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Spring 2015

Nordic City Report

2 | Nordic City Report Spring 2015

Executive Summary

During 2014, real estate transaction volumes have broken all re-cords in every metropolitan region in the Nordics, and capital has flooded into the region in a phenomenon popularly described as a “wall of money”. The reason for this is that an increase in savings has led to a rise in available capital, and pension funds have been looking to invest a portion of that capital in real estate. The Nordic countries are considered to be safe markets due to their quick re-covery from the financial crisis. More analysis of capital flow move-ments is available in this issue’s theme article. On the downside, office rental markets in the Nordics have been less consistent in comparison to the real estate transaction market.

Helsinki has recorded a slight rental decline during H2 2014 alt-hough the vacancy rate has also decreased in some submarkets. This vacancy decrease is mostly due to shrinking supply caused by the continuing conversion of vacant outdated office space for predominantly residential use and limited new office development. In contrast, the Helsinki CBD has recorded a temporary increase in vacancies as several large tenants have relocated to newly de-veloped office space in Töölönlahti.

In Copenhagen, the office occupancy market has been more sta-ble in terms of both rents and vacancies. Despite weak demand, a decline has been avoided due to a relatively low quantity of new

European Office Property Clock Q4 2014

Economic Key Data Sweden Denmark Norway Finland

GDP growth 2014 (%, change p.a.) 1.7 0.9 2.6 0.1GDP growth 2015(F) (%, change p.a.) 2.3 1.6 1.0 0.9Inflation 2014 (%, change p.a.) 0.2 0.6 2.0 1.1Inflation 2015(F) (%, change p.a.) 0.1 0.6 2.6 0.8Unemployment rate (%, seasonally adj.) 7.9 5.1 3.5 8.6Unemployment rate 2015(F) (%, seasonally adj.) 7.7 5.6 4.0 8.7Typical lease length (years) 3-5 5-7 3-10 2-5Property tax (%) 0.5-1.0 1.6-3.4 0-0.7 0.8-1.55Capital gains tax (%) 30.0 25 27 20VAT (%) 25.0 25 25 24Stamp duty (%) 4.25 0.60 2.5 4.0/2.0Corporation tax (%) 22 25 27 20

Source: Oxford Economics

Rental Growth Slowing

Rents Falling

Rental Growth Accelerating

Rents Bottoming Out

Athens, Brussels, Rome, Bucharest, Budapest, Prague, Copenhagen, Istanbul, Lisbon

Berlin, Frankfurt, Gothenburg, Stuttgart, Hamburg, Oslo,

Malmö

Lyon

Luxembourg Geneva, Zurich

Cologne

Dusseldorf

Manchester

Amsterdam, Milan, Madrid Barcelona, Paris CBD

Edinburgh

Moscow

Kiev

Stockholm, Dublin, London City London WE

Munich

Helsinki

St. Petersburg

Warsaw

Nordic City Report Spring 2015 | 3

Europe: Rental Growth Rates (Q4 2013 – Q4 2014)

build and limited speculative development. Given the sluggish ren-tal market for office space, investors have been focusing on the residential and high street retail sectors.

Slightly slower activity has been noted in the Oslo office market, but this has not led to a rise in the vacancy rate. On the other hand, rents have increased slightly during 2014, while in 2015 a drop has been forecast as a relatively large volume of new office space is expected to enter the market.

In Stockholm, the office rental market has been stable, both in regard to rental levels and vacancy rate. However, take-up has reached record levels, which can mainly be attributed to seve-ral major lease transactions in new office development projects during H1 2014.

Denmark Finland Sweden Norway

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Investment Volumes H2 2014 €m

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* No residential, land and developments; deals above USD 5 million only; volumes gros-sed-up by country specific rate to count for cases not reported except for Hotel, and (from 2010) for all Retail, except Unit shops

The Gothenburg office market has continued its robust market trend. Rising rents and a decreasing vacancy rate have encoura-ged further new office development projects in attractive locations. Projects that were launched on a speculative basis have been fully let before completion due to a high demand for modern, efficient office space.

Finally, the Malmö/Lund market has recorded an increase in va-cancy rates despite the fact that take-up has increased. For the first time since 2008, the Malmö CBD now has a higher prime rent than the Västra Hamnen submarket.

Åsa LinderHead of Research and Valuation

JLL Sweden

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

Barcelona Berlin

BrusselsBudapest

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Helsinki Lisbon

London Madrid Malmö

Moscow Oslo Paris

Rome Stockholm

Warsaw


Stockholm Office Market

During H2 2014, the overall vacancy rate in the Stockholm region has remained unchanged at 9.1 percent, which is the lowest recorded vacancy rate since 2001. Prime rental le-vels have also remained stable in all Stockholm submarkets during H2 2014. Demand for office space has been consis-tently high throughout 2014. Investment volumes during H2 were strong and Stockholm accounted for 32 percent of the total transaction volume in Sweden. Prime yield has remained stable in all submarkets with the exception of Rest of Inner City, where it has been adjusted downwards by 0.25 percenta-ge points to 4.75 percent.

Supply – Stable vacancy rate and limitedd new buildDuring H2 2014, the overall vacancy rate in Stockholm has re-mained stable at 9.1 percent, which is in fact the lowest vacancy rate recorded since 2001. During H2 2014, the vacancy rate in the CBD and Kista has increased, while it has decreased or remained unchanged in all the other submarkets. The CBD has accounted for the largest change due to a rise in tenant relocations. 56,000 sq m of new office space has entered the Stockholm market during H2 2014, of which 23 percent was speculative upon completion. Over 50 percent of the project volume can be attributed to one single project, the redevelopment of Träsket 17 in the CBD owned by Diligentia. For the year as a whole, a total of 8 projects, compri-sing 167,000 sq m of new office space, have been completed, in comparison to 46,000 sq m during 2013 and 109,000 sq m during 2012. Only 8 percent of the new office space was speculative upon completion during 2014 and most of this is related to H2. In 2015, 68,000 sq m of office space is scheduled for completion, of which three projects relate to Kista and the CBD, where the Pembroke project Mästerhuset in the CBD accounts for almost half the new office space. Another 130,000 sq m is expected in 2016, of which 53,000 sq m is currently speculative.

Property data

Office properties Q4 2014 CBD Rest of Inner City Adjacent Suburbs Kista Solna/Sundbyberg Total

Office stock Q4 2014 (m2) 1,784,000 3,504,000 1,778,200 912,000 1,742,000 11,598,000

Total Est. Completions 2014 (m2) 30,000 55,000 13,000 8,300 61,000 167,300Total Est. Completions 2015 (m2) 30,000 - - 38,000 - 68,000Total Est. Completions 2016 (m2) - 18,500 14,000 27,000 70,000 129,500Vacancy rate (%) 4.2 5.4 11.6 13.2 8.3 9.1Short-term forecast (kgm) g g m m g -Prime rent (SEK/m2) 4,500 3,400 2,400 2,200 2,200 -Short-term forecast (kgm) k k g k k -Rent - Grade B properties (SEK/m2) 2,500 - 3,100 1,600 - 2,000 1,000 - 1,600 1,000 - 1,400 1,200 - 1,600 -Short-term forecast (kgm) g g g g g -Prime yield (%) 4.25 4.75 6.00 6.50 5.75 -Yield - Grade B properties (%) 6.00 - 6.50 6.75 - 7.25 7.25 - 7.75 7.75 - 8.50 7.25 - 7.75 -

Demand – A decrease in project lettingsTotal take-up for office premises in Stockholm during H2 2014 amounted to 135,000 sq m, which represents a 51 percent decrea-se compared to the previous half-year. The total take-up for 2014 reached 413,000 sq m, a 46 percent increase on an annual basis. The annual increase can be attributed to the number of major lea-ses signed in new projects in Solna/Sundbyberg, where SEB and TeliaSonera, for example, took up leases during H1 2014. Rest of Inner City has been the only submarket during this period to show an increase in demand among tenants, and Folksam has been responsible for the largest signed lease of 5,000 sq m. All other submarkets have recorded a drop in take-up volumes. The single


Representative office investment transactions Q3-Q4 2014

Property Location Size (m2) Price (MSEK) Purchaser Vendor

Kista portfolio Kista 73,000 2,000 Kungsleden AreimPart of Entré Lindhagen Rest of Inner City 37,000 1,700 Alecta Skanska FastigheterMentorn 1 CBD 17,700 1,560 AMF Fastigheter DnB Liv EiendomGärdet & Upplands Väsby portfolio Spread 59,000 1,425 FastPartner FabegePoint Liljeholmen (Stora Katrineberg 16) Rest of Inner City 40,000 1,100 Atrium Ljungberg LaSalle Investment Management

largest lease transaction during H2 2014 has been the 10,000 sq m of office space let by Fabege to Siemens in Evenemangsgatan, Arenastaden in the Solna/Sundbyberg submarket. The average size of office transactions has declined to 901 sq m in H2 2014, compared to 2,106 sq m in H1 2014 and 944 sq m in H2 2013. Most of the new tenants have preferred new build, especially ma-jor tenants who can create efficient, customized premises that en-able cost-cutting and attract personnel.

Investment Volumes – High activityThe total transaction volume in Stockholm during H2 2014 has totalled SEK 29.3 billion, which is an increase of 5.4 percent com-pared to H1 2014 and a rise of almost 100 percent since the equi-valent period last year. The transaction volume in Stockholm has accounted for 32 percent of the total volume in Sweden during H2 2014. For 2014 as a whole, the transaction volume in Stock-holm totalled SEK 57.1 billion, compared to SEK 32.4 billion during 2013. Stockholm has accounted for nearly 40 percent of the to-tal transaction volume in Sweden during 2014, which is roughly equivalent to 2013. The largest single transaction in Stockholm during H2 2014 has been the sale by Areim of Kista One and Kista Science City to Kungsleden, which comprised four office buildings located in Kista with an acquisition price of approximately SEK 2 billion. Office properties, which have accounted for 51.4 percent of the total, have continued to dominate demand in the Stockholm market. 12 cross-border transactions have been completed in Stockholm during H2 with a total value of SEK 6.5 billion, which is the equivalent of 22.2 percent of the total volume. Three of these, worth a total of SEK 0.9 billion, have involved overseas buyers. During 2014, the total transaction volume in Stockholm, and espe-

cially in the rest of the country, has increased significantly. Stock-holm is the most attractive market, but in order to find suitable in-vestment objects, investors will need to widen their scope. This will probably reduce the number of transactions in Stockholm during 2015. At the same time, JLL expects cross-border volumes to in-crease due to the prevailing investment climate in Sweden, with a rise in interest from opportunistic investors. Prime yield has remai-ned stable in all Stockholm submarkets with the exception of Rest of Inner City, where prime yield has been adjusted downwards by 0.25 percentage points to 4.75 percent.

Rents – No changes in 2014During H2 2014, prime rental levels have remained stable in all the Stockholm submarkets, and there has been no significant change in prime rent throughout 2014. However, despite this stable trend, demand for prime office space has been strong and rental levels are expected to increase going forward, but at a slow pace.

Market Outlook – Rental growth in 2015?During 2014, the supply of office space in Stockholm has re-mained low and the total vacancy rate has remained stable at a record low of 9.10 percent. Demand for Stockholm office space has achieved its highest level since 2011. There have been no indications that this trend will drop off in the short term and the outlook for 2015 is positive, with expectations of an increasing rental growth driven by a consistently strong demand for prime office space and limited volumes of new build. Vacancies are likely to remain at the existing rate throughout the year with a possible increase in 2016 due to an increase in the amount of new office space entering the market.

Representative office leasing transactions Q3-Q4 2014

Property Location Tenant Leased area (m2) Property owner

Uarda 1 (Hus B) Solna Siemens 10,000 FabegeKv Tullgården (Folksam HQ) Rest of Inner City Riksidrottsförbundet 5,700 FolksamFatburen Rest of Inner City Sungard 4,270 Crown Nordic ManagementNod Kista Fujitsu 4,000 Atrium LjungbergHumlegården 57 CBD Settervalls 3,600 SEB Trygg Liv


Gothenburg Office Market

The Gothenburg property market is experiencing a vacancy squeeze not seen since the days of the IT bubble in 2002. New records in take-up and investment volume during 2014 are clear evidence of the current high level of interest in Gothen-burg. Volumes will likely drop off in 2015, but this will be due to a lack of supply and not a decline in demand.

Supply – Outstripped by demandThe overall vacancy rate in Gothenburg has continued decreasing during H2 2014, dropping to 5.90 percent, one of the lowest levels since the IT bubble in 2002. Several submarkets, especially the CBD and Rest of Inner City, have been experiencing unprece den-ted vacancy levels as supply struggles to keep up with demand. A total of 24,800 sq m of office space has entered the market during 2014, almost all of which had already been leased upon completion. 2015 will see another 60,200 sq m of space completed, a substantially larger and greatly-needed volume. The bulk of this space will be located in the Rest of Inner City submarket in Gårda, Heden and Almedal districts.

Demand – Occupier activity at record levelsDue to a very active occupier market, take-up has achieved a record high volume during 2014 of approximately 150,000 sq m. A substantial proportion of this volume has comprised leases in development projects, the most significant of which has been the SCA lease of 25,000 sq m in Mölndal during H1. Other notable leases during H2 have been letting to the Swedish Migration Board “Migrationsverket” of 9,500 sq m of space in the Platzer-owned property Gårda 1:15 in the Rest of Inner City submarket, and the letting of 4,700 sq m by Alten Sverige in Front Lindholmen in the Norra Älvstranden submarket. The current tenant, the IT consult- ancy Semcon, will be vacating the premises during H1 2015 in favour of a single-tenant property under construction by Eklandia in the same submarket.

Property data

Office properties Q4 2014 CBD Rest of Inner City

Norra Älvstranden

Rest of Hisingen

Mölndal Western Gothenburg

Eastern Gothenburg

Total

Office stock Q4 2014 (m2) 872,000 758,000 258,000 424,000 371,000 325,000 247,000 3,255,000Total Est. Completions 2014 (m2) 400 14,000 - - 10,400 - - 24,800Total Est. Completions 2015 (m2) - 41,500 8,600 10,100 - - - 60,200Total Est. Completions 2016 (m2) - 7,500 - - 25,000 - - 32,500Vacancy rate (%) 2.9 3.7 4.5 9.2 9.1 13.0 13.4 5.9Short-term forecast (kgm) k g g g g g g -Prime rent (SEK/m2) 2,600 2,300 2,100 1,000 2,000 1,150 1,100 -Short-term forecast (kgm) k g g g g g g -Rent - Grade B properties (SEK/m2) 1,800 - 2,300 1,300 - 2,000 1,300 - 1,700 700 - 1,000 1,000 - 1,500 800 - 1,150 800 - 1,100 -Short-term forecast (kgm) g g g g g g g -Prime yield (%) 4.50 5.25 5.75 7.75 6.25 7.00 7.00 -Yield - Grade B properties (%) 6.00 - 6.50 6.50 - 7.00 7.25 - 7.75 9.00 - 9.50 7.00 - 7.50 8.25 - 8.75 8.25 - 8.75 -


Rents – Upward pressure on several submarketsThe CBD prime rental level has remained stable during H2 at SEK 2,600/sq m p.a. However, substantial upward trends have occurred in two submarkets. In Rest of Inner City, prime rent has increased to SEK 2,300/sq m p.a. as the newly constructed offi-ce buildings in the area have established a new market level. In Mölndal, prime rent has risen to SEK 2,000/sq m p.a. due to the addition of new grade A developments.

Investment market – High interestIt is not only the rental market that has been active during the year. Investment in Gothenburg real estate has achieved SEK 13.3 billion during 2014, the highest volume ever recorded, of which approximately SEK 4.7 billion has been transacted during H2. The most active segment during H2 has been the office property segment with 26 percent, followed by residential property with 23 percent and hotels with 21 percent. The largest single transac-tion during H2 2014 has been the acquisition by Victoria Park of two residential properties, comprising 112,000 sq m of residential space and 32,000 sq m of commercial space, in Lövgärdet north of Gothenburg from Stena Fastigheter for SEK 925 million. As a consequence of the high investor demand, prime office yield lev-els have decreased in several submarkets during the year. Most recently the CBD, Norra Älvstranden and the Western Suburbs have declined by 25 bps to 4.50 percent, 5.75 percent and 7.00 percent respectively.

Market Outlook – A strong market in 2015Supply on the occupier market is expected to remain low in the short term as demand is showing no signs of decreasing. Of the approximately 60,000 sq m office space due for completion during 2015, over 80 percent has already been let. Despite a consistently high demand, the likely result of the lack of supply will be a drop in take-up levels with continuing upward pressure on rental levels in central submarkets. In the investment market, Gothenburg real estate has been very attractive, which is clearly evidenced by the high investment volume during 2014. Interest is showing no signs of declining during 2015, although volumes are expected to de-crease compared to 2014 figures as a majority of the attractive office property development projects have already been sold.



Gårda 1:15 Rest of Inner City Migrationsverket 9,500 PlatzerFront Lindholmen Norra Älvstranden Alten Sverige 4,700 Internationales Immobilien-Institut (III)Nordstaden 28:2 (Sjöbefälsskolan) CBD Ghost 2,200 SernekeGullbergsvass 1:2 CBD Manpower 2,000 SEB Trygg LivLyckholms Fabriker Rest of Inner City Advance 1,700 PEAB



Krokslätt portfolio Rest of Inner City 36,000 700 Platzer WallenstamÅF-Huset (Kallebäck 2:5) Rest of Inner City 15,000 495 Pareto Project Finance Skanska FastigheterSörred 8:4 Torslanda, Hisingen 50,000 - Torslanda Property Investment Doughty Hanson & Co Real Estate


der construction by Jernhusen in the CBD, and 6,000 sq m office space in phase 1 of the Midroc World Trade Center development project in Lund (Alléhuset).

Demand – IncreaseTotal take-up has amounted to 53,500 sq m during H2 2014, which represents a 55 percent increase year-on-year and a 58 percent increase on an annual basis. The increase can be attributed to a number of major lease signed in Västra Hamnen and Malmö Suburbs during the period. Three of these have taken place in the Västra Hamnen submarket, the 6,000 sq m occupied by Saab Kockums in the Teliahuset in Dockan, the lease signed by Läns-försäkringar for 5,200 sq m in the Gängtappen “Kockumshuset” property, and the take-up of 4,500 sq m by Orkla Foods Sverige in

The overall vacancy rate has increased slightly in the Malmö/Lund market during H2 2014. Nevertheless, developers appear to have become more optimistic about the market’s ability to absorb new office space, with a large number of new of-fice developments in the pipeline. Prime rent in the Malmö CBD has increased to SEK 2,300 sq m, and the CBD is now the submarket with the highest prime rent for the first time in six years. The investment market has experienced an ac-tive H2 2014, with the residential segment still dominating the market.

Supply – An increase in new build with emphasis on the CBDDuring H2 2014, the overall vacancy rate in Malmö/Lund has in-creased by 0.6 percentage points to 10 percent, and most sub-markets have experienced an increasing vacancy rate during this period. 8,200 sq m of office space has been completed, of which the majority had already been let on completion and only 5.00 percent speculative. The volume can be attributed to two parti-cular developments the extension of Triangeln in the CBD owned by Vasakronan, which added 1,700 sq m of new space, and the first phase of the Skanska’s Klipporna project, which added 6,500 sq m of new office space in the Malmö Suburbs submarket. Ten projects comprising a total volume of 81,900 sq m of office spa-ce are currently under construction in the Malmö/Lund market, of which about 50 percent was speculative at year-end 2014. This is a significant increase in new build of 71 percent compared to H1 2014, 50 percent of which is located in the CBD. During 2015, five developments comprising a total office space of 47,500 sq m are scheduled for completion. Skanska is currently developing Malmö Live, a hotel, conference and office complex that includes 10,000 sq m of office space, and another 7,000 sq m of office spa-ce in phase 2 of Klipporna in Hyllie. The third ongoing construction project is Niagara, an 18,500 sq m development in the CBD for Malmö University. The final two developments are Glasvasen, a six-floor office building with 6,000 sq m of space, currently un-

Malmö Office Market

Property data

Office properties Q4 2014 CBD Rest of Inner City Västra Hamnen Malmö Suburbs Lund Total

Office stock Q4 2014 (m2) 635,000 339,000 201,000 356,000 551,000 2,084,000Total Est. Completions 2014 (m2) 1,700 - - 6,500 - 8,200Total Est. Completions 2015 (m2) 34,500 - - 7,000 6,000 47,500Total Est. Completions 2016 (m2) - - - 24,400 - 34,400Vacancy rate (%) 8.3 5.5 12.2 14.1 12.1 10.0Short-term forecast (kgm) g g g g g -Prime rent (SEK/m2) 2,300 1,350 2,100 2,300* 1,900 -Short-term forecast (kgm) g g g g g -Rent - Grade B properties (SEK/m2) 1,500 - 1,800 1,100 - 1,300 1,400 - 1,800 1,000 - 1,300 1,400 - 1,700 -Short-term forecast (kgm) g g g g -Prime yield (%) 5.25 6.75 5.50 5.25* 6.50 -Yield - Grade B properties (%) 6.25 - 6.75 7.00 - 7.50 7.50 - 8.00 7.50 - 8.00 8.00 - 8.50 -

* Hyllie. Other Malmö Suburbs have substantially lower rents and higher yields.


the Kranen 1 building in Dockan. All three properties are owned by Wihlborgs. Other notable leases were Ikano signing for 5,600 sq m in the second phase of the Skanska Klipporna development and P-Malmö signing for 2,300 sq m in the Vagnslidret 1 development, also known as “Isblocket”, both of which are located in Hyllie in the Malmö Suburbs submarket.

Rents – CBD regains position as submarket with highest prime rentDue to the rise in rental levels in new developments om the are-as around Universitetsholmen and Södra Nyhamnen, the ren-tal level for the Malmö CBD submarket has now been adjusted upwards to SEK 2,300/sq m p.a. This indicates a strong interest in this submarket, which had previously lagged behind the new developments in both Hyllie and Västra Hamnen. The submarket is currently also recording the highest development activity. The rise in rental levels has resulted in the CBD regaining its position as the submarket with the highest prime rent in the Malmö/Lund market. Västra Hamnen had previously held this title since early 2009. Rental levels in the remaining submarkets in the Malmö/Lund market have remained stable during H2 2014.

Investment Market – An active second half yearAfter a quiet first half, H2 2014 has been characterized by an acti-ve transaction market with high investment volumes. Transaction volume finished on SEK 6.3 billion for the period, which is a huge increase of 448 percent on H1 and of 188 percent year-on-year. The Malmö/Lund share of the total Swedish volume has been 7.00 percent, which is above the average of 5.80 percent. The total number of transactions during H2 2014 has been 15, of which 5 transactions, 21 percent of the total volume, have been cross-bor-der. By far the largest of these has been the residential portfolio that Akelius fastigheter acquired from Hugo Åbergs fastighetsför-

valtning for SEK 2.8 billion, which included properties in Ribers-borg and Almgården, the Kronprinsen skyscraper, and comprised a total rental area of 186,000 sq m. Yield has been estimated at approximately 4.50 percent. The largest office transaction during H2 has been the acquisition by Partners Group, a Swiss-based asset manager, of the Nya Vattentornet 3 property in Lund for SEK 474 million. The property was acquired from Niam, which is dispo-sing of the remaining assets in its third fund, and comprises a total lettable area of 26,000 sq m, some of which includes premises occupied by Ericsson. Yield has been estimated at approximately 6 percent. As during the previous half year, the dominant property type has been residential with 61 percent of the volume, mainly due to the portfolio acquisition mentioned above. Office repre-sented the second largest asset type, and accounted for almost 17 percent of the total volume. Prime yield levels have remained stable for all submarkets for the tenth consecutive quarter, with the CBD at 5.25 percent.

Market Outlook – Growing optimism amongst developersMalmö/Lund continues to be a diversified market in which new build is the driving force behind rental trends, while older stock is lagging behind in the competition for major tenants. A total volume of 81,900 sq m is currently in the pipeline, as mentioned in the pre-vious section, which is the highest volume of new build since Q1 2012. This increase can be attributed to rising optimism amongst developers and a belief that the market is ready for additional spa-ce after a quiet period. Meanwhile the vacancy rate in Malmö/Lund has continued to rise during H2 2014, despite the low level of com-pleted speculative office space. Furthermore, approximately 50 percent of the space currently under production has been specula-tive, which in time may result in a higher vacancy rate. However, a significant proportion of this space is not scheduled for completion until 2016; hence the market will have some time to absorb it.



Nya Vattentornet 3 Lund 26,000 - Partners Group NIAMHermod 1 Hyllie 6,300 - Executive Property MidrocIsblocket (Vagnslidret 1) Hyllie 4,600 165 Kungsleden Otto Magnusson Byggnads ABZebran 6 CBD 4,200 90 Private Private



Teliahuset Västra Hamnen SAAB Kockums 6,000 WihlborgsKlipporna Hyllie Ikano 5,600 SkanskaKockumshuset (Gängtappen) Västra Hamnen Länsförsäkringar 5,200 Wihlborgs


Rents – Stable rental levelsOffice rental levels have remained stable during H2 2014, and pri-me rent in Copenhagen currently stands at DKK 1,750/sq m p.a. Low demand has put pressure on rental levels and this has led to an increase in some locations in price price differentials between up-to-date, space-efficient office premises and more outdated, in-efficient or inflexible office premises. Current demand is primarily for modern and space-efficient properties and it is this type of pro-perty that can sustain prime rental levels. Prime rents in the CBD currently stand at DKK 1,350 – 1,700/sq m p.a., exclusive of taxes and operating costs, with top rents of DKK 1,750/sq m p.a. Office rents in secondary CBD locations range from DKK 1,050 to DKK 1,200/sq m p.a.

Copenhagen Office Market

There has been a strong investor demand for prime office properties properties in Copenhagen, and demand is currently much higher than the limited supply can accommodate. As a result, yields have decreased significantly, with prime office yields currently standing at 4.50 percent. This trend has been taking place while the occupier market continues to struggle due to limited employment growth.

Supply – A minor drop in vacancy ratesThe occupier market continues to struggle as labour market growth is still slow. As a result, vacancy rates have remained sta-ble at approximately 10 percent in Greater Copenhagen, although they have decreased slightly both inside and outside the CBD. The largest decrease has taken place in the CBD where the vacancy rate currently stands at 8.50 percent. A large proportion of the el-derly, outdated office space in the CBD area has been converted into residential units in recent years to satisfy a very high demand. There are a number of large office projects in the pipeline, but low construction activity and no speculative construction in the office segment has remained the overall trend. In 2015, approximately 175,000 sq m of office space is scheduled to enter the market in Greater Copenhagen, of which 40 percent is located in the new CBD (the Waterfront).

Demand – A slow increase in employment is expected to spur demandThe demand side has been moving very slowly. There has been a small increase in activity caused by a slight rise in the employment rates in Copenhagen. Employment growth for Denmark during 2015 has been forecast at approximately 0.50 percent, which is very low, but it is expected to be higher in Copenhagen, a region with above-average growth. Among the major leases signed in Copenhagen during H2 2014 was the take-up by KPMG of 8,725 sq m in the CBD. In early 2014, EY took over the Danish KPMG head office and KPMG’s global operation has been busy establish-ing a new office in Copenhagen.

Property data

Office properties Q4 2014 Old CBD (City) New CBD (Waterfront) Rest of Copenhagen Ørestad Greater Copenhagen

Office stock Q4 2014 (m2) 5,730,000 190,000 11,795,000Total Est. Completions 2014 (m2) 0 70,000 25,000 0 140,000Total Est. Completions 2015 (m2) 5,000 20,000 20,000 30,000 175,000Total Est. Completions 2016 (m2) 40,000 70,000 30,000 70,000 260,000Vacancy rate (%) 8.5* 10.3Short-term forecast (kgm) g g g g -Prime rent (DKK/m2) 1,350 - 1,700 1,750 1,100 - 1,650 1,300 -Short-term forecast (kgm) g g g g -Rent - Grade B properties (DKK/m2) 1,050 - 1,150 1,200 600 - 1,050 925 -Short-term forecast (kgm) g g g g -Prime yield (%) 4.75 4.50 4.75 4.75 -Yield - Grade B properties (%) 5.75 - 6.50 5.50 - 6.00 7.25 - 8.75 6.00 - 6.50 -

* Total vacancy rate for all four submarkets.


Investment Market – Strong demand in the investment marketThe total transaction volume has picked up again in Copenhagen during 2014. It has been very difficult to achieve reasonable in-vestment returns in the classic asset classes such as stocks and bonds, and this has resulted in real estate becoming more att-ractive, with a number of new investors entering the Copenhagen investment market during 2014. However, the supply of prime pro-perties has been very limited and total volume has not increased as much as demand. The slow movement in the office occupier market has reduced the appeal of this market compared to the residential and high street retail markets, and demand in the office market is still for prime properties. The largest investment transac-tion during H2 has been the Scala property, a new development in the centre of Copenhagen, which has been sold for MDKK 1,500 to three Danish pension funds two years ahead of completion. This property also includes a very attractive retail section on the ground floor. Yield for prime office in the CBD has decreased to 4.50 per-cent, while in the secondary CBD segment it has remained at 5.75 percent. Yield for prime office outside the CBD has dropped to 4.75 percent, while in the secondary segment outside the CBD it currently stands at 7.50 percent.


Property Location Size (m2) Price (MDKK) Purchaser Vendor

Borups Allé 177 ("Fuglebakken") Frederiksberg 26,000 477 ATP Ejendomme EY

Vognmagergade 8 Copenhagen 20,000 370 KVUC (Egenanvändare) Ejendomsselskabet Kongens Have A/S

Axeltorv 2 Copenhagen 19,000 1,500 ATP, Industriens Pension, PFA Ejendomsselskabet NordenLandskronagade 33-35 Copenhagen 14,118 175 PensionDanmark MP Pension

Dampfærgevej 8-10 (Pakhus 12) Copenhagen 13,952 428 Jeudan Kongeegen



Carl Jacobsens Vej 39 Copenhagen Bygningsstyrelsen 10,907 PensionDanmarkHavneholmen 17 Copenhagen Pandora 10,000 SkanskaStamholmen 150 Hvidovre Bossard Denmark A/S 9,721 Industriholmen I ApSDampfærgevej 28 Copenhagen KPMG 8,725 PFAGyngemose Parkvej 50 Copenhagen ISS Facility Services A/S 7,698 PensionDanmark

Market Outlook – Increasing investment activity and a recovery in the occupier marketDuring 2015, the very high demand for prime office has been fo-recast to continue and activity is expected to spread to the more secondary markets. The drop in yields in all segments will cause investors to revise their risk profile slightly in order to secure reaso-nable returns. This trend will go hand in hand with an improvement in the occupier market as the overall economy continues to grow slightly. As a result, occupier demand for some secondary pro-perties will lead to investment activity for these same properties. There is a great deal of available capital in the market but a limited number of opportunities to invest. This will ensure that Copenha-gen properties become even more attractive for investors during 2015, as real estate performance in Copenhagen has historically offered very good risk-adjusted returns.


Record low interest rates, lower bank margins and easily ac-cessible financing have led to a booming transaction market during H2 2014. Transactions have been recorded in all mar-ket segments, and the prime yield estimate has been revised downwards to 4.75 percent in the same period. The transac-tion volume for 2014 closed at approximately NOK 85 billion, including the Entra IPO. However, the outlook is slightly more mixed as macroeconomic expectations have been revised even further downwards.

Supply – Vacancy rates are stableThe overall vacancy rate in the Oslo office market currently stands at 7.50 percent, which is the equivalent of approximately 700,000 sq m of vacant office space. The CBD vacancy rate has remained stable at just over 4.50 percent. Vacant space in the CBD and Rest of Inner City areas primarily consists of smaller premises, with only ten premises larger than 5,000 sq m currently vacant. For 2015, we are expecting the total average vacancy rate to remain stable at 7.50 percent due to the uncertain economic conditions caused by the dramatic drop in oil prices. Few new office developments have been completed during 2014, with only 60,000 sq m of new office space entering the market compared to 147,000 sq m in 2013. However, a higher volume of new office space is scheduled for completion during 2015 and 2016, 167,000 sq m and 94,000 sq m respectively.

Demand – Lack of large lease transactionsDuring H2 2014, the new leases registered in Oslo have totalled approximately 260,000 sq m (including renegotiations), a drop of 90,000 sq m (or 26 percent) from the same period last year. The reason for the weak H2 is the consistent lack of large lease transactions, which is a result of the uncertain future and a rather limited number of large tenants, among other factors. Of the to-tal absorption in Oslo, 50 percent is either related to the CBD or the inner city areas. This is a decrease since the last report, but demand for centrally located offices has remained robust. Of the other submarkets, Skøyen and Lysaker have accounted for 13 and 11 percent respectively, which is a significant increase compared to H1 2014.

Oslo Office Market

Property data

Office properties Q4 2014 CBD Rest of Inner City Outer City West Outer City East / North/ South Total

Office stock Q4 2014 (m2) 3,250,000 1,050,000 1,050,000 2,600,000 8,300,000 Total Est. Completions 2014 (m2) - - - - 60,000 Total Est. Completions 2015 (m2) - - - - 167,000 Total Est. Completions 2016 (m2) - - - - 94,000 Vacancy rate (%) 5 4.8 11 9 7.5Short-term forecast (kgm) g g g g g

Prime rent (NOK/m2) 4,200 2,500 2,900 1,900 -Short-term forecast (kgm) g g g g g

Rent - Grade B properties (NOK/m2) 2,500 1,600 1,450 1,300 -Short-term forecast (kgm) -Prime yield (%) 4.50 - 4.75 5.25 - 5.75 5.25 - 6.00 5.75 - 6.00 -Yield - Grade B properties (%) 5.50 - 6.00 6.00 - 6.75 6.50 - 7.00 6.50 - 7.50 -


Rents – Increasing rental levelsDuring H2, the prime rent level has increased by almost 2.50 percent from 4,100 to 4,200 NOK/ sq m p.a. Submarkets loca-ted close to prime space have recorded similar growth over the same period. Other fringe areas have reported relatively flat trends during H2 2014. Going forward, we are expecting rents in the inner city areas to remain at their current levels through 2015, with a decrease of 1.00-10 percent in fringe areas (outer Oslo). A surplus of available sites and properties in the fringe areas in combination with falling yields has created some downward pressure, as lower yields are incentivising landlords to lower rents in order to fill their properties. As a result, we believe the rental market will reflect the business sector’s somewhat sober outlook for 2015-16.

Investment Market – Record low yields, higher activityThe year-end transaction volume for H2 2014 has exceeded all ex-pectations. As we forecast in the last NCR edition, there have been a number of large transactions in all market segments. Falling interest rates, tighter bank margins and rising values have been some of the drivers underpinning this trend. The prime yield estimate has been reduced by a further 25 bps during the period, from 5.00 percent to 4.75 percent. The 10-year SWAP rate has declined by 101 bps and now stands at 1.75 percent. In addition, we have seen a rise in demand for prime property from overseas investors. This has increased the number of buyers and brought more liquidity to the bargaining table, which is a positive trend.

Market Outlook – Decrease in oil prices affects the marketDuring H2 2014, the leasing market has experienced a slight in-crease in the total average vacancy rate but a similar rise in overall rents. Upon closer examination, the forecast for 2015 is that rent levels in the fringe areas will decrease. The continuing uncertainty caused by the dramatic fall in oil prices has stagnated the oil and offshore industry, and cutbacks have already impacted several of the major players in this market. Thus, we are forecasting an in-crease in subletting in the western fringe areas where the oil and offshore clusters are located. For the same reason, this may result in tenants being more cautious going forward with regard to their space requirements and when to relocate. A typical scenario will be for tenants to extend their current contracts for short periods instead of signing new space, until the outlook becomes more stable. Another contributing factor is the fact that construction costs have remained stable while yield has fallen, which will indirectly enable landlords and developers to lower their rents and still remain profita-ble. We also forecast that the transaction market will remain strong for several reasons. There are a large number of sales in the pipeline by closed-ended funds and standard property funds, while pension funds along with other market players are ready to buy. Easily accessible financing and a weaker NOK will also have a positive impact on sales volumes. However, the uncertainty cau-sed by falling oil prices may result in less activity from overseas investors, which will impact capital providers such as banks, and thereby local investors. In our view the outlook for 2015 is promi-sing, but only time will tell.


Property Location Size (m2) Price (MNOK) Purchaser Vendor

Nordic portfolio (DNB NOR Eiendomsinvest I ASA)

Norway and Sweden 4,650* Starwood Capital Group Fortin

Statoil HQ Outer City West 87,724 ~3,400** Madison International Koksa Eiendom & Investment Fund (set up by Arctic)

Schweigaards gate 21-23 CBD 32,000 1,750 KLP Eiendom ROM EiendomKarl Johans gate 14/ Kirkegaten 23-25 CBD 15,000 775 AVA Eiendom GenestaGrensen 17*** CBD 6,500 260 Meyer Bergman Promenaden Property

(Søylen & Madison International)



Storgata 14-18 / Stenersgata 2-4 Inner City Riksrevisjonen 13,000 Thon EiendomØkernveien 11-13 Eastern Fringe Politiets Utlendingsenhet 12,500 Closed-ended fund, DTZInnspurten 9 Eastern Fringe Nexans Norway 8,500 Catella Real Estate / OBOS BasaleStranden 5 CBD Google 2,500 Norwegian PropertySørkedalsveien 8 Inner City Bouvet 5,400 Stor-Oslo Eiendom & Blystad Eiendom

*The price relates to Norwegian properties in the fund. **Madison bought additional shares (59,5 percent) and now owns about 100 percent of the property.***Office/Retail (ground floor).


Helsinki Office Market

In Q3 2014, marginal export-led growth indicated that the th-ree-year stagnation period in the Finnish economy was en-ding, but growth during Q4 has reverted to zero, with current forecasts indicating only moderate growth for the next two years. Due to weakening demand, prime rents have decreased slightly in all the main submarkets of the Helsinki metropoli-tan area. At the same time, office supply has shrunk slightly as outdated product is taken off the market for redevelopment and development activity has remained limited. Despite the lack of confidence in the occupier market, the investment market has been telling a different story, with consistently strong demand and compression in prime yields.

Supply – Increasing conversion plans push vacancy slightly downwardsThe previous trend of rising vacancy rates has reversed to a slight decrease towards the end of 2014. The drop of 50 basis points since H1 2014 has partly been due to an increase in conversion of old office space for other uses (mainly residential). At the same time, vacancies in the Helsinki CBD have risen slightly, which has partly been driven by occupiers relocating to new build in the Töölönlahti area. Otherwise the highest vacancy rates have been recorded outside the CBD, particularly in the Espoo submarkets, which are suffering from the negative impact of the challenges in the ICT sector. Vacancies have been forecast to increase through-out 2015 due to new space entering the market, with 90,000 sq m due for completion, of which around 25 percent remains unlet. The 2015 figure will be heavily impacted by the completion of the OP Vallila campus, comprising approximately 60,000 sq m. In 2016 only around 50,000 sq m of new space is expected to enter the market.

Property data

Office properties Q4 2014 CBD Rest of Helsinki Esbo Vantaa Total

Office stock Q4 2014 (m2) 1,100,000 4,760,000 1,830,000 920,000 8,610,000Total Est. Completions 2014 (m2) 0 40,000 15,000 10,000 65,000Total Est. Completions 2015 (m2) 0 75,000 5,000 10,000 90,000Total Est. Completions 2016 (m2) 0 30,000 10,000 10,000 50,000Vacancy rate (%) 7.0 10.3 15.4 10.3 11.0Short-term forecast (kgm) g k k k k

Prime rent (€/m2) 300 222 198 198 -Short-term forecast (kgm) g m m m -Rent - Grade B properties (€/m2) 186 - 210 78 - 114 72 - 108 72 - 108 -Short-term forecast (kgm) g g g g -Prime yield (%) 5.00 6.00 6.50 6.75 -Yield - Grade B properties (%) 7.00 - 7.50 8.00 - 8.50 8.50 - 9.00 8.50 - 9.00 -


Demand – Cautious atmosphere amongst occupiers persistsThe weak economic situation, combined with the tension between Russia and Ukraine, has resulted in a more cautious approach amongst occupiers during Q4. Take-up in the Helsinki office mar-ket has been subdued, with some occupiers opting to put their relocation plans on hold until the market is more stable. Despite the slight upturn in vacancies, the Helsinki CBD’s position as the best-performing submarket has remained unchallenged and the vacancy rise is expected to be temporary. Overall, decision-making has remained slow and the trend has been for smaller companies in particular to avoid signing longer leases. A continuing polarisa-tion of the market has also been evident, with tenants upgrading to modern space and vacating secondary, outdated product that has very limited chances of being let in the current market climate.

Rents – Prime rents falling in all submarketsRental costs for prime locations have dropped to €300/sq m p.a. for the first time in four quarters and are expected to remain at this lower level for the next year. The negative rental trend has also been evident in the other main submarkets. With economic conditions unlikely to improve for the next 12 months, occupiers have been less willing to pay top rates, and this has put pressure on landlords to reduce asking rents. Further rental decreases may occur if the state of the economy deteriorates but it is more likely that they will remain stable going forward. In recent months, rent-free periods and incentives have been introduced in the CBD and pressure on the landlord side has been highlighted in order to att-ract new tenants. Tenant incentives have continued to increase in other submarkets as well, and due to the subdued demand, land-lords have been much more willing to fund tenant improvements in an effort to retain tenants when their leases expire.

Investment Market – Increasing demand underpins yield compressionH2 2014 has highlighted the contrasting climates in the occupier and investment markets. While occupier demand has remained sluggish and vacancies have stayed high, momentum in the in-vestment market has continued throughout H2 2014. This has resulted in an office transaction volume of approximately €320 million in the Helsinki metropolitan area, which is an increase of 7 percent compared to H1 2014. At over 85 percent, the propor-tion of cross-border transactions has been high, with Nordic and Pan-European funds particularly active. Investment demand for prime office space has also remained strong and record yields have been recorded in the Helsinki CBD. In Q4 2014, for the first time in three quarters, prime yield has decreased from 5.10 per-cent to 5.00 percent, with further yield compression anticipated over the next 12 months.

Market Outlook – Economy and investment market moving in opposite directionsAs a result of the anticipated slow economic growth, the positi-ve impact on the office market from the growing number of office occupiers and expansionary take-up is expected to remain limi-ted. Competition for tenants has continued to tighten and asking rents have also dropped, while tenant incentives and rent-frees are becoming market practice. In addition, space in the CBD is facing downward rental pressure but the relatively limited supply of grade A premises should keep rental levels at approximately the current level. Supply is expected to increase throughout 2015 due to new build entering the market, while H1 2015 is expected to be challenging as a result of the current economic and political headwinds. H2 2015 should see an improvement in the market climate, although to some extent this will depend on wider geopo-litical and economic conditions. Investment demand for core as-sets will remain strong, and due to the tight competition for prime space and an increasing risk appetite, secondary properties can also expect stronger market conditions. However, better economic fundamentals will be required before large-scale demand expands to secondary properties.


Property Location Size (m2) Price (MEUR) Purchaser Vendor

Polaris Vega Espoo 5,900 n/a AXA IVGMannerheimintie 103a Helsinki 7,800 n/a Nordic and Baltic Property Group RBS Nordisk RentingVoimatalo Helsinki 9,300 n/a Niam AXAMicrosoft Keilaniemi FG Espoo 17,100 65 AXA ExilionBrondankulma Helsinki 8,200 n/a AFIAA CBRE Nordic Property Fund


The wall of money moving towards European real estate

Looking at the NordicsWithin Europe, the Nordics is the fourth largest region by invest-ment and home to the fourth largest market in Europe over the last five years, i.e. Sweden. Given the regions macroeconomic stability and history of fiscal prudence, it has been labelled as one of Eu-rope’s safe haven markets, which also ensured that it was one of the first markets to recover from the global financial crisis. Between 2009 and 2011, investment in the Nordics increased by 132 per-cent, and only the German market bounced back more strongly with an increase of 150 percent. Furthermore, the region is home to Oslo and Stockholm, which between 2010 and H1 2014 both figured in the top 30 global cities by investment volume.

Global savings are growingOver the last decade, global savings have increased rapidly and the shape of these savings is changing. According to HIS Global Insight, emerging markets will account for 50 percent of global GDP and roughly two-thirds of global growth between 2004 and 2022. A large chunk of these savings has been invested in pen-sion funds in both emerging markets and in developed markets, through economic growth in the former and through changes in legislation in the latter. As a result, pension funds are increasing their allocation to alternative sectors, of which real estate is taking the lion’s share of investment. It is this large wall of money that has been driving investment volumes in Europe and we expect it to continue doing so for the foreseeable future.

Europe in focusSince the global financial crisis, the European real estate market has grown year-on-year to €208 billion (FY2014), which compares to a previous peak of €245 billion in 2007. Throughout 2014, the European market has been at the epicentre of global real esta-te, receiving 39 percent and 400 percent more investment from outside the continent than the Americas and Asia-Pacific respec-tively. Investors have come to Europe in 2014 for two main rea-sons. Firstly, the economic recovery in the US has already been priced in and competition in first and second-tier markets is high. Secondly, in Asia-Pacific, yields are already very low and growth is now slowing in China. At the same time, investors in these two regions have access to cheap capital and are looking to Europe for its relative value. In other words Europe, with its weak euro and relatively attractive yields, has been the hot spot for international capital in 2014.

The positive market fundamentals in the Nordics also stand out against a sluggish Europe. Sweden’s GDP is set to grow by 18 per-cent and the remaining three markets by 16 percent between 2014 and 2022, compared to a euro-zone increase of only 13 percent. Furthermore at city level, the GDP of the combined Nordic capi-tal cities has been forecast to grow by an average of 23 percent, more than Paris and the German big 7 markets, and the population growth of the combined Nordic capital cities is ahead of all the other capital cities in Western Europe bar London.

Q4 13 Q4 14 % (y-o-y) 2013 2014 % (y-o-y)

UK 27,024 27,264 1% 65,308 141,511 24%Germany 10,790 13,217 22% 28,292 35,213 24%France 5,548 9,122 64% 18,478 25,079 36%Nordics 6,293 7,178 14% 16,946 20,583 33%S.Europe 2,907 5,582 92% 7,784 14,374 85%Benelux 1,859 3,960 113% 6,519 11,299 73%CEE 1,640 2,848 74% 5,078 7,730 52%Russia 1,857 441 -76% 5,409 1,448 -73%Other 4,373 3,090 -29% 11,596 11,502 -1%EMEA 62,291 72,702 17% 165,411 208,447 26%


Global investors want a piece of the pieWhile stability and top performing indicators have placed the Nordics under the global spotlight of investors, the Nordic mar-ket has been dominated by domestic investors. In 2014, investors from outside the Nordics have only accounted for 14 percent of transactions. Finland is the most international with 40 percent of non-Nordic investors and Sweden the least with 7.00 percent. While we have seen international investors such as CBREGI, Patrizia and Invesco active in the direct market, intense competition from domestic investors has been prompting international investors to access the market in other ways such as joint ventures with local firms, debt and, more recently, acquiring corporate stock. The lat-ter has been prominent throughout 2014 and has provided interna-tional investors with fast exposure to the Nordic market.

In fact, after including the above entity deals, the total proportion of non-Nordic investors increases from 14 percent to 19 percent, which shows that there is more international interest than the headline figures suggest. With exemplar investments in Nordic property companies in 2014, we could be set to see international investors looking to listed Nordic companies in 2015.

The Nordic real estate market has recovered strongly since the financial crisis and is one of Europe’s growth markets, with a num-ber of indicators above the European average. While investment has been increasing year-on-year, we expect this to continue as the global wall of money finds new ways to gain exposure to the market, whether it be through debt, club deals, entity transactions or new investment vehicles.

The Nordic cities are growing ahead of the rest

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