online shopping index


ay

RETAIL SALES (EXCEPT CAR SALES) AND ONLINE SHOPPING INDEX, 2010 = 100

180

020406080

100120140160

20002001

20022003

20042005

20062007

20082009

2010 20112012

20132014

2015

Weekday Weekend

AVERAGE FOOTFALL PER DAY

Solli P

lass

Thorvald

Mey

ers gt .

Vikater

rasse

n

PAGE 32 MARKET REPORT SUMMER / FALL 2016 / RETAIL

The Norwegian Parliament

KIRKEGATA

KONGENS GATE

NEDRE SLOTTSGATEK

AR

L JO

HA

NS

GAT

E

KARL

JO

HA

NS

GATE

PR

INSE

NS

GAT

E

GREN

SEN

ØVRE SLOTTSGATE

AKERSGATA

Steen & Strøm

GlasMagasinet

Stortorvet

Eger

V

18 000 – 25 000 NOK/m2/year

RETAIL RENTS IN KARL JOHANS GATE AND SURROUNDING STREETS

10 000 – 18 000 NOK/m2/year

6 000 – 12 000 NOK/m2/year

4 000 – 8 000 NOK/m2/year

3 000 – 6 000 NOK/m2/year

2 500 – 5 000 NOK/m2/year

OSLO RETAILDEVELOPMENT CONTINUES IN KARL JOHANS GATE AND THE SURROUNDING STREETS

RETAIL / MARKET REPORT SUMMER / FALL 2016 PAGE 33

PAGE 34 MARKET REPORT SUMMER / FALL 2016

SALE OF RETAIL PROPERTIES IN DRAMMEN

Malling & Co Corporate Real Estate advised local investors in the sale of three retail properties in Drammen, with a total lettable area of 13 000 m2.

MARKET REPORT SUMMER / FALL 2016 PAGE 35

Source: Malling &

Co

Regnbuen/Berghagan

Kløfta/Ullensaker

Gardermoen

Gjelleråsen/Skytta

Groruddalen/Alnabru

Rud

Billingstad

Lier Kolbotn/Mastemyr

Lørenskog

Berger/Hvam

Vestby

OSLO

E6

E6

E6

E18E18

STOCKHOLMGOTHENBURG

Vinterbro

E18E18

LOGISTICS CLUSTERS IN GREATER OSLO

Norway’s newfound competitiveness sparks industrial park interestThe economic downturn in the Oil & Gas sector and the weakening Norwegian krone have injected new vigour into an otherwise struggling export industry. Traditional manufacturing and energy-intensive industries are seeing their cost bases reduced, and market prices nominated in foreign currencies are dropping by as much as 30 %. This has also meant that some of the traditional industrial parks now have a much brighter future ahead than that predicted just a few years ago. Two very good examples of this brighter future finding its way into the transaction market are the sales of Herøya Industripark from Norsk Hydro to Oslo Penjonsforsikring, and Raufoss Industripark from Storebrand to H.I.G Capital.

A balanced logistics market, but little new activityThe activity in the industrial rental market continues to be moderate. A few large lease agreements have been signed, but the trend of third-party logistics (3PL) taking over more and more short-term contracts of one to three years with their customers continues, with such companies in turn only entering into short-term contracts themselves. Existing warehouses and logistics facilities continue to be in demand, but the lease structure of five years or less often falls short of the requirements of investors looking to buy property.

INDUSTRIAL & LOGISTICSINDUSTRIAL PARKS IN DEMAND

As we reported in our previous report, the current situation is one in which there is less available space in close proximity to the inner city than the logistics operators would like. Properties offering space for smaller tenants in the immediate vicinity of Oslo experience great demand for their product, and larger space is difficult to find within the city limits as the vacancy for industrial space in Oslo is currently just below 5 %. However, some larger contracts have been signed, such as the new headquarters for Elektroskandia. This will be a combination property of 2 800 m2 office space and 14 400 m2 high-ceiling warehouse space. Bulk has also signed a new deal with Home & Cottage for a combination property of 8 000 m2 with 7 100 m2 of high-ceiling warehouse space. Both are long term contracts for new builds yet to be constructed.

In the long term we still believe the trend of the 3PL segment taking over more and more space will continue and that the demand for space could trigger rent increases, since fewer projects will be initiated than what is required and there is a weak supply of long-term lease contracts. We also believe that the continuing conversion to other types of buildings will decrease supply, putting pressure on rents for tenants who need immediate proximity to the city.

The transaction market has been quiet so far this year, with only seven transactions worth roughly NOK 850 million in total.

DRAMMEN

Special fit-outs for requirements not covered in a standard building will be added to the

rents above based on annuity calculation typically within 6 % – 8 % interest rate . The

rent is set based on tenant solidity and usefulness for other tenants . The annuity length

is based on the lease length . Examples of special fit-outs are: Floor capable of handling

heavy loads, automated storage system, air and climate specification (e .g . fruit storage

and freezing), cranes and other fixed machinery etc . Cross dockings have in general higher

rent, often linked to land price and current yield, but rule of thumb for these buildings are

in general 30 % – 40 % higher per sq . m than a regular storage unit .

INDICATIVE RENTS INDUSTRIAL/LOGISTICS (NOK/M2/YEAR)

Area CategoryCeiling 4-6 metres

(heated, high standard)Ceiling > 6 metres

(heated, high standard)

900 – 1 000 1 150 – 1 250

700 – 900 800 – 1 150

700 – 900 750 – 1 000

400 – 700 550 – 850

PAGE 36 MARKET REPORT SUMMER / FALL 2016 / INDUSTRIAL & LOGISTICS

FORNEBUVEIEN 38-44, LYSAKER

Malling & Co Corporate Real Estate is handling the sale of three office buildings totaling 13 000 m2.

INDUSTRIAL & LOGISTICS / MARKET REPORT SUMMER / FALL 2016 PAGE 37

Source: Malling &

Co

NET PRIME YIELD IN SELECTED EUROPEAN CITIES

CITY PRIME YIELD (OFFICE)

London 3 .25 %

Paris 3 .25 %

Zürich 3 .70 %

Munich 3 .70 %

Stockholm 3 .80 %

Berlin 4 .00 %

Oslo 4.00 %

Copenhagen 4 .25 %

Helsinki 4 .40 %

Rome 4 .50 %

Glasgow 5 .50 %

Bank financing remains tightOne of the most important drivers behind the active transaction market in 2015 has been the low funding costs. We are now seeing an increase in bond financing, as banks are becoming increasingly restrictive due to regulatory measures increasing the amount of capital held by banks to support their commercial real estate lending. Banks have become very selective in terms of the customers and properties they are willing to finance, and some have been very vocal about only financing good properties in central areas. The restrictive trend for commercial real estate also continues to be reflected in the Norwegian Central Bank lending survey, which shows that banks have tightened their credit policies for commercial real estate every quarter for the past six quarters. As previously reported, life insurance companies are continuing to seek opportunities to expose themselves to the commercial real estate market as lenders, rather than making direct investments in assets themselves, as we see increased activity in the bond market and participation in loan syndicates.

Office remains the leading segmentIn terms of pure volume, office is by far the most sought-after segment in 2016, constituting roughly 60 % of the total volume. With the return to a more normalised market we have observed that the more traditional office properties worth between NOK 100-300 million are still being sold at

a similar rate as last year. We only know of a few portfolios in the pipeline, and nothing comparable to those available in 2015. With the absence of large portfolios, and all four major retail portfolios having been sold last year, it is only natural that the office segment should constitute the majority of the transactions. That being said, the retail segment remains attractive since the belief in Norwegian purchasing power is still strong, and constitutes almost 20 % of the volume so far in 2016.

Prime yield at 4.00 %We continue to observe downwards pressure on the prime yield, and estimate the current prime yield at 4.00 %. This is a further reduction of 20 basis points from our previous report in December of 2015. We believe that this will be the floor for prime yield in Norway, unless there are significant changes in the greater macro-economic scope. Prime objects in the CBD come with the fundamental long-term stability sought by many investors. The supply side is limited, and we have even seen a few examples of properties being sold below 4 %, but these have had a potential for an upside in terms of the rent level. For normal properties we have kept the estimated yield level flat at 6.00 %, as investors are looking for a slightly higher return for the risk associated with property in more peripheral locations in the fringe areas of Oslo and shorter, more uncertain contracts. In the short to medium term we also believe that this could increase by up to 25 basis points to further reflect the risk investors’ perceptions of the macro-economic environment faced by Norway in the short term.

Uncertainty ahead, but equity is plentifulAs we look at the remainder of 2016 it is clear that we will not see the same volumes as in 2015, but that was never expected. The interesting situation currently being played out, and a determining factor for which 2016 will be remembered, is the available equity. There is an enormous amount of equity looking for exposure to the Norwegian commercial real estate market. As the year so far has been moderate, and very similar to volumes observed from 2012 to 2014, it will doubtless be a defining moment when the tally for Q2 volumes is finalised. We have already adjusted our full year estimate down from NOK 65 billion to NOK 60 billion, and will have to reduce further to somewhere between NOK 40-50 billion if we do not see the financing side picking up significantly.

THE TRANSACTION MARKETA NEW NORMALSo far this year we have registered a total transaction volume of NOK 14.7 billion*, divided across 59 transactions*. We have another NOK 4.5 – 5.0 billion

in the pipeline which we know are in the closing stages. Compared to the activity experienced in the market in the same period in 2015, the volume has

dropped significantly. However, 2015 was an anomaly, and we have seen a return to a more normalised transaction market. In our previous market

report we pointed out that some of the key drivers of the high volumes recorded were foreign investors buying larger assets than those traditionally

sold in the Norwegian market, and the large portfolios on offer. We finished off 2015 with a staggering 27 transactions a size of more than

NOK 1 billion – more deals of this size than in the past three years combined. Although foreign investors have a low share of the transaction market

at just below 10 % so far in 2016, they are still very much present and interested in increasing their exposure to Norwegian commercial real estate.

As mentioned in the Macro section of this report, the economic slowdown in Norway is concentrated in regions with a high Oil & Gas sector exposure.

This in turn means that investor attraction towards Oslo is less affected than one might believe, as only a small part of the western fringe is exposed

to the Oil & Gas sector. However, banks are more restrictive in their lending policy towards commercial real estate. Attractive and central locations and

well-known customer groups appear to have an advantage in obtaining financing from the banks. In addition to the section on banks and financing

below, we encourage our readers to take a look at our guest commentary on the financing of commercial real estate on page 40.

—

*As at 23 May (above NOKm 50)

PAGE 38 MARKET REPORT SUMMER / FALL 2016 / THE TRANSACTION MARKET

SELECTED MAJOR TRANSACTIONS 2016

PROPERTY (ADDRESS/NAME) TENANT SELLER BUYER SIZE (NOK MILLION, PROPERTY VALUE)

Aker properties Mixed Aker/Wartsila Aker Group TRG 2 043 Est .

5 NorSea base properties Mixed Oil & Gas NorSea Group Asset Buyout Partners (Hitec Vision) 875

Zander Kaaes Gate 7 Mixed ROM Eiendom KLP 760

Terningen - HiT Mixed public Pareto Syndicate Balder Fastigheter 700

Rosenbergveien 25 Ahus Pareto Syndicate Arctic Syndicate 325

Breivollveien 31 Infratek Stenshagen Invest Clarksons Platou Syndicate 270

Dronning Eufemias Gate 42 Empty Oslo S Utvikling Wahl eiendom 250

Source: Malling &

Co

Investment syndicates Property funds Life insurance companies

Property companies Other

10 yr swap Prime property Secondary assets

Registered Estimate

*As at 23 May (above NOKm 50) Commercial real estate loans (L-axis) Lending margins (R-axis)

YIELD DEVELOPMENT PAST 5 YEARS

Source: Malling &

Co/DN

B Markets

Source: Malling &

Co

VOLUME IN BILLION NOK

Source: Malling &

Co

PERCENTAGE SPLIT TRANSACTION VOLUME BY SEGMENT

Source: Malling &

Co

REGIONS SHARE OF THE MARKET 2016

Oslo

Combination

Other

Hotel

Industrial

Warehouse/logistics

Retail

Residential/land

Office

Bergen

Trondheim

Asker and Bærum

Other

Stavanger

50 %

23 %

13 %

12 %

1 %1 %

Source: Malling &

Co

TRANSACTION VOLUME DIVIDED INTO BUYER/SELLER TYPE

2012 2013 2014 2015 2016

BIL

LIO

N N

OK

60

40

20

0

-20

-40

-60

140

100 %

90 %

80 %

70 %

60 %

50 %

40 %

30 %

20 %

10 %

0 %


Feb .

11

Feb .

12

Feb .

13

Feb .

14

Feb .

15

Feb .

16

May

11

May

12

May

13

May

14

May

15

May

16

Aug

. 11

Aug

. 12

Aug

. 13

Aug

. 14

Aug

. 15

Nov

. 11

Nov

. 12

Nov

. 13

Nov

. 14

Nov

. 15

8 .0 %7 .0 %6 .0 %5 .0 %4 .0 %3 .0 %2 .0 %1 .0 %

0 .0 %

Source: Norw

egian Central Bank Lending Survey

FINANCING CONDITIONS (NET SURVEY RESULTS)

Q1 2

008

Q3

2008

Q1 2

009

Q3

2009

Q1 2

010

Q3

2010

Q1 2

011

Q3

2011

Q1 2

012

Q3

2012

Q1 2

013

Q3

2013

Q1 2

014

Q3

2014

Q1 2

015

Q3

2015

Q1 2

016

Definition: Normal yield is defined as the net yield of a well maintained building situatedin the fringe zone of Oslo with strong tenants on a 5 – 8 year lease contract .

2012 2013 2014 2015 2016

120

100

80

60

40

20

02006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

100

80

60

40

20

0

-20

-40

-60

-80

-100


THE TRANSACTION MARKET / MARKET REPORT SUMMER / FALL 2016 PAGE 39

The availability of credit used to be a function of whether the bank liked you or not, but is now much more a

function of the regulators’ view on the asset class, risks and how banks should be capitalised. Banks enter the

specifics of the loan, asset and counterparty into their models, and the amount of capital that needs to be set aside

pops up. While bank credit models may differ somewhat, the same regulations apply for pretty much all banks,

and the same regulations for everyone means that behaviour will be similar across the board. Due to this herd-like

behaviour, some pastures are very much in favour (low LTV, quality assets) while others are left virtually un-grazed

(high LTV, smaller companies). This is reinforced by less competition, with some niche banks having retracted

from the market. Regulation is contributing to a bifurcation of the lending markets.

How much does regulation matter? The (familiar) key attributes for capital calculation are:

At the minimum, the margin level would be the bank’s own funding plus return on the capital employed.

Looking into the numbers, calculations show that a typical bank would need to set aside double the capital

for lending to a typical SPV asset versus a large, diversified corporate lender. The LTV aspect also drives the

lending margin. While 75 % and 80 % LTVs probably aren’t very fashionable for other reasons, they are also a

serious margin driver, as they are detrimental to capital usage at the bank. Venturing into more applicable

LTVs, a typical bank model shows a double capital charge for a 70 % vs. a 50 % LTV. A 70 % LTV with a small

counterparty would therefore have almost four times the capital usage as a 50 % LTV for a large player.

No wonder big (and conservative) is beautiful for the banks!

What will regulation look like going forward? There is little evidence in favour of lighter regulation.

Regulators seem adamant on banks setting aside large chunks of capital when lending for real estate

purposes. To add to the misery, some of the medium-sized lenders operate a more or less closed shop

due to capital constraints. The good news, however, is that capital levels in most of the larger Nordic

banks are getting close to where regulators want them to be. By the end of 2016, most of the regulations

will have been phased in, hopefully creating some breathing space for banks still in the market by 2017.

This does not mean that there will be a massive amount of cash waiting to be deployed in the CRE market,

but rather that banks will have greater certainty regarding how to operate. Furthermore, the rules are

(and in the foreseeable future will continue to be) what they are; highly favouring lending low LTV

to quality customers.

Irrespective of the rules and regulations, no bank wants to lend money to investments that fail.

Talking to large saving banks, we see that their interest in lending to the sector is limited.

While capital requirements are part of this, the true reason is reduced faith in local business

conditions. This only serves to increase the gap between the top and lower quality assets.

GUEST COLUMN:THOMAS EITZEN ON BANK LENDING REGULATION RESULTS IN BIFURCATION OF THE LENDING MARKET

1

2 The LTV of the investment

The credit quality of the customer and asset (including contracts)

PAGE 40 MARKET REPORT SUMMER / FALL 2016 / GUEST COLUMN

thomas eitzenhead of credit strategy

seb markets

Statsbygg selected Malling & Co as a supplier for valuation services in a framework agreement starting from 2016.

MARKET REPORT SUMMER / FALL 2016 PAGE 41

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Malling & Co offer services throughout the entire supply chain and benefit from synergies between the units—

Eiendomshuset Malling & Co is among Norway’s leading advisor and service provider within the field of commercial real estate. We have acquired our knowledge and experience over more than 50 years. Our two divisions, Markets and Management, have a total

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PAGE 42 MARKET REPORT SUMMER / FALL 2016 / ABOUT MALLING & CO

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ABOUT MALLING & CO / MARKET REPORT SUMMER / FALL 2016 PAGE 43

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Documents

Market report summer 2016 lr 7 juni