NPO_Spring_2016_digital_070316

NEWSEC PROPERTY OUTLOOK SPRING 2016

NEWSEC PROPERTY OUTLOOK

CONTENTS Executive summary ........................................................................................................... 4 Global economic outlook ................................................................................................ 8 Sweden: changing demographic patterns ........................................................... 12 The Swedish property market .................................................................................... 19 The Norwegian property market............................................................................. 22 The Finnish property market ................................................................................... 24 The Danish property market ..................................................................................... 26 The Baltic property market ........................................................................................ 28 Nordic property financing .......................................................................................... 32 Outlook for the Northern European property market ................................. 35 Macroeconomic data ..................................................................................................... 38 Property data ...................................................................................................................... 41 Definitions ........................................................................................................................... 45 The Full Service Property House ............................................................................ 46 Contact and addresses.................................................................................................. 47 Copyright Newsec © 2016 This report is intended for general information and is based upon material in our possession or supplied to us that we believe to be reliable. Whilst every effort has been made to ensure its accuracy and completeness, we cannot offer any warranty that factual errors may not have occurred. Newsec takes no responsibility for any damage or loss suffered by reason of the inaccuracy of this report. Newsec, Box 7795, SE-103 96 Stockholm, Sweden. Phone + 46 8 454 40 00, www.newsec.se. You may use the information in the Newsec Property Outlook but acknowledgement must be made for all quotations and use of data/graphics.

●  EXECUTIVE SUMMARY   NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 EXECUTIVE SUMMARY Global stock markets have shown high volatility during the first two months of 2016, since 2010, primarily due to negative net and the Swedish, German and US stock markets, like most other markets, are showing migration. The immigration trends are a strong negative trend since the start of the year. There is concern among some also significantly different depending on investors that the uncertainty on the global stock markets will spread across all country. Both Sweden and Norway are types of investment markets going forward. However, we believe that the commercial currently allowing a very large immigra- property market will continue to be an interesting market to invest in for the foresee- tion in relation to total population while able future, despite a fairly long trend of increasing property prices. Interest rates are Denmark, Finland and the Baltics are historically low and there is plenty of liquidity in the system; in addition, central banks more restrictive. Following these trends will not be able to increase interest rates significantly as this would inhibit economic the implications, challenges and opportu- growth. nities for the property markets are quite different across Northern Europe. Demographic changes are civil war in Syria, Europe has seen a mas- affecting the European property sive increase in immigration in 2015. More Sweden is facing major challenges across market than a million migrants and refugees the whole property market as a conse- This Newsec Property Outlook is focused crossed into Europe last year, sparking a quence of the drastic changes in demo- on the demographic changes we are crisis as countries struggled to cope with graphy. With the current regulations and seeing in Europe today as a result of an the inflow and creating division within the structure of the residential property ageing population, increasing immigra- EU over how best to deal with resettling market there is no chance that the need tion and urbanisation, and on how these people. for housing across the country, and in changes are affecting the property particular in the major cities, can be market in different ways. As always, we Within Northern Europe the demo- met. The zoning-processes in most of also report on the current status of the graphic trends look significantly different Sweden’s municipalities are too long, property market in Northern Europe and depending on which country you look at. building costs are steadily increasing, our views about the future. Sweden, Norway, Finland and Denmark and it is easy to appeal against the zoning are all showing strong growth rates in decisions, which extends the construction Europe is facing unprecedented demo- population, with the population growth time. Altogether this is having a heavy graphic changes because of its ageing in Sweden being historically high. In the negative effect on the construction of population, changing family structures, Baltic countries, on the other hand, the new housing. Substantial reforms are urbanisation and migration. Due to the population growth has been negative needed in Sweden’s housing policy, and the reforms are needed now. The Transaction Volume: Nordic and Baltic Region Source: Newsec municipalities in Sweden’s three major cities should also take inspiration from BEUR strongly growing municipalities such as Uppsala, Norrköping and Luleå on how 50 to view housing construction. In these municipalities it is more common to have 45 a more pragmatic view on the challenges of housing production, and the political 40 parties are more willing to work together across the political spectrum. There are 35 also huge challenges concerning public properties. In the next 15 years 7.7 million 30 m2 of new schools, housing for older people etc will have to be built. In addition 25 to the public properties about 42 million m2 of residential space is needed over the 20 next 10 years. Together, this will require large amounts of capital to be allocated to 15 10 5 0 2009 2010 2011 2012 2013 2014 2015 2016E Sweden Norway Finland Denmark Estonia Latvia Lithuania 4

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 EXECUTIVE SUMMARY  ● »The commercial property market will continue to be an interesting market to invest in for the foreseeable future« 5

●  EXECUTIVE SUMMARY   NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 42 MILLION m2 RESIDENTIAL SPACE NEEDED SWEDEN 2025 new production in the property sector. In volume over SEK 134 billion were carried the total transaction volume in 2015 addition, the development of the residen- out. This figure was slightly below 2014 was about NOK 120 billion, which is an tial markets in the major cities is tending when more than SEK 149 billion was all-time high by a significant margin. The to increase segregation in society. Cen- invested in property all over Sweden. One search by domestic and global investors tral Stockholm is beginning to look more factor contributing to the good financ- for property investments with attractive and more like central London, where only ing climate and continued strength of risk-adjusted returns has resulted in a people with high incomes can afford to property is the low interest rate, which wave of capital flowing into the Norwe- live and people with smaller incomes are the Swedish central bank decided to cut gian property market, leading to an pushed further and further away from the by a further 15 basis points to –0.5 % at its increase in investment activity and a pro- city centre. last meeting in February. There has been longed core yield compression. Newsec a continuously high interest in properties predicts a modest slowdown in 2016. 2016 will show a continued high in Sweden’s smaller regional towns and market activity during 2015 they accounted for 45% of The Finnish property market saw a trans- The low interest rate environment will the total transaction volume. The interest action volume of nearly EUR 5.5 billion continue through the spring, and toget- from foreign investors is high and in 2015 in 2015, which is an increase of around her with volatile stock markets, lack of they represented 28% of the transaction EUR 1 billion compared with 2014. The high-yielding alternatives and relatively volume, compared with 18% in 2014. Due Helsinki Metropolitan Area accounts for good access to financing will lead to to shaky global stock markets, low yields more than half of Finland’s property continued high transaction volumes on on the bond market and continued low market transaction volume in terms the property markets in Northern Europe interest rates combined with a strong of value. Investment activity is expected during 2016. Swedish economy, the interest from to remain relatively high in 2016, even foreign investors is expected to remain though Finland’s economic indicators The past year, 2015, has continued to strong throughout 2016. seem moderate and the tenant market is show a strong Swedish transaction passive. Finland’s property market yield market. Considering transactions of SEK Norway’s property market is continuing levels are attractive to foreign investors 100 million or more, deals with a total to break records in terms of transactions; and there is capital ready and waiting for good investment opportunities. Market Yield Northern Europe Source: Newsec The property transaction volume in Percent Denmark rose throughout 2015 and 10 reached DKK 36 billion, compared 9 with a total of DKK 30 billion in 2014. 8 So far, the brisker transaction activity 7 has been largely concentrated in and 6 around Copenhagen and to some extent 5 Aarhus, with the prime segment most 4 highly coveted. Higher employment rates, 3 positive demographics and a brighter 2 economic outlook have made investors more aggressive in seeking investments 1 in the office-properties segment in 0 Copenhagen CBD, where falling vacancy rates have made it increasingly difficult Average Interest Rate ECB 2006-2015 for users to find up-to-date office space. Yield 2016E The demand has driven prime CBD office Logistics Riga Prime yields down to 4.25%, a level acceptable Logistics Vilnius Prime to both domestic property companies and Logistics Tallinn Prime a large number of international investors. Office Riga Prime Retail Riga Prime Logistics HMA Prime Office Tallinn Prime Office Vilnius Prime Retail Tallinn Prime Retail Vilnius Prime Logistics Malmö Prime Logistics Gothenburg Prime Logistics Stockholm Prime Logistics Oslo Prime Retail Malmö Prime Office Malmö Prime Retail Gothenburg Prime Office HMA Prime Retail HMA Prime Office Gothenburg Prime Office Oslo Prime Retail Oslo Prime Office Copenhagen Prime Residential HMA Prime Retail Stockholm Prime Retail Copenhagen Prime Office Stockholm Prime Residential Malmö Prime Residential Gothenburg Prime Residential Stockholm Prime 6

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 EXECUTIVE SUMMARY  ● »T he Nordic transaction market will be strong throughout 2016« 2015 was a record-breaking year for the Russian investors being the only players few of the larger deals in 2015 came from Baltics. For the first time in history the on the Baltic market has changed during investors in countries such as the combined transaction volume of the 2015. After joining the euro 2015 (the last Netherlands, Malta and Switzerland. three countries exceeded EUR 1.1 billion. of the countries in the region), the predic- This is a large increase on 2014, when the tion is that the demand from international volume amounted to EUR 423 million. investors for properties throughout the The traditional trend of Baltic, Nordic and region will increase going forward. A 7

●  GLOBAL ECONOMIC OUTLOOK   NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 GLOBAL ECONOMIC OUTLOOK Global the euro remain very low. Credit markets and committed to continuing the bond have continued to improve. We project purchase programme at least until March The conditions for global recovery have GDP in the euro area to grow by 1.8% this 2017. Bond purchase is continuing to taken a significant hit in recent months year, slightly more than last year. This is run at EUR 60 billion per month, a very and the risks going forward have turned not a high growth rate, but high enough large amount compared with the size of more negative. However, there is a funda- for employment to continue to grow by both asset markets and the economy, but mental basis for higher growth in the about 1% and unemployment to fall. At financial markets expected even larger developed economies, although uncer- 10.5%, unemployment remains too high, purchases and a deeper rate cut in order tainty and financial market volatility of course, but it is down from 12% in mid- to stimulate both growth and inflation could derail the journey for a more or less 2013 and we expect to see it fall towards further. Although the members of the extended period. The slowdown at the 9.7% by early next year. ECB Council do not all agree on the need end of last year implies that we should for further measures, they expressed shift our forecasts for the next two years, European consumers remain very up- worries at the January meeting about but, more important, that we should raise beat. Consumer confidence is at high lower-than-expected inflation and higher the negative risks. We will be watching levels in most countries and growth in risks. If commodity prices do not recover, closely the developments in China and the retail sales and private consumption has volatility remains high and there are any policy intentions of the Chinese authori- been strong. The continued fall in oil and signs of macroeconomic weaknesses, the ties for clues on how big the risk is for the other energy prices will provide a further ECB could act as soon as March. We now global recovery. Overall, we believe that boost to households’ real incomes and expect the first interest rate hike to be the headwinds have increased slightly help sustain demand growth. Over time, postponed at least until 2018. more than the tailwinds. We now forecast rising wages will also help to fund con- global growth to reach 3.4% in 2016 and sumption growth. But there is a problem Nordics 3.7% in 2017. – lower oil prices mean that inflation is likely to remain very low in the euro area Sweden – urgent need for reform Euro area – growth sustained this year. Although we see no signs of On the surface, the Swedish economy deflationary behaviour, the European is strong. Growth is high, driven by a Conditions in the euro area are improv- Central Bank (ECB) may be unhappy even strong labour market, high private and ing, albeit slowly. Economic policy in the with core inflation, which has stabilised at public consumption, and an upswing euro area will remain supportive, but around 1% in most places. in industrial production. An ultralight external headwinds are pushing down our monetary policy and expansionary fiscal growth forecasts. We remain optimistic In December, the ECB cut the deposit policy are combining to reinforce each about the prospects for further improve- rate another 10 basis points to –0.3% other. This is dynamite for growth but, like ments in the euro area. Interest rates and Swedbank's Global GDP Forecast 2014–2017E Central Bank Policy Rate Forecasts Annual Average Percentage Change Source: IMF, Swedbank Percent Source: Swedbank 8 2.0 7 1.5 6 5 1.0 4 3 0.5 0.0 2 1 -0.5 0 -1 -2 India -1.0 May Sep Jan May Sep Jan May Sep Jan China Jan 2017 Global GDP 2015 2016 BoE USA ECB Fed Norwegian Central Bank Swedish Central Bank UK Denmark Norway EMU countries Japan Brazil Russia 8

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 GLOBAL ECONOMIC OUTLOOK  ● »After three years of high growth, the underlying imbalances in the Swedish economy could reach a breaking-point« all explosives, has serious side-effects. EXPECTED GLOBAL The Swedish labour market is becoming GROWTH 2016 increasingly polarised, the housing mar- ket is dysfunctional, and the education 9 system has been neglected. After three years of high growth, the underlying imbalances in the Swedish economy could reach breaking-point. Growth will slow substantially in 2018 unless extensive reforms are implemented. The Swedish economy is expected to grow significantly in 2016 and 2017. This follows strong development in 2015. The economy grew by 3.9% on an annualised basis in the third quarter of 2015. The main drivers in 2016 and 2017 will be high private and public consumption, rising housing investment, and an upswing in exports. The Swedish central bank’s interest rate cuts and bond buying are contributing to this trend, as low interest rates stimulate household consumption and housing investment, and a weaker krona helps to boost exports. Industrial production has turned upward after struggling for several years. In addition, the huge wave of refugees has contributed to higher private and public consumption. Swedish exports gained market share in 2015 in a global economy with the weakest growth since the financial crisis in 2009. In the US and Europe, which ac- count for the majority of Swedish exports, growth has been significantly stronger than in emerging markets. Swedish export volume grew by an estimated 5% in 2015, driven mainly by higher exports of services. The global market growth for Swedish exports is expected to strengthen in 2016–2017, though at a slower pace than the historical average. Inflation turned slightly higher in 2015, even though the year finished weaker than expected. We see inflation continu- ing to rise during the forecast period, but at a slower pace than we forecast

●  GLOBAL ECONOMIC OUTLOOK   NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 +0.5% EXPECTED GROWTH FINLAND 2016 last autumn; this means that the annual has fallen to its lowest level since the will slow this year, as loan repayment holi- CPIF rate will not reach 2% until the end financial crisis, indicating a decline in days expire, and wage and employment of next year. Our main scenario is that consumption. However, household sav- growth is modest. Although wage growth the Swedish central bank will introduce ings are high, and public transfers, such has slowed, it is still faster than produc- currency interventions in the short term as unemployment benefits, will provide tivity, worsening export competitiveness. if the krona again strengthens to a level of income insurance; this suggests that Finland’s GDP is expected to grow by 9.10–9.15 against the euro. Therefore and households may be capable of sustaining 0.5% in 2016 and 1% in 2017, which is against the backdrop of continued low in- their consumption level fairly well. We better than in 2012–2014 when the GDP flation the repo rate cut of 15 basis points therefore see the risk of a severe contrac- growth was negative. to –0.50% in February was expected. An tion in consumption as very small. initial rent hike is expected in the first half More than in many countries, the share of 2017. By the end of 2017, the repo rate Norges Bank has already lowered its of the industrial sector in Finland’s is expected to have been raised to 0%. main policy rate from 1.5% to 0.75%, and economic output has declined, where- the central bank’s projections indicate a as the share of the services sector has Norway – into the depths further rate cut to 0.5% in the first half of gradually increased. The decrease in Growth in Norway’s mainland economy 2016. Financial markets expect yet anot- industrial sector production volume has remains low. GDP rose by 1% in the third her cut to 0.25%. Norges Bank is clearly gradually slowed, whereas turnover in the quarter, but Norges Bank’s Regional taking a careful approach to rate cuts, as services sector has been growing since Network Survey indicates zero growth in it remains worried about imbalances in 2014. However, as a considerable share the coming months. Oil-related activities house prices and debt. of services’ output is used by industry, are contracting sharply. The decline is stronger growth in that sector depends set to continue and may well last longer However, the strongest stimulus to the on the recovery in demand by industrial than previously assumed, as oil prices Norwegian economy is the weaker krone, and construction sector enterprises. have fallen further in the past months. As which has significantly improved compet- unemployment increases, the slowdown itiveness for all firms exposed to interna- The government has ambitious plans may spread to the broader economy. tional competition. Tourism is flourishing for reforms to revive the economy and On the other hand, the weaker krone has and fish farmers are enjoying record strengthen public finances. The high level improved competitiveness; however, so prices. So far, non-oil-related manufac- of unemployment and ageing population far, non-oil-related manufacturing shows turing shows no signs of upswing, and are increasing government expenditures. no signs of upswing. non-oil exports are rising very slowly. We At the same time, due to the economic remain confident that the weak krone will recession and expected sluggish The labour market continues to deterio- work, eventually. Meanwhile, however, recovery, taxes and other government rate. According to the Labour Force Sur- the Norwegian economy remains at risk revenues are insufficient to balance the vey, unemployment has already climbed of worsening. government budget. about one percentage point to 4.6%. Registered unemployment has risen far Finland – modest growth in a Denmark – after a temporary less overall but is now rising steadily. still-vulnerable economy setback, the recovery is on again Thus far, the increase in unemployment Recovery of Finland’s economic growth in Real growth unexpectedly fell back into remains concentrated in oil-related 2016–2017 will be sluggish and primarily negative territory in the third quarter regions and professions. However, all in- supported by improving investments last year after positive growth had been dicators continue to point to weak labour and exports. The economic situation of registered for eight consecutive quarters. demand, and employment growth has the main trade partners is expected to The decline was explained by decreasing indeed slowed. improve, strengthening export demand. exports, which was surprising given the Furthermore, several major construction relatively good performance of main With rising unemployment, slower projects in 2016–2017 should contribute trading partners and the competitive real employment growth, and no real wage to an increase in investments. Private exchange rate. Exports of both services growth, a slowdown in household demand consumption, which made the strongest and goods fell. The domestic economy is, is to be expected. Consumer confidence contribution to economic growth in 2015, however, continuing its upward trajectory, 10

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 GLOBAL ECONOMIC OUTLOOK  ● »R ecovery of Finland’s economic growth in 2016–2017 will be sluggish and primarily supported by improving investments and exports« with household consumption and invest- accelerate. This will support business- ing labour market and recovery of credit ment supported by lower oil prices and sector investments and, in turn, will growth may briefly boost spending and increased employment. strengthen the economic growth. Nomi- GDP growth to over 4%; this possibility nal wage growth will remain satisfactory has risen recently. Less pressure on the foreign exchange and, despite slightly higher inflation, reserves implied that the Danish central household consumption will be the main Lithuania – investments surging, bank could raise the policy rate by a source of growth. Unfortunately, employ- finally modest 10 basis points to –0.65%. The ment growth will be weak or non-existent, After last year’s seismic shifts, when currency reserves had dropped back to mainly due to ageing societies. exports of Lithuanian goods to Russia levels last seen prior to the significant shrank by 50%, GDP growth is set to dou- inflows registered before the currency Estonia – less growth potential ble in 2016, before cooling off somewhat interventions to defend the fixed ahead in 2017. This is due not only to increasing exchange rate. Primarily due to weakened foreign purchasing power and confidence of con- demand and its negative impact on bus- sumers, but also to a long-awaited pickup Looking forward, we expect activity to iness sector confidence and investments, in business investments. Upcoming par- pick up, and we stick to our view that risks GDP growth decelerated to 1.2% in 2015. liamentary elections have encouraged of overheating are looming, albeit a bit We expect demand on the European the government to embark on a spending postponed. Output gaps in both the markets to strengthen in 2016 and 2017, spree, further stimulating growth, but at labour market and the overall economy offering more possibilities for Estonian the cost of a larger budget deficit. are expected to close next year and, with exporters. The improved demand outlook persistent low interest rates, housing is expected, in turn, to have a positive Source: Swedbank Economic Outlook, prices are again a potential risk. Fiscal impact on investments. GDP growth is January 2016 policy needs to become tighter, in line expected to accelerate to 2.3% in 2016 with the latest budget decision, but and to 2.6% in 2017. reductions in land taxes could instead raise risks. Latvia – cyclical upswing We expect broad-based growth of about Baltics – growth to pick up in 3% to continue in 2016–2017. Although 2016–2017 this is satisfactory, at about potential, it keeps policymakers complacent. Yet, With the support of the improvement of despite relatively good growth, income the European economies, export growth convergence with the euro area average in the Baltic countries is expected to has slowed. At the same time, a tighten- Sweden: Repo Rate Path (%) Sweden: Household Consumption & Savings 2.0 Source: Swedbank Source: Swedbank 1.5 18 4.0 16 1.0 14 3.0 12 0.5 2.0 10 0.0 1,5 8 1.0 6 -0.5 0,5 4 0.0 2 -1.0 2011 2012 2013 2014 2015 2016 2017 0 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2018 Disposable Income (y/y), %, lhs Consumption (y/y), %, lhs Outcome Swedish Central Bank Swedish Central Bank Interest Rate Cost (% of Disp. Inc.), rhs Savings Ratio (% of Disp. Inc.), rhs 2,0 Sweden, Swedbank Sweden, Riba/FRA 1,5 1,0 11 0,5 0,0

●  CHANGED DEMOGRAPHY   NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 CHANGED DEMOGRAPHY IS PUTTING PRESSURE ON THE SWEDISH PROPERTY MARKET The share of the world’s population that trated geographically. Between 2015 and quite densely populated, especially the lives in the major city areas increased 2030 the country’s population is ex- parts located close to a transport hub from 29% in 1950 to around 50% in pected to rise by more than 1.6 million or station. The countryside and smaller 2009. By 2030 the share living in major people, and the greater part of this in- places outside the commuter corridors cities is expected to reach 60%, and crease will take place in the three have had negative population growth for by 2050 as much as 70%. This trend is major city regions. a long time. Urbanisation means that this also very obvious in Sweden. Currently trend is continuing. S­ tockholm has the highest population Today our three major-city regions repre- growth of all the cities in Europe, followed sent 53% of the country’s population. Up Sweden’s population is living longer, more by Copenhagen, Oslo and London. Over to 2020 they are forecast to absorb 55% children are being born, and immigration the next five years, up to 2020, the pop- of the country’s population increase. continues to be high. Much of the working ulation of Stockholm is expected to grow Of the cities themselves Gothenburg population lives in the major city regions, by a full 11%. and Malmö will absorb 50% of their while the proportion of older people is respective region’s total increase while higher in the countryside. In addition, the Sweden’s urbanisation Stockholm will absorb 40%. At the same countryside is losing many young adults, time this means that a large proportion of since this age-group is moving to the In the next few years Sweden will ex- Sweden’s other cities and municipalities major-city regions or university towns. perience a record population increase. will also continue to grow. It is really only A disproportionate number of young Between 2016 and 2018 the annual the sparsely populated rural municipali- women are moving. In general young population rise will lie in the bracket 1.3% ties that are expected to show a negative people often want to live in the major city to 1.5% a year. This can be compared with population trend. regions and take part in their huge choice the previous strongest year of population of jobs, activities and culture. But when growth – the first year after the Second In the future, the migration into the major they come to build a family other factors World War – when Sweden’s population ­city regions will result in the inner city ar- control where and how they want to live. increased by 1.3%. According to forecasts eas becoming denser, but also in the ma- Closeness to, for example, schools, care by SCB (the Swedish statistics office), jor city regions containing several cities facilities, green areas and communica- Sweden will pass the ten-million mark in with their own city centres. By 2025 there tions, together with access to work, then its population in 2016 and will have over is expected to be an ever increasing num- becomes important. There is also now a 11 million inhabitants by 2025. This rep- ber of people in the commuter catchment trend that people remain in inner areas resents an average increase of 110,000 areas of the growing major city regions. of the major cities even after having people a year. At the same time the rise in The surrounding rural areas are already children. population will be increasingly concen- Population Growth Distribution Source: SCB Sweden’s Rising Population Source: SCB Forecast › 160 Million 1980 140 14 2000 2020 2040 2060 120 12 100 10 80 8 60 6 40 4 20 2 0 0 1900 1920 1940 1960 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018 2023 2028 2033 2038 2043 2048 2053 Large Cities Cities Suburban Municipalities Other Municipalities Rural Municipalities 12

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 EXECUTIVE SUMMARY  ● »S weden will pass the ten-million mark in its population in 2016 and will have over 11 million inhabitants by 2025« 13

●  CHANGED DEMOGRAPHY   NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 +2% ESTIMATED POPULATION GROWTH GENERATED BY IMMIGRATION 2015 AND 2016 Over the past 40 years it is the suburban estimates that about 163,000 asylum benefit most. The increase in government municipalities that have had the largest seekers came to Sweden in 2015, and the spending that the reception of refugees population growth of 70%, while popula- forecast for 2016 is up to 170,000 people. has as its short-term consequence leads tion in the rural municipalities has fallen About two thirds of those seeking asylum in the long run to GDP growth: according by 20%. Population in the three major in Sweden get residence permits. This to Blackrock, a 1% increase in govern- cities increased by 11% and in the other would mean that Sweden’s resident pop- ment spending results in a real GDP large cities by 20%. The pressure on the ulation could increase by up to 223,000 growth of 0.3%. Swedbank predicts that suburbs has led to increased residential people just in 2015 and 2016 as a result of the inflow of refugees will increase building and a spreading of new housing the critical refugee situation. The scale of Sweden’s GDP by a total of 0.8% up into the towns’ surroundings. In recent the immigration represents a population to 2017. years discussions about raising the den- increase of about 2% of today’s popula- sity rather than spreading outwards have tion. Since the flows of refugees are very The large number of refugees creates become increasingly widespread, with hard to predict, it is almost certain that great pressure on the public sector, not the aim of reducing pressure on the forecasts produced by SCB have not only on the Migration Agency’s capacity additional areas and instead increasing been able to take full account of their to scrutinise asylum seekers and arrange the effective use of already developed impact, which implies an even stronger temporary accommodation but also on land and existing infrastructure. population growth in Sweden in the next schools, social services and care services. few years from a level that is already The Migration Agency estimates that it The refugee situation historically high. was short of housing places for between 25,000 and 45,000 asylum seekers at During the autumn the EU, and Sweden Although a massive immigration puts the end of 2015. This has shown up on the in particular, has been faced with a huge great pressure on the Migration Agency property market as affecting properties wave of refugees, coming primarily from and the country’s municipalities initially, of types well suited as refugee accom- Syria as a result of the civil war there. In the overall consequences are predomi- modation, which have seen a strong November 2015 about 1,500 people a day nantly positive. Blackrock predicts price-rise during the autumn. As a result sought asylum in Sweden which, relative that the great inflow of refugees into pressure has grown on the market for to population, was the largest number­ Europe will drive GDP growth upwards in asylum accommodation, and players who anywhere in Europe in this serious refu- the countries where the refugees finally were already active have bought up more gee situation. One in every fifty EU inhabi- settle. Countries such as Sweden and properties to meet the growing demand. tants is Swedish, but one in every seven Germany to which the refugees are Unfortunately a larger number of less refugees in Europe is seeking asylum in choosing to come should therefore scrupulous players have also begun to Sweden. The Swedish Migration Agency move into this market in order to make a fast buck. An increase has also been Population Density (persons per square kilometre), 2014 noted in the number of applications for temporary permits to build modular Source: Stockholm Chamber of Commerce housing that can, for example, be used as asylum accommodation. 700 Asylum seekers who are currently being 600 638 placed in refugee accommodation in rural communities will in time mostly move to 500 the major city regions when they get resi- dence permits and can choose where they 400 want to live. Job opportunities and access to networks are significantly greater than 300 328 311 296 in the rural communities. The long pro- cessing times of the asylum process mean 200 236 that the increased pressure on the hous- 100 175 171 160 133 0 Munich Copenhagen San Seattle Austin Pittsburgh Stockholm Portland Zurich Diego 14

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 CHANGED DEMOGRAPHY   ● »The Migration Agency estimates that it was short of housing places for between 25,000 and 45,000 asylum seekers at the end of 2015« ing market resulting from the high inflow shortage currently prevailing in Sweden other European city, there is nothing that of refugees in 2014-2015 has not yet had will hamper the country’s growth and its suggests any slowing down, at least in the its full effect. It is almost certain that the international competitiveness. short term. situation will worsen further in 2017 when large groups of new arrivals can begin to Urbanisation and property Consequences for the property move to the major city regions. prices market Population density By means of an international comparison Sweden’s increase in population is faster of population growth and property prices than ever before, and is even more con- Stockholm, Gothenburg and Malmö in in some of Europe’s capitals over the past centrated geographically. But the trend in particular, but also the main regional 11 years, we see plainly how the strong the composition of the population looks cities and medium-sized Swedish cities, urbanisation in Sweden, and especially very different depending which part of are all finding it hard to provide housing in Stockholm, is creating an immensely the country is being studied. The cities in pace with the increase in population. strong pressure on the property market, of Stockholm, Gothenburg and Malmö There are many indications that (espe- resulting in steeply rising apartment already have significantly younger popu- cially in Stockholm) this is making it hard prices. When we compare Stockholm lation pyramids than the average for the for the cities to retain a skilled workforce, and London, which have the most similar country. This trend will strengthen fur- which in the long term hampers growth. population growth over the period – ther, and in these areas there will be very In particular, technology start-up compa- Stockholm +20% and London +18% – we little future growth in the 80+ age-group. nies in the Stockholm region are indicat- see a large difference in the growth of But people over 80 are becoming more ing that this problem is a clear barrier to apartment prices, where London’s prices numerous in percentage terms in some their future expansion. grew by 85% during the period while small and medium-sized municipalities. Stockholm’s prices grew by no less than The Stockholm Chamber of Commerce 174%. The trend naturally has no single Generally in Sweden the age-pyramid has carried out a comparison with its explanation, but factors such as a regu- will shift towards a younger population ‘global peers’ which indicates that lated rent market, excessively low new between now and 2030.The 0 to 19 age Stockholm ought to be able to become production, slow planning processes group will be the category that grows much denser, which would permit greatly and high taxes on moving house are most in numerical terms, partly because increased housing development. The extremely likely to lie behind the explo- of a large cohort of people born in the same conclusion can be drawn for all sive trend in Stockholm. Since Stockholm 1990s who are starting to have children, Sweden’s major cities and regional cities. is currently growing faster than any and partly because of the large-scale im- Inability to tackle the enormous housing migration where a high proportion of the Population Growth Source: SCB, Oxford Economics Price Development - Apartments Source: Valueguard, Eurostat, Land Registry, INSEE Index (2005=100) Index (2005=100) 125 300 120 250 115 110 200 105 150 100 100 95 50 90 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2015 0 01 01 01 01 01 01 01 01 01 01 01 12 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2015 01 01 01 01 01 01 01 01 01 01 01 12 Stockholm Paris London Berlin Stockholm Paris London Berlin 15

●  CHANGED DEMOGRAPHY   NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 »S weden’s property market is faced by major challenges due to the demo- graphic changes« arrivals are families or young people. The There is naturally also a strong corre- Sweden as a whole Boverket (the Swedish 80+ age group will also grow both in num- lation between population growth and National Board of Housing, Building and ber and as a share of the country’s total demand for properties. Overall, the Planning) is indicating that 700,000 new population up to 2030. This is creating changed distribution of the country’s homes will be needed by 2025. Of these, major challenges for Sweden, not least as population is leading in the first place to 262,000 will be needed in the Stockholm regards total tax revenues. We will have increased demand for schools, care prop- region, which represents a rate of new fewer people of working age who will have erties and housing, but it is also creating production of about 26,000 homes a to support the growing population of both as a further step an increased demand year. Average new production has been young and old people. for more office and retail space. For considerably lower than this in recent 16

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 CHANGED DEMOGRAPHY   ● SEK 1,500 BILLION INVESTMENT REQUIREMENT SWEDEN 2030 years, with only around 10,000 to 12,000 700,000 newly built dwellings that must now face a great need of new production new homes a year. In Västra Götaland be produced represent about 42 million of housing for old people all over the 78,000 new homes will be needed up to m2 of residential space. Sweden thus has country. It will be very hard to solve the 2025, including 57,000 in the Gothen- a total new-production requirement, for severe housing problem through new pro- burg area. Malmö also has an extensive both public and residential properties, of duction alone. It is obvious that changes need of new production, estimated at nearly 50 million m2 over the next 10 to 15 to regulations will also be required that 35,000 new homes up to 2030. Rural years. Assuming a new production cost enable us to exploit the existing stock in a municipalities need more young inhabit- of SEK 30,000 per m2, this represents an more effective way. ants to counter an ageing population and investment requirement of around SEK reduce the maintenance burden, whereas 1,500 billion during the period. Large Sources: Stockholm Chamber of the major city regions currently have a amounts of capital will therefore need Commerce, Investment & Pensions good demography but a glaring shortage to be allocated to new production in the Europe, Boverket, DN, Stein Brothers, of housing. The refugee situation is caus- property sector. Parts of this capital Fastighetstidningen, The Local, ing current depopulated areas with empty should be able to come from pension Migrationsverket, SCB, Swedbank properties to see a rising population and funds, for example, which continue to be a better balance in their housing stock. underexposed to properties. Today there is a housing shortage in large parts of the country and no longer just in Sweden’s property market is faced by the major-city regions. major challenges. In the short term it is a matter of finding housing of worthwhile As regards the need for public properties, quality for all asylum-seekers in Sweden. Newsec, with the help of SCB’s popula- In the longer term it is a matter of building tion forecasts running up to 2030, has housing, schools and old people’s accom- estimated the floor area of new premises modation for a fast-growing population that will be needed to maintain important with a larger proportion of both old and communal functions. About 2 million young people. Since the strong urban- m2 of new housing for old people, about isation is leading to ever more people 5 million m2 of new school space and moving to the major cities, the cities about 0.6 million m2 of new kindergar- of Stockholm, Gothenburg and Malmö ten space – a total of 7.7 million m2 - will face an ever larger need for properties be needed in Sweden up to 2030. The adapted to a younger population. We also Required New Construction 2015-2030 Vacancy Rates - Apartment Buildings '000 m2 Source: Newsec Percent Source: Swedbank 2500 4.0 2000 3.5 3.0 1500 2.5 2.0 1000 1.5 500 1.0 0.5 0 Upper Nursing homes High schools Primary Kindergartens 0.0 2003 2004 2005 2006 2007 2008 2009 2011 2013 2015 secondary schools schools Sweden Greater Stockholm Greater Gothenburg Municipalities < 75000 inh. Municipalities > 75000 inh. 17

● »Relatively good access to financing and lack of high-yielding alternatives are factors contributing to a high interest in property« 18

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 THE SWEDISH PROPERTY MARKET  ● THE SWEDISH PROPERTY MARKET CONTINUED HIGH TRANSACTION VOLUMES THROUGHOUT 2016 The investment market erty companies have thus been active Skärholmen Centrum is located in greater on both the selling and the buying side, Stockholm and has a total lettable area of The past year, 2015, has continued to the explanation being that many have 106,000 m2. show a strong Swedish transaction chosen to refine their property portfolio market. The total transaction volume during the past year. Swedish institutions The share taken by foreign investors amounted to over SEK 134 billion, with have been net buyers for several years reached 28% in 2015, compared with 18% 298 transactions of SEK 100 million or and in general are still short of property in 2014. The number of foreign investors more carried out. This figure was slightly holdings. Listed property companies are has been low in recent years, mainly below the record year of 2014 when 297 also in a good investment position due to because of low yields and off-market deals were made and more than SEK 149 the fact that properties have been a good deals which made it difficult for them to billion was invested in property all over alternative to other types of stock market enter the market. Newsec believes that Sweden. investments. the transaction market will remain strong during 2016 and will be characterised by One factor contributing to the continu- There has been a continuously high major structural and portfolio transac- ing high interest in properties in 2016 is interest in properties in Sweden’s smaller tions. This makes it likely that the foreign the low interest rate, which the Swedish regional towns and cities. During 2015 investors will further increase their share central bank decided to cut to –0.50% at they accounted for 45% of the total of the transaction market against the its last meeting in February. The shaky transaction volume. Of the major cities, levels of 2015. In addition, the Swedish global stock markets and low yields on Stockholm has dominated geographically property market is viewed as a very trans- the bond market are other factors. Devel- with 44% of the total volume, although parent and secure market where it is easy opments in the Swedish economy have only four of the ten largest transactions to carry out transactions. Shaky world been somewhat stronger than expected, actually took place in the Stockholm area. stock markets with potentially some way while uncertainty remains globally. There The largest transaction in 2015, at SEK still to fall, a low yield level on the bond has been an upward trend in inflation, 9.5 billion, was Blackstone’s purchase in market and continued low interest rates, but it is not stable yet. With an uncertain July of properties in various segments in combination with a strong Swedish environment and to ensure the resilience and locations (totalling 659,000 m2) from economy, bode well for the Swedish prop- of the upturn in inflation, the country’s the Norwegian company Obligo. erty market. monetary policy needs to be more expan- sionary to ensure that inflation continues Gothenburg and Malmö both lost market The office market to rise towards the target of 2%. The low shares during 2015 compared with 2014. Stockholm interest rate environment is therefore The largest transaction in Gothenburg expected to continue until 2017, which in 2015 was Victoria Park’s purchase of Newsec estimates the total office stock will sustain the good financing climate. two residential properties for SEK 925 in Greater Stockholm at approximately Relatively good access to financing and million. In Malmö the largest transaction 12.3 million m2, mainly in the municipal- lack of high-yielding alternatives are was Wihlborg’s purchase of two office ities of Stockholm, Solna, Sundbyberg, other factors contributing to a high in- properties for SEK 850 million. Nacka, Sollentuna, Järfälla, Danderyd terest in property. These factors will lead and Upplands Väsby. Stockholm CBD to continued high transaction volumes In 2015 office properties have been the is considered to be the most attractive throughout 2016. dominant investment category, taking a office area, with a total stock of about 32% share of the market. The second 1.9 million m2, while Stockholm inner city An assessment of 2015 shows that private largest investment category in 2015 was excluding the CBD has an office stock property companies and property funds residential, with 22%. There has also of about 4.3 million m2. Many larger were the largest groups of market players been a continued strong interest in the companies have recently relocated to in terms of their acquisitions. Together retail segment, which accounted for 18% new office spaces outside the inner city, they accounted for nearly 50% of the of the total transaction volume in 2015. often combining several existing offices transaction volume. Property funds and The third-largest transaction of 2015 was and setting up new operations in the private property companies also formed Grosvenor’s purchase of Skärholmen inner suburbs. The forecast final figure the largest groups of sellers, accounting Centrum from RBS for SEK 3.5 billion. for new office projects to be completed for 62% of the volume. The private prop- in Greater Stockholm in 2016 is 136,000 19

●  THE SWEDISH PROPERTY MARKET    NEWSEC PROPERTY OUTLOOK  • SPRING 2016 28% FOREIGN INVESTORS SWEDEN 2015 m2, corresponding to approximately 1% of in Stockholm CBD in the short term. How- which includes the stock of neighbour- total stock. ever, the strong and office dependent ing municipalities such as Mölndal and service sector in Stockholm, in combi- Partille. The Inner City comprises a Over a short period of time the construc- nation with the shortage of new office number of districts and covers a large tion of new office space in the Stockholm building projects in the CBD, has resulted geographical area. Its office stock totals area has changed dramatically, and in today’s low vacancy rate of 4%. The around 900,000 m2. In the next three is now focused on specific clusters in prevailing low vacancy level has led in years, Newsec estimates that about municipalities outside central Stockholm. turn to a number of new development 150,000 m2 of office space will be added Many of these areas are located in north- and rebuilding projects in, or adjoining, to the market in Gothenburg, with the ern Stockholm, which has fast, nearby the CBD. One notable project is AMF’s largest areas arising in the Almedal/ communications to both the inner city rebuilding of Swedbank’s old premises Krokslätt district (about 43,000 m2) and Arlanda Airport. Recent decisions in Gallerian. The project is called Urban and Ullevi-Heden (about 28,000 m2). In to expand the infrastructure and public Escape and will provide 35,000 m2 of the CBD there will be no major additions transport will be central for the develop- office space when completed in 2018. through new construction. The vacancy ment of Stockholm, since opportunities Vasakronan’s total refurbishment of rate in Gothenburg CBD currently stands and the ability to attract people are linked Klara C, which will provide 28,000 m2 of at 4.7% and is expected to creep down to to good infrastructure. Stockholm is office space, is scheduled for completion 4.3% at the end of 2016. It remains diffi- more or less divided into two areas, with a during 2016. cult to find modern office premises over large proportion of offices located in the 1,000 m2 in the CBD. The market rent in north. The new Citybanan rail line (part of Future relocations and refurbishments Gothenburg CBD is now SEK 2,500 per m2 the national railway network) will have a have not yet affected the vacancy rate, and the top rent is estimated at SEK 3,150 positive impact on the CBD office area of since many moves will take place during per m2. Newsec expects that the rental Västra City when it is ready in 2017. the next couple of years at the time that market in Gothenburg will remain stable, The new line will increase passenger the new projects are being finalised. since demand is expected to remain good capacity through the inner city, with two Mästerhuset, a large rebuilding project in combination with relatively low new new stations at Stockholm City and in Stockholm City, was completed in the production. Odenplan. Two other areas that will autumn and comprises 30,500 m2 of strongly benefit from improved communi- office and retail space. Mästerhuset Malmö cations are Hagastaden and Arena- was fully let at completion. The expected The commercial office stock in Malmö staden, just north-west of the inner city, vacancy rate for office space in Stockholm totals just over 1.97 million m2. The single where two of Stockholm’s largest urban CBD by the end of 2016 is about 3%. largest submarket is Malmö CBD. Addi- development projects are currently tion of new office space has been good under construction. The average rent level for office premises in recent years and in 2015 significantly in Stockholm CBD is SEK 5,000 per m2. more office space was completed and has There are few speculative office develop- Newsec expects the market rent to rise to added a total of 53,500 m2 to Malmö’s ment projects scheduled for completion SEK 5,300 per m2 by the end of 2016. Top office stock. For 2016, new building in the coming years. The projects in rents above SEK 6,000 per m2 have been projects totalling about 32,000 m2 have progress are Fabege’s Scandinavian confirmed by some of the major office been announced. The vacancy rate in Office Building and Uarda 6 and 7 in owners in Stockholm CBD. This is a result Malmö CBD crept down to a level of 6.5% Arenastaden, NCC’s Torsplan stage 2 at of the small supply of modernised office at the end of 2015 and is expected to Norra Station in Stockholm inner city, spaces in the CBD together with high rise to 7.0% by the end of 2016. The rent and Skanska’s Stockholm Seaside in demand. The rise in market rent is expect- levels have been stable at all submarkets Hammarby Sjöstad. All of these projects ed to continue into 2018. in Malmö during 2015. In Malmö CBD the are fully or almost fully let before market rent is estimated at around SEK completion. Gothenburg 2,150 per m2, while a top rent of around The commercial office market in SEK 2,800 per m2 has been reported. The recent relocation of several large Gothenburg region comprises an office Newsec forecasts stable rent levels dur- companies greatly reduced leased space stock totalling around 4.6 million m2, ing 2015, with an upward tendency. 20

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 THE SWEDISH PROPERTY MARKET   ● »T here has been a continuously high interest in properties in Sweden’s smaller regional cities« The retail market be a huge challenge for the retail sector. In 2015 e-commerce accounted for 7% Retail trade in Sweden showed positive of total retail sales in Sweden. This is growth in 2015, and the retail property still only half of the 15% market share segment accounted for 18% of the total seen in the UK, which is the world leader transaction volume in 2015 compared in retail e-commerce. The view about with 10% in 2014. Swedish households how large shopping centres should look are well consolidated financially, and with and be developed has changed over the a continuing low interest rate and low years. These days a good centre does not inflation the desire for consumption is depend only on what it sells, but on the high. The Swedish economy has moved destination itself and the experience it forward stably, and household consump- offers, where good restaurants, cafes and tion will be an important growth engine service play an important part. in coming years. Consumption growth in November 2015 compared with the In November the formal opening of the same month of 2014 was 5.2%, which was 100,000 m2 Mall of Scandinavia, the latest above the full-year forecast of 4% from new large shopping centre which is also HUI (the Swedish Retail and Wholesale the biggest in Scandinavia, took place. Trade Research Institute). According to The centre is located in Arenastaden in HUI, retail sales are expected to increase Stockholm and consists of 230 stores by 3.5% in 2016, measured at fixed prices. and restaurants. There has been a great interest in the new centre and it achieved The population of Greater Stockholm one million visitors just 19 days after the is growing fast, and ongoing urban- opening. Meanwhile PUB’s building at isation will heavily affect demand in all Hötorget in the middle of Stockholm, one the major cities. The population of of Stockholm’s oldest department stores, Stockholm is expected to grow by 1.6% is undergoing rebuilding as a hotel, and a year (35,000 to 40,000 people) up to during the spring of 2016 the Scandic 2022. The growing population along with Haymarket Hotel will open in its place. the rising trend towards e-commerce has led to fierce competition between differ- In Greater Gothenburg there are plans ent types of shopping destinations, which for developing approximately 125,000 m2 make factors like the location and quality of new retail space. New development in of premises increasingly important in Greater Malmö is expected to be substan- attracting both customers and tenants. tially lower, mainly because several large projects have been finished during the Shopping centres in Sweden are increas- last two years. ing in size, and their premises – especially in the major city regions – are being let Contact: at new top rents. Newly built and newly Jakob Pettersson, renovated shopping centres in attractive [email protected] locations have no problem in filling their vacant spaces, and top rents in the best regional shopping centres outside Stock- holm are now on a level with top rents in Stockholm CBD. However, to achieve prof- itability in all these new stores and shop- ping centres at a time when e-commerce is taking ever greater market shares will 21

●  THE NORWEGIAN PROPERTY MARKET    NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 THE NORWEGIAN PROPERTY MARKET AFTER A RECORD–BREAKING 2015, NEWSEC PREDICTS A MODERATE SLOWDOWN IN 2016 Norway’s population first exceeded 5 Within Norway, the numbers of move- attractive risk-adjusted returns has million in 2012, representing an increase ments of people within municipalities and resulted in a wave of capital flowing into of over 1.7 million since 1950. Annual pop- between municipalities both reached a the Norwegian property market, leading ulation growth was close to 1% just after record high in 2014. However, the overall to an increase in investment activity and the Second World War, mainly due to a trend towards increasing centralisation a prolonged core yield compression. This high birth rate, then fell to a third of a per movement from the countryside into has led in turn to a significant appreci- cent in the 1980s, but has since increased towns and cities and their surrounding ar- ation of value which has paralleled an to over 1%. Today net immigration con- eas continued at the same steady rate as increase in investment activity and a tributes more to population growth than for the past 30 years. The counties close noteworthy expansion of portfolio, entity natural increase. to Oslo and Trondheim had the largest level and large single-asset transactions. domestic migration gains. All counties Currently one person in ten in Norway is had an inflow of foreign immigrants. Alto- During 2015 the prime office yield fell aged 70 or more. This share is expected gether these movements are positive for from 4.75% in Q4 2014 to 4.25% in Q4 to rise to about one person in five by the major part of the Norwegian property 2015. Another noteworthy yield com- 2060 as the post-war generations age. market, and are creating an increased pression occurred in the logistics market Although Norway is ageing, however, its demand for housing in particular. where properties with long contracts are population of old people will be far lower now priced 50–75 basis points lower than than in many other European countries. The investment market in 2014. The office segment represent- ed about 45% of the total transaction At 1 January 2015 there were 669,400 2015 was an extremely good year on the volume while retail represented 41%. immigrants and 135,600 Norwegian-born Norwegian investment market, breaking About 43% of all transactions in Norway children of immigrant parents in Norway. the previous all-time high by a significant occurred in and around the Oslo area, The total of 805,000 people amounted to margin. The previous record was set and foreign investors accounted for some 15.6% of the population, and comes from in 2014 at NOK 77 billion, but the total 43% of the volume in 2015 – nearly dou- every part of the world. Although the transaction volume for 2015 was about ble the figure of 26% in 2014. The top ten increase of 45,800 people in 2014 was NOK 120 billion. transactions accounted for around one relatively low, the current pressure from third of the total volume. would-be migrants into Europe is likely to The search by domestic and global see it rise again in Norway. investors for property investments with Newsec predicts that we will see a moder- ate slowdown in 2016, with a total trans- action volume probably around NOK 75 billion. In historical terms this would still be a very good year. However, Stavanger will probably fare worse, with higher un- employment and falling property values. Falling oil prices, higher vacancy rates and sales to secure gains are factors that may affect the market negatively. Reg- ulatory risk concerning banks (Basel 3) and life insurance companies (Solvency 2) may also affect the market, leading to low liquidity and low appetite for investment. Allowing for longer acquisition processes could lead to a further increase in the percentage volume taken by foreign 22

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 THE NORWEGIAN PROPERTY MARKET  ● »2015 was an extremely good year on the Norwegian investment market, breaking the previous all-time high by a significant margin« investors in 2016. Class-B retail proper- is NOK 3,650 per m2. Newsec expects the Over the last five years online retailers ties will take a larger share of the market. market rent to rise to NOK 3,750 per m2 have had a significantly higher growth After several years of low growth, the by the end of 2016. rate than store trade. In 2014 e-com- turnover for the 60 largest shopping merce still accounted for only 4.6% of centres in Norway rose by about 5.7% in The retail market total retail, and early indications show 2015, far above our expectations. that it will approach 6% in 2015. But this Shopping has changed dramatically in percentage is likely to go on growing in Funding became more difficult to obtain the past half-century. People used to buy coming years and could threaten shop- during the autumn of 2015, due to higher their daily necessities from small local ping centres’ position in that tenants will borrowing rates from banks. Risks shops and went to the city centre – to desire fewer and smaller premises. concerning vacancy and falling rents both department stores and specialist have made long contracts more impor- retailers – for major purchases and luxury By 2020 stores may be losing NOK 50 tant than ever. The present low exchange items. The move to big grocery supermar- billion in annual sales to online shopping. rate imposed an effective discount on kets and the cheaper land outside the city And their falling revenues will lead not Norwegian property values last year. centre meant that shopping centres in only to falling rents in shopping centres suburban and out-of-town locations took but to rising vacancies, higher yields and The office market over as the main retail arena for all func- lower property values for the real estate tional items. Today, city centre shopping owners. Slow processes and a low number hosts a different form of shopping which of signed contracts summarise the focuses equally on social aspects such Shopping centres must thus follow Norwegian office rental market in 2015. as eating out, conversation and leisure the lead taken earlier by city centre In recent years few large companies have activities. In Oslo, the premier street Karl shopping, by diversifying their offer to been looking to move, which seems to Johans gate now has a mixture of cafés, include leisure activities such as cinemas, be the main reason that larger buildings restaurants, small theatres and special- bowling and restaurants that will draw have had the greatest difficulties. Compe- ised shops located close together. The old people in. Size is also important. Shop- tition has been tough, and landlords have Aker Brygge shipyard has been converted ping malls are getting bigger, and the had to discard their dreams of finding ma- into a lively seafront promenade with en- number and variety of stores and leisure jor tenants and instead look for smaller tertainment, dining and ground floor retail. attractions are important in pulling in tenants to fill their buildings. customers. Centres must also fight back Newsec values more than 100 shopping by incorporating e-commerce into their Energy efficiency is the new trend and centres every year and has analysed own businesses, by encouraging their more companies now demand energy- all the centres in its database. In the big-box and other tenants to link to their smart and environmentally friendly period from December 2013 to December own warehouses for fast delivery, and in accommodation. These buildings are 2014 the unweighted average total rent general by turning the purchase of goods cheaper to run and thus give tenants low- increased by just 0.58%. This is far below into the consumption of services. Mobile er costs. Companies located in energy the 2.1% rise in the CPI for 2014. Even in retailing – the growing use of phones efficient buildings are also more attrac- the larger centres (those valued at over and tablets for ‘showrooming’ and price tive to new employees, and landlords NOK 500 million) rent increases were comparisons when on the move, and also appear more attractive in the market below 1%. For the greater number of small for direct payments in store – must also by gaining more stable tenants. centres, rents rose by 0.44% in 2014. So be factored in. why don’t rents increase with the CPI? 2015 has been a satisfactory year con- Contact: cerning searches, with tenants looking Falling rents follow falling revenues, Oyvind Johan Dahl, for both large mixed use buildings and which encourage tenants to renegotiate [email protected] offices, and although the office rental their rent and demand discounts. The market felt slow during the year, rents reason for the decline in revenue for rose steadily in all areas. The average traditional retailers is simple: consumers rent level for office premises in Oslo CBD are increasingly shopping online. 23

● THE FINNISH PROPERTY MARKET   NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 THE FINNISH PROPERTY MARKET 2015 – A YEAR OF LIVELY TRADING Urbanisation is increasing rapidly in in Europe. The lack of good investment of the largest transactions there last Finland, mainly due to employment properties and the low-yield levels in year occurred when Ilmarinen Pension related migration. This is having an effect Europe’s main market areas are continu- Insurance Company transferred fifteen on the property market and an especially ing to drive investors to seek higher yields office properties to the ownership of strong impact on the Helsinki Metropol- and to spread their risk in Scandinavia Antilooppi Ky, which is jointly owned itan Area (HMA). The growth connected and Finland. On the other hand, domestic by Ilmarinen and the Swedish pension to the urbanisation is one of the main pension capital was passive on the buying insurance company AMF. Ilmarinen owns drivers for the increasing demand for side and looked to foreign investments 50% of the company, whose property real estate in markets outside the central and domestic funds for its risk-spreading. assets are valued at more than EUR 400 area. million. Altogether about twelve new In 2015 there were also opportunistic foreign investors arrived in Finland, which The immediate effect of the urbanisation transactions with larger risks, typical partly explains the increased transaction can be seen in the residential market, examples being developments of office volume. One of these new investors is the where (together with other demo- buildings classed as empty or half empty. American-owned ‘Blackstone Real Estate graphic changes) it has increased both The leverage from the low interest rates Partners Europe IV Fund’ acting through the demand and the need for residential and competition with more interesting Logicor, which is a Blackstone company properties. The calculated demand for properties partly explains the relatively specialising in logistics properties. new dwellings in Finland is currently low-yield levels. Investors’ interest is around 25,000 to 30,000 a year and expected to widen geographically, espe- Investment activity is expected to remain will grow even higher with the increasing cially among foreign investors that have relatively high in 2016, even though population from immigration. Increasing an organisation in Finland. Capital flows Finland’s economic indicators seem population works as an engine for the were seen among a number of residential weak and the tenant market is passive. property markets. Infrastructure projects funds and special funds; there were many The forecast transaction volume for this in the HMA, which are essential due to of these funds last year and their develop- year is about EUR 4.5 billion, but this will the urbanisation, are shifting the focal ment is expected to continue. depend on whether the financing climate points of residential, office and retail and property ownership arrangements area demand and changing the criteria The increased demand has had its are similar to last year. Finland’s property for new-construction locations. This can effect on property pricing. Yield levels market yield levels are attractive to already be seen near railway stations, have started to fall in some of the best foreign investment capital and there where a significant number of new prop- locations as competition has increased. is capital ready and waiting for invest- erties are being built. The Länsimetro Common factors attracting interest ments in prime properties. However, slow extension of the Helsinki Metro, for in properties are good location (e.g. economic growth together with banks’ example, is expected to improve the the HMA), a modern building and long increasing caution will tend to slow down market position of office areas in Espoo lease-maturity. The yield level of a prime overheated property markets. located near the new stations. office property in downtown Helsinki and nearby is below 4.5%. An unprecedented The office market The investment market number of property transactions took place in and around the Helsinki city cen- The HMA office market is still plagued The property market activity that began tre in 2015. At the same time, demand and by high vacancy rates and falling rents in 2014 continued to rise in 2015, exceed- transactions have spread to a wider area. in certain areas, although office rents ing many people’s expectations when the The increased activity was shown last are continuing to rise in Helsinki CBD. transaction volume reached EUR 5 billion. year in Finland in the shifting of interest Retail-property vacancy rates have also The transaction volume is matching the to the best properties in the weaker areas risen in some city-centre properties. The record years of 2006 and 2007 when it and to the less desirable, ‘class-B’ proper- average rent level for office premises in reached over EUR 5.5 billion. In 2012 and ties in prime areas. Helsinki CBD is EUR 365 per m2. 2013 the transaction volume was only EUR 2 to 2.5 billion and in 2014 just over The HMA accounts for more than half In the HMA office market the tenant EUR 4 billion. The market and the trans- of Finland’s property market trans- has the upper hand. Vacancy rates are action volumes for large properties in action volume in terms of value. One high and the amount of available office Finland have mirrored trends elsewhere space will increase as space-efficiency 24

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 THE FINNISH PROPERTY MARKET  ● »Investment activity is expected to remain relatively high in 2016 and the forecast transaction volume is about EUR 4.5 billion« becomes more important. Offices still use ties are tending to increase in response made it challenging to increase returns. more than 20 m2 of space per person on to such factors as investments, the On the other hand building of non-subsi- average, but in many multi-space offices activities of corporations, employment, dised housing can be seen in the markets, the allocation is now closer to 10 m2 per demographics and changes in migration. rent increases have stopped, and in many person. In this market situation, it is im- Differences between areas are now very places, e.g. in the HMA, competition for portant to understand tenants’ demands. obvious, and similar development is good tenants has increased in the last few Newsec has studied tenants’ moving acti- expected to continue in future. years. High occupancy rates especially vities and the reasons behind the moves in growth centres are strong bases for and has found that good accessibility and The housing market is clearly divided into residential investments. modern space solutions are the priorities. two, between households and inves- The problem is less severe in prime office tors. Investments in rental apartments Contact: areas than in less desirable locations. are still popular, and competition has Olli-Pekka Mustonen, The areas around railway stations and already reduced yields on apartment [email protected] other transportation hubs are among the investments, whether they relate to an primary location criteria for new office individual apartment or a portfolio, and and retail properties. Minor recovery can be expected near railway stations with future rail projects, whereas areas outside the stations’ immediate vicinities will face weaker demand, especially if the property stock is outdated. The retail market The Finnish retail market has also under- gone changes. Several new operators have entered the market in recent years and the nature of the market has changed to a multi-channel form. The traditional retail operators have adapted and tried to keep up with the changes. During the next five years, a number of shopping centres will be built in the HMA along the rail lines and the Länsimetro extension, the biggest of which are REDI in Kalasatama, Tripla in Pasila and another planned in the Kivistö area. The residential market The urbanisation of the HMA has increased the demand and need for residential construction. The Kehärata and Länsimetro railways have created attractive locations for residential con- struction, and the City of Vantaa, for ex- ample, has planned a significant number of new building rights near the Kehärata stations. However, differences between growth centres and smaller municipali- 25

●  THE DANISH PROPERTY MARKET   NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 THE DANISH PROPERTY MARKET A CONTINUED INCREASE IN DEMAND ON THE PROPERTY MARKET According to Statistics Denmark, Greater young couples, who value the short dis- returns relative to (for example) 10-year Copenhagen is projected to see a popula- tances to work and the city life. The City government bonds. Today’s investors tion growth of around 15% over the next of Copenhagen has also made efforts to seem to consider a long-term lease 25 years. Strong population growth is become more welcoming to families. with a strong covenant tenant to be a a key driver of growth in the housing weightier investment consideration than and labour markets in the region. As a The investment market property location. This may be explained result, new construction, urban renewal by the fact that opportunity returns on and redevelopment as well as infrastruc- Danish GDP growth has been positive comparable assets in the bond market ture upgrade schemes are booming in but modest for the past two years. have plummeted in recent years. The Copenhagen, with brisk activity in the Overall, future prospects are favourable, attractive risk-adjusted returns on prop- harbour areas north and south of the city with growth rates around 2% for 2016 erty relative to other asset classes have centre and in a number of new develop- and 2017. A key driver of the growth is served to increase transaction volumes ment areas. The development schemes believed to be an increase in consumer and reduce yield requirements on prime involve commercial and residential spending, with export growth expected property in particular. newbuilding as well as conversions or to follow suit from 2016. In addition, the upgrades of disused industrial and office Danish labour market is picking up, with Having risen steadily from 2013 to 2015, facilities. a slight increase in overall employment total returns on investment property figures and a continued downtrend in have almost bounced back to the level of Changing migration patterns in the unemployment. 2006. In this period, total property country are a key factor. Historically, the returns greatly exceeded benchmark young residents of Copenhagen have In the years preceding the financial crisis, bond returns. The increase in property tended to leave the city after some years, long-term bond yields were on a par with prices is driven mainly by a stronger typically settling down elsewhere to start the net initial yields on prime (first-class) demand for High-Street properties, for a family. Now migration patterns appear investment properties, i.e. 4%–5%. Today head office properties let on long leases to be shifting. Copenhagen city centre therefore we are seeing prime investment and for residential rental properties. has become much more attractive for properties with high cash-flow security The change in market conditions in the producing unprecedentedly high income 4.8 BEUR TRANSACTION VOLUME 2015 26

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 THE DANISH PROPERTY MARKET  ● »T he increase in property prices is driven mainly by a strong demand for high- street properties let on long leases and for residential rental properties« aftermath of the crisis, in particular in the strong covenant tenants or in residential pursuing opportunities in this segment, major Danish towns and cities, has fuelled rental properties. However, in 2014 and which in 2015 drove prime yields down the demand for prime property, whereas 2015 they have become active players from around 4.00% to close to 3.75% and secondary property has been less in in a broader segment of the market. sometimes lower. demand. This reflects a higher risk tolerance, as a result of which pension funds have now By far the largest transaction of 2015 Recent changes in the risk-to-reward started to invest in, for example, the older involved the Thai company Central Group, ratios of liquid asset classes in particular housing stock of Copenhagen. Such prop- which acquired the Illum department are likely to make investors reconsider erties typically require proactive asset store building for a reported DKK 2.5 current portfolio compositions, which management in order to realise their full billion. However, a subsidiary of Central may well work in favour of the property potential for added value. In the past, no Group, Rinascente, was already a tenant market and consequently increase expo- pension fund would have invested in such in the building on a 30-year lease, so the sure to property assets. properties. buyer should be considered an investor with a special interest. Another major Broadly speaking, the current market is The office market transaction involved the German compa- characterised by high liquidity. This is due ny Patrizia, which acquired the Galleri K among other things to a highly volatile On the back of higher employment rates, shopping arcade from Bank of Ireland at stock market, larger and still increasing positive demographics and a bright- a price of about DKK 1.3 billion, plus some placement requirements from a series of er economic outlook, investors have DKK 200 million for the offices on the investors, and a limited supply of assets become more aggressive in the invest- upper floors, acquired in a separate deal offering balanced, risk-adjusted returns. ment market for office properties in from the Danish pension fund MP Pen- As a result, the property market has seen Copenhagen CBD, where falling vacancy sion. The net initial yield was estimated at a continued increase in demand in 2015. rates have made it increasingly difficult approximately 3.75%. for users to find up-to-date office space. The volume of commercial and invest- Although domestic institutional investors The limited supply of well-located retail ment property transactions rose seem reluctant to accept office yields be- premises in Copenhagen city centre, throughout 2014 to EUR 4 billion, and low 4.50%, the demand has driven prime especially in the High-Street market this trend continued in 2015 when the CBD office yields down to 4.25%, a level composed of Strøget and Købmagergade, total transaction volume reached EUR acceptable to both domestic property drove up retail rents in prime locations in 4.8 billion. So far, the brisker transaction companies and a large number of interna- 2015, whereas rents remained stable at activity has been largely concentrated tional investors. the lower end of Strøget and the streets in and around Copenhagen and to some running off it. Today’s prime High-Street extent Aarhus, with the prime segment The high vacancy rates in secondary rent is about DKK 19,000 per m2.The the most highly coveted. One of the main properties and locations have put market growth in consumer spending is expected reasons that investors focus on Copen- rents under serious pressure in almost all to continue to put upward pressure on hagen and Aarhus is their continued CBD locations. Prime properties and loca- prime rents. The thriving retail sales in urbanisation. Since the Greater Copenha- tions, on the other hand, have seen stable the city centre may also be explained in gen market for prime property is limited, or slightly rising market rents. However, part by its high-density and concentrated it is believed that the stronger demand the top rent remains flat at around DKK shopping environment, which appeals to will feed through to the secondary market 1,600–1,700 per m2 due to the continued tourists. and result in a higher number of trans- supply of available development sites at actions. In fact, many foreign investors Ørestad, Sydhavnen and Nordhavnen. Contact: who specialise in the redevelopment Anders Rydstern, of ‘difficult’ properties have shown an The retail market [email protected] appetite for the secondary segment. In the past, domestic pension funds in The Copenhagen High-Street investment pursuit of low-risk assets invested almost property market remains by far the exclusively either in single tenant head most active and liquid property market office properties let on long leases with in Denmark. Both added value and core international investors are actively 27

●  THE BALTIC PROPERTY MARKET   NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 THE BALTIC PROPERTY MARKET 2015 – A RECORD-BREAKING YEAR FOR THE BALTICS Lithuania: Still an attractive more interest from Western European first stage of its new Nordika project late yield gap compared to Western investors has been noticed recently and in 2015; the second stage of 22,000 m2 European levels this trend is likely to increase in the near is expected to open in summer 2016. Two future. other investors have updated their plans For several years Lithuania has lost about to start the developments of SC Audejas 1% of its population every year. The main The office market (45,000 m2) and the second Akropolis reasons are an ageing society and a neg- At the end of 2015 the stock of modern of- shopping centre (up to 100,000 m2) in ative net migration. About 20,000 more fice premises in Vilnius was 442,400 m2, Vilnius, but no earlier than 2016–2017. people emigrate each year than immi- or 0.82 m2 per capita. During the year the grate. At the end of 2015 Lithuania had a total office stock increased by 37,900 m2 At the end of 2015 the average vacancy population of 2.9 million people. of gross lettable area or by 9.4%. During in the largest shopping centres in prime 2016–2017 it is expected that the Vilnius locations in Vilnius stood at around 2%, The process of urbanisation is well seen office market will increase by a further while the trend in rents remained slightly in Lithuania. In each of the last four years 140,000 m2 of modern office space. upward. Demand in the retail market is the population of Vilnius has grown by Currently eight out of eleven planned pro- increasing since the majority of retailers about 0.5%. However, the capital city jects in Vilnius are under construction, have expansion in their plans. All of the is the only region in Lithuania showing and 51% of the area in the new develop- largest shopping centres are attracting population growth. More than 540,000 ments is expected to be Class-A. new ‘big brand’ tenants and improving people currently live in Vilnius, and the their tenant mix by replacing small and figure is likely to go on increasing in the Vacancy in Vilnius prime offices fell below medium local brands with internationally near future. 2% at the beginning of 2014, and by the famous brands such as H&M, Next, NS end of 2015 vacancy for Class-A proper- King, Sports Direct, Pier 1 and others. The investment market ties was below 1%. While the demand for 2015 was a record-breaking year for the prime modern offices in Vilnius remains Latvia: Showing a strong Baltics. For the first time in history the high the vacancy is not expected to economic recovery after the combined transaction volume of the increase noticeably, at least until several downturn of recent years three countries exceeded EUR 1.1 billion. new large projects are completed by Lithuania accounted for 27% of this with the end of 2016. It should be noted that Latvia has shown a strong economic almost EUR 295 million. The most active new buildings coming to the market are recovery after the downturn of recent investment segment in Lithuania was the demanding slightly higher rents quar- years. However, the country recorded retail market, which represented more ter-by-quarter, including paid parking a dramatic decline in total population than 53% of the transaction volume in places and triple net charges. The trend during these years, and this trend is 2015. The office segment was also active, of pre-lease is returning to the Vilnius continuing. At the end of 2015 Latvia had with 34%. In 2016, no significant increase office market and agreements are often a population of 1.98 million people. in the country’s property investment signed 6–9 months in advance. volume is expected. Even the capital city Riga is suffering The average rent level for office premises from emigration. Over five years, its Although yields have fallen significantly in Vilnius CBD is EUR 185 per m2. Newsec population has declined from 670,000 to in recent years, there is still an attractive expects the market rent to rise to EUR 190 640,000 people. The decline in Latvia’s gap compared to Western European per m2 by the end of 2016. population is caused by emigration in levels. Average yields for prime retail and search of employment and a sharp fall in office assets in Vilnius remain around The retail market birth rate. 7.00%, with the most attractive proper- At the end of 2015 the stock of modern ties being bought at yields up to 50 basis shopping centres in Vilnius was 347,500 The investment market points lower. Secondary properties pro- m2, or 0.64 m2 per capita. After a break of 2015 was nearly a record-breaking year duce yields around 8.00%. Local Baltic, a few years in shopping centre develop- for Latvia’s investment market, with a Nordic and Eastern European investors ments in Vilnius, the foreign investor Nan- total transaction volume that exceeded are still the key players in Lithuania, but tucket Holdings completed the 18,000 m2 EUR 347 million (31% of the total Baltic 28

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 EXECUTIVE SUMMARY  ● »Although yields have fallen significantly in recent years, there is still an attractive gap compared to Western European levels« 29

●  THE BALTIC PROPERTY MARKET   NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 43% OF THE TOTAL BALTIC TRANSACTION VOLUME ESTONIA 2015 market). Investment in the retail segment with a preference towards built-to-suit struction soon. In this case, supply could in 2015 accounted for 75% of the total office reconstructions or acquisitions, potentially increase sharply in 2017–2018. investment volume. In Q4 2015 three big and will thus vacate their leased premis- shopping centres in Riga – Alfa, Mols and es. This may cause additional short-term The retail market Dole – were sold to the Blackstone Group vacancy in existing modern office build- The main shopping destination in Latvia is LP as part of a large portfolio, with a total ings in 2016. The overall vacancy level in Riga, which has 11 shopping centres. Their transaction volume of more than EUR 180 prime offices in Riga is currently below average gross lettable area is around million. 1%, while vacancy in Class-B offices stood 20,000 m2. Only four projects consist of at 7.5% at the end of 2015. The average more than 30,000 m2, the others being The office segment was also active in rent level for office premises in Riga CBD classed as small or medium local shop- Latvia, representing 25% of the total is EUR 180 per m2. Newsec expects the ping centres. investment volume. In 2016, the property market rent to rise to EUR 185 per m2. investment volume in Latvia is expected The largest Lithuanian retail developer, to reach at least the same level as last year. A number of premium offices are current- the Akropolis Group, has announced ly under construction, including Z-Towers the development of a new shopping The office market and an office centre in the Skanstes complex in Riga, while Linstow The Riga office stock totals over 600,000 Business district being developed by Centre Management has announced the m2. New deliveries of speculative modern Hanner. Several other projects, including expansion of Alfa SC and Origo SC, and offices have been insignificant during the Business Garden Riga (Vastint), Ulmana the department store Stockmann may last five years, with most completions be- Offices Park (Domuss, a part of NCH be added to the shopping-centre stock in ing built-to-suit projects for government Capital), New Hanza City (LV bank), a 2016. In Latvia, major brands are already institutions. Many financially stable ten- Class-A office building in Skanstes (E.L.L) located in the most successful shopping ants are now making long-term decisions and others are expected to begin con- centres or switching to them. Since 2012 30

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 THE BALTIC PROPERTY MARKET  ● »Despite almost zero population growth in Tallin, private consumption has been growing constantly, supported by low energy prices and rising wages« the market has seen new entrances financing is expected to last for anoth- is about 3%. Considering the current including Next, Burberry, Massimo Dutti, er one or two years. The China crisis financial situation of business companies, H&M, Debenhams, Subway, Sports Direct, occurring at the beginning of 2016 has prime rents have reached their maximum KFC and others. once again demonstrated the fragility of level. The price gap between old and new any forecasts as well as the exposure to office premises will widen and landlords Estonia: 2016 is expected to fluctuation of both stock and commodity of the older office buildings will have to be no less active than the investments. However, given geopolitical compete by holding or even lowering record year 2015 and economic stability, the year 2016 is their rents. expected to be no less active than 2015 in Despite a moderately growing population terms of commercial property invest- The retail market in the capital city Tallinn (an annual rise ments. Despite almost zero population growth of 0.3%–1.25% for the last six years), the in Tallinn, private consumption has been total population of Estonia has been de- The office market growing constantly, supported by creasing at 0.2%–0.4% annually. Today By the end of 2015 quality office stock in low energy prices and rising wages. At Estonia has a population of 1.3 million. Tallinn had increased to over 610,000 m2, the beginning of 2016 Tallinn’s shopping The decrease is caused by the fact that of which 43,500 m2 was delivered in 2015. centres have a total gross lettable area the migration balance for Estonia is nega- Whereas office development activity in of over 390,000 m2. New deliveries in tive. Moreover, due to a low birth rate the Tallinn had previously started to move 2015 were moderate (about 14,000 m2), Estonian population is ageing. In 2015, from the CBD to the outskirts, we are now although development of retail premises only 26% of the population was under the witnessing major office development was more active in the outskirts of Tallinn. age of 24 years. At the same time this age moving back to the CBD and the city In 2016 and 2017 development activity in group makes up 33% of emigration. centre. the Tallinn retail segment is expected to grow again. New deliveries will include The investment market In 2016 new office construction volume T1 by Pro Capital (with a gross lettable In 2015 the volume of Estonian prop- promises to exceed 2015, providing area of 55,000 m2) and the large-scale erty transactions was around EUR 486 almost 52,000 m2 of gross lettable area. retail and office project Porto Franco million, which represents 43% of the total Despite some turbulence at both micro- (Admiraliteedi Park) in the city centre. transaction volume in the Baltics. This is economic and geopolitical levels, the Both Citycon (one of the most active retail a record and almost double the volume supply of new office premises is growing developers) and Capfield are planning of the ‘boom’ year of 2007. The market – partly because developers are now to add several shopping centres to their demonstrated growth more in the value implementing plans made two or three portfolios. of transactions than the number of deals years ago, but also because developers closed. The weak stock market and high see that Estonian business companies are At the start of 2016 prime rents in Tallinn bond prices increased the attractiveness, doing well enough to be able to move to shopping centres are running at up to as an investment option, of commercial new premises. At the same time, the age- EUR 600 per m2 while the average rent property with reasonable profitability. On ing population suggests a more modest is more than EUR 200 per m2. In the next the other hand, high activity in the prop- demand for offices in the long term. few years, no significant increases are ex- erty investment segment is derived from pected because of the forecast increase comparatively high economic activity, Whereas business companies were in supply. The vacancy in well-performing low interest rates on deposits and cheap actively looking for new office premises shopping centres in Tallinn is below 1%. loans. High investment activity has also in summer 2015, creating a balance been supported by high liquidity on the between supply and demand in the city Contact: market and a broad variety of high-quali- centre, by the end of 2015 we were al- Gintaras Tolocka, ty development projects. ready seeing oversupply, which removes [email protected] any expectation of rising rents in the near The retail and office sectors were among future. At the start of 2016, prime rents the property segments with the highest in Tallinn are running at up to EUR 210 investment activity. The low cost of loan per m2 and vacancy at prime locations 31

●  NORDIC PROPERTY FINANCING   NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 NORDIC PROPERTY FINANCING In the second half of 2015 the trend of ing the listed companies) has continued to could debate whether it would be right good access to financing from the senior be very inactive on the property side. This for the borrower to benefit since in fact it banks has continued. For the most part, can be explained in part by various events involves no increased cost for the bank. the banks are still interested in expanding in the outside world, but probably – and However, the banks usually say that in their loan portfolios with both existing hopefully – investors will return to viewing these circumstances the interest rate and new clients. They are competing property bonds, even in the high-yield margin is calculated above a floor where among themselves as regards interest segment, as a lower yielding but safer Stibor can be no less than zero. And the rates and covenants but are continuing investment in their bond portfolios. borrower then ‘receives’ the difference as to hold down the loan-to-value ratio. This We are currently in a generally liquid an increased income. is healthy because one of the mistakes market, in terms of both assets and that was made historically was that senior financing. But perhaps it is a good idea A striking exception is a major Danish banks did lend at loan-to-value ratios that to reflect upon this. Precisely because bank, which says that, down to a predeter- were way above what a senior loan should it is relatively simple to get senior bank mined minimum, the borrower benefits be. The Basel rules have probably also financing today, it is easy to ‘take the instead in the form that the interest rate fulfilled their function here. money and run’ to the next deal – with- margin is reduced by the difference in out setting aside the time to review and sub-zero Stibor and possibly also by using This continues to provide an opening think about the conditions that you have the difference as amortisation on the for players who are able to fill the gap actually signed up to. It may be important loan. This may be something to discuss between the senior loan and pure equity. to consider whether the interest rate you with other banks, since the amortisation The junior loan market is dominated have received really reflects the risk of both benefits the borrower, in practice, in practice by two players, which have the transaction. Also whether amortisa- on the day that the loan is repaid, while different approaches to their own tion is desirable or not, and if it is, how at the same time the bank’s exposure is funding but which both have a very good great it should be to provide a balanced reduced. understanding of the product. They also risk for both the lender and the borrower. have internal processes that generally It is also important to review the lender’s Contact: are significantly quicker than those of the right to cancel the loan on the bank’s side. Mats Karlsson, senior lenders. And, last but not least, to consider what [email protected] securities you have to provide and how A market that has made strong progress and when they can be called. When the in the past year is the segment that can market is very good there is of course not be described either as junior or as lying a cloud in the sky, but the question we between junior and equity. Here external should ask ourselves is whether this will capital is sourced through crowdfunding – always be the fact, or if not, how we stand a segment where we today, in comparison towards the lender on a purely commer- with the world around us, have probably cial and contractual basis. seen only a fraction of the market’s potential. In this segment one player In most loan agreements there are claus- stands out which provides financing with es that allow the banks to pass on – to the the instrument of preference shares that borrower himself – an increased lending. in practice are to be considered as equity. It is therefore generally the borrower’s Otherwise there are a number of players responsibility to ensure that the lender’s with varying approaches and with varying income is preserved. And of course it is track-records. But this is the usual pat- a matter of negotiation how brutally this tern in a young segment, and the market clause is formulated. generally tends to be self-cleaning. In our present interest rate environment Something else that is surprising is that an interesting question arises: who the trend on the bond market (disregard- benefits when Stibor is below zero? You 32

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 NORDIC PROPERTY FINANCING● »The trend of good access to financing from the senior banks has continued during 2015 and the banks are still interested in expanding their loan portfolios« 33

●  EXECUTIVE SUMMARY   NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 »The transaction market is predicted to continue to reach high volumes across all markets during 2016« 34

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 OUTLOOK FOR THE NORTHERN EUROPEAN PROPERTY MARKET  ● OUTLOOK FOR THE NORTHERN EUROPEAN PROPERTY MARKET Newsec five-year forecast us and we will support you in making the 2015 has been characterised by fairly Newsec continuously makes predictions optimal investment and allocation deci- large interest from international inves- about the commercial property market in sions in the years to come. tors. 28% of the acquisitions made in Northern Europe. We are able to do this Sweden in 2015 came from international because of our local market presence in Still some yield compression to be capital. The SEK 9.5 billion purchase all the Nordic countries and in the Baltics. seen made by the US investor Blackstone Since spring 2013 the Norwegian and contributed strongly to this high figure. The basis for the forecast is our view Swedish property markets have shifted However, domestic property companies about the macroeconomic development from a single-minded focus on high- and institutions are also still very active of the countries in the region and how quality properties in prime locations to- on the transaction market, and the that, in turn, will affect the commercial wards broad activity mainly in segments competition for all properties is tough. property market in each country. Yield, outside prime locations. This includes The low interest rate environment is rental and vacancy trends for each mar- inner city and prime suburban office expected to continue through the year, ket segment and area are estimated by locations as well as retail, logistics and and together with good access to financ- our local experts and applied in a financial residential properties in regional and ing and lack of highyielding alternatives model to predict the optimal risk/return smaller growth cities. In response to this, will lead to continued high transaction relationship between assets. Readers transaction activity in the CBDs of the volumes on the Swedish property market of the analysis will get an indication of major cities has fallen markedly, mainly during 2016. The total transaction volume where Newsec thinks the commercial due to limited supply and low yields. The in Norway reached record levels in 2015, property market in Northern Europe is market shift has been driven by improv- and the transaction volume is at relatively heading during the next few years. ing market sentiment, better credit high levels in a historical perspective in For further information on the assump- access and historically low interest rates. the rest of Northern Europe as well. tions behind the analysis, please contact Total Return/Market Risk – 2016E–2017E Source: Newsec Office Sweden Office Norway Average Total Return 2016E–2017E Percent Office Finland 14 Office Baltic Region Retail Sweden 12 Retail Norway Retail Finland 10 Retail Baltic Region Logistics Sweden 8 Logistics Norway Logistics Finland 6 Logistics Baltic Region Residential Sweden 4 Residential Finland Office Denmark Retail Denmark 2 7 12 17 22 27 32 Percent 2 Standard Deviation in Total Return 2008–2017E 35

●  OUTLOOK FOR THE NORTHERN EUROPEAN PROPERTY MARKET   NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 NOK 120 BILLION TRANSACTION VOLUME NORWAY 2015 The transaction market is predicted to ment in most other parts of Europe. Now euro in 2015 (the last of the countries continue to reach high volumes across international investors have started to in the region) we will see an increased all markets during 2016. Total return in show interest in Finland again as the demand for the entire region from CBD and inner city locations will continue overall market sentiment is beginning international investors in the future. The to be driven by rental growth, while in to look better, while yield levels are still traditional trend of international capital secondary locations there is still some quite attractive compared to the rest of coming solely from Nordic and Russian yield compression to be seen driving total the Nordic area and Europe. investors has changed during 2015. A return. few of the larger deals in the region can On the Danish market we are seeing be tracked across Europe to countries The transaction volume in Norway in 2015 prime investment properties with high such as the Netherlands, Malta and reached NOK 120 billion, which broke the cash-flow security producing unprece- Switzerland. Following this trend, we can previous all-time high by a significant dentedly high income returns relative to, expect increased competition for prop- margin. Some of the major players on the for example, 10-year government bonds. erties in prime locations, leading to yield Norwegian market have taken advantage Today’s investors seem to consider a compression in the prime segment. of the strong market conditions to offload long-term lease with a strong covenant non-strategic properties in their portfo- tenant to be a weightier investment Office in Sweden best expected lios. International capital is increasing consideration than property location. The total return in 2016–2017 and Scandinavian investors in particular attractive risk-adjusted returns on prop- are increasingly entering the Norwegian erty relative to other asset classes have Office properties in Sweden are expect- market. served to increase transaction volumes ed to show the best total return during and reduce yield requirements on prime the period 2016–2017. However, this is In Finland, the property market started to property in particular. a segment that historically has shown a show signs of recovery during 2013 and fairly high volatility. The high expected 2014 and the activity continued during In the Baltics, there is still an attractive total return for Swedish office properties 2015. However, the Finnish property yield gap compared to Western European is primarily driven by expectations of market is still lagging behind develop- levels. Now that Lithuania has joined the large increases in rents and continuously sinking yield levels. Average Capital Growth 2016E-2017E Source: Newsec The ‘Logistics Sweden’ and ‘Logistics Average Capital Growth Finland’ segments both show a good 10 expected total return in 2016–2017. These segments have shown a relatively low 8 volatility historically. Residential proper- ties in Sweden will continue to deliver a 6 stable total return with low risk during the forecast period. In recent years Swedish 4 institutions have increased their interest in the residential segment, which has 2 increased liquidity in the segment and 0 contributed to falling yields. -2 Retail properties in Sweden historically show a wide risk-spread varying with the Office Retail Logistics Residential sub-segment, while expected average Office Stockholm Prime total return across the segment is some- Retail Copenhagen Prime where between 8% and 10% during the Office Gothenburg Prime period 2016–2017. It is therefore possible to find attractive risk-adjusted returns Retail Stockholm Prime within the segment, but investors buying Retail Gothenburg Prime Logistics Stockholm Prime Logistics Gothenburg Prime Residential HMA Prime Residential Gothenburg Prime Logistics Malmö Prime Retail Malmö Prime Residential Malmö Prime Office Malmö Prime Residential Stockholm Prime Retail HMA Prime Retail Oslo Prime Office Tallinn Prime Office HMA Prime Logistics Vilnius Prime Logistics HMA Prime Retail Tallinn Prime Office Vilnius Prime Office Oslo Prime Logistics Oslo Prime Logistics Riga Prime Retail Vilnius Prime Office Copenhagen Prime Retail Riga Prime Logistics Tallinn Prime Office Riga Prime 36

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 OUTLOOK FOR THE NORTHERN EUROPEAN PROPERTY MARKET  ● »Office properties in central Stockholm are expected to show the best capital growth during the period 2016–2017« on today’s market must properly analyse the location and sub-segment of Swedish retail properties in order not to get expo- sure to an investment with an unneces- sary risk level in relation to total return. Office properties in Norway show a similar trend in risk spread as retail in Sweden. For this segment the expect- ed average total return is somewhere between 5% and 9% during the forecast period, with a large variation in risk level depending on market sub-segment. Investors chasing maximum return during the forecast period should go for office properties in Sweden and selected logis- tics properties in Sweden or Finland. Within the prime segments, The segments ‘Retail Copenhagen yearly capital growth is predicted to be office in Stockholm has the Prime’, ‘Office Gothenburg Prime’, ‘Retail –1.3%. This is driven by large increases in best expected capital growth in Stockholm Prime’ and ‘Retail Gothenburg vacancies. 2016–2017 Prime’ are all expected to show a yearly capital growth of around 6% during the Investors chasing maximum capital re- Office properties in central Stockholm are period. turn during the forecast period should go expected to show the best capital growth for office properties in central Stockholm. during the period 2016–2017. The average The prediction is most negative for office yearly capital growth for the segment is properties in Riga, where the average predicted to be around 8% during the forecast period. The high expected capi- tal growth is primarily driven by expecta- tions of a high rental growth in combina- tion with slightly decreasing yields. Total Return | Nordic Region Total Return | Baltic Region Percent Source: Newsec Percent Source: Newsec 2015 2016E 2017E 2015 2016E 2017E 20 40 18 35 16 14 30 12 10 25 20 8 15 6 4 10 2 0 5 2010 2011 2012 2013 2014 0 2011 2012 2013 2014 2010 Prime Office Prime Retail Prime Residential Prime Logistics Prime Office Prime Retail Prime Logistics 37

●  MACROECONOMIC DATA   NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 MACROECONOMIC DATA Sweden Source: SCB, Newsec Interest Rates Source: Swedbank, Swedish Central Bank Economic Indicators Percent 4 Percent 7 5 3 3 1 2 -1 1 0 -3 -5 -7 -1 09 10 11 12 13 14 15 16E 17E 18E 09 10 11 12 13 14 15 16E 17E 18E GDP, Annual Percentage Change Private Consumption Central Bank Interest Rate STIBOR 3M STFIX 5Y Inflation, Yearly Average Employment Norway Source: BNP 7 Source: BNP Economic Indicators 5 Percent 3 6 1 4 -1Interest Rates -3Percent 5 -5 -7 4 3 2 2 0 1 -2 18E 0 18E 09 10 11 12 13 14 15 16E 17E 09 10 11 12 13 14 15 16E 17E GDP, Annual Percentage Change Private Consumption Central Bank Interest Rate NIBOR 3M SWAP 5Y Inflation, Yearly Average Employment 6 Finland Source: BNP 4 Source: BNP Economic Indicators Interest Rates Percent Percent 9 2 6 3 0 3 0 2 -2 -3 1 0 -6 -9 18E -1 16E 17E 18E 09 10 11 12 13 14 15 16E 17E 09 10 11 12 13 14 15 SWAP 5Y GDP, Annual Percentage Change Private Consumption Central Bank Interest Rate EURIBOR 3M Inflation, Yearly Average Employment 9 38 6 3

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 MACROECONOMIC DATA  ● Denmark Economic Indicators Interest Rates Percent Source: BNP Percent Source: BNP 4 4 3 3 2 1 2 0 -1 1 -2 0 -3 -4 -1 18E -5 09 10 11 12 13 14 15 16E 17E -6 09 10 11 12 13 14 15 16E 17E 18E GDP, Annual Percentage Change Private Consumption Central Bank Interest Rate CIBOR 3M SWAP 5Y Inflation, Yearly Average Employment 4 Estonia 3 2 Economic Indicators Source: BNP 1 Interest Rates Source: BNP Percent 0 12 -1 Percent -2 3.0 8 -3 2.5 4 -4 2.0 0 -5 -6 1.5 -4 1.0 -8 0.5 0.0 -12 -16 -0.5 09 10 11 12 13 14 15 16E 17E 18E 09 10 11 12 13 14 15 16E 17E 18E GDP, Annual Percentage Change Private Consumption EURIBOR 3M SWAP 5Y Inflation, Yearly Average Employment Latvia Source: BNP 12 Source: BNP Economic Indicators 8 Percent 4 Interest Rates 16 0 Percent 8 -4 10 0 -8 8 -12 6 -16 4 -8 2 0 -16 -24 18E -2 09 10 11 12 13 14 15 16E 17E 09 10 11 12 13 14 15 16E 17E 18E GDP, Annual Percentage Change Private Consumption RIGIBOR 3M EURIBOR 3M Inflation, Yearly Average Employment 16 39 8 0

●  MACROECONOMIC DATA   NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 MACROECONOMIC DATA Lithuania Economic Indicators Interest Rates Percent Source: BNP Percent Source: BNP 14 9 10 6 7 2 5 -2 -6 3 -10 1 -14 -18 -1 10 11 12 13 14 15 16E 17E 18E 09 10 11 12 13 14 15 16E 17E 18E 09 EURIBOR 3M GDP, Annual Percentage Change Private Consumption VILIBOR 3M Inflation, Yearly Average Employment GDP Growth 2015-2016E Source: BNP 14 10 Percent 6 4 2 -2 3 -6 -10 2 -14 -18 1 0 2015 2016E 40

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 PROPERTY DATA  ● PROPERTY DATA Office rents Prime Office Rents (CBD) | Nordic Region Source: Newsec Prime Office Rents (CBD) | Baltic Region Source: Newsec EUR/m2 Percent EUR/m2 Percent 240 12 800 9 10 700 8 210 600 7 180 8 500 6 150 6 400 5 120 300 4 90 4 200 3 2 100 2 60 0 Oslo 0 1 Riga Vilnius 30 Stockholm Gothenburg Malmö Helsinki Copenhagen 0 0 Tallinn Average Annual Rental Growth 2010–2015 (left axis) Average Annual Rental Growth 2010–2015 (left axis) Average Annual Rental Growth 2016E–2018E (left axis) Average Annual Rental Growth 2016E–2018E (left axis) Rent Level 2016E (right axis) Rent Level 2016E (right axis) Office yields Source: Newsec Prime Office Yields | Baltic Region Source: Newsec 16E 17E 18E Prime Office Yields | Nordic Region Percent 13 Percent 7.5 12 6.5 11 5.5 10 9 4.5 8 7 3.5 10 11 12 13 14 15 16E 17E 18E 6 09 09 10 11 12 13 14 15 Stockholm Gothenburg Malmö Tallinn Riga Vilnius Oslo Helsinki Copenhagen Retail rents Prime Retail Rents | Nordic Region Source: Newsec Prime Retail Rents | Baltic Region Source: Newsec EUR/m2 Percent 3000 Percent EUR/m2 2500 300 8 2000 4.5 7 1500 6 1000 4.0 250 5 500 200 4 0 3.5 3 2 Helsinki Copenhagen 3.0 1 0 2.5 150 100 2.0 1.5 1.0 50 0 -1 0.5 -2 Stockholm Gothenburg Malmö Oslo 0.0 Riga Vilnius Tallinn Average Annual Rental Growth 2010–2015 (left axis) Average Annual Rental Growth 2010–2015 (left axis) Average Annual Rental Growth 2016E–2018E (left axis) Average Annual Rental Growth 2016E–2018E (left axis) Rent Level 2016E (right axis) Rent Level 2016E (right axis) 41

●  PROPERTY DATA   NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 PROPERTY DATA Retail yields Prime Retail Yields | Nordic Region Source: Newsec Prime Retail Yields | Baltic Region Source: Newsec 16E 17E 18E Percent Percent 7.0 13 6.5 12 6.0 11 5.5 10 5.0 9 4.5 8 4.0 7 3.5 6 09 10 11 12 13 14 15 16E 17E 18E 09 10 11 12 13 14 15 Stockholm Gothenburg Malmö Tallinn Riga Vilnius Oslo Helsinki Copenhagen Logistics rents Prime Logistics Rents | Nordic Region Source: Newsec Prime Logistics Rents | Baltic Region Source: Newsec EUR/m2 EUR/m2 Percent 200 Percent 80 8 150 10 7 9 70 100 8 6 7 60 50 6 5 5 50 0 4 4 Helsinki - East 3 40 2 3 1 30 0 2 20 Tallinn 1 10 0 0 Gothenburg Malmö Oslo Riga Vilnius Stockholm Average Annual Rental Growth 2010–2015 (left axis) Average Annual Rental Growth 2010–2015 (left axis) Average Annual Rental Growth 2016E–2018E (left axis) Average Annual Rental Growth 2016E–2018E (left axis) Rent level 2016E (right axis) Rent Level 2015 (right axis) Logistics yields Source: Newsec Prime Logistics Yields | Baltic Region Source: Newsec 16E 17E 18E Prime Logistics Yields | Nordic Region Percent 13 Percent 9 12 8 11 7 10 9 6 8 7 5 09 10 11 12 13 14 15 16E 17E 18E 6 09 10 11 12 13 14 15 Stockholm Gothenburg Malmö Tallinn Riga Vilnius Oslo Helsinki - East 42

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 PROPERTY DATA  ● Residential rents Residental Rents | Sweden Source: Newsec Prime Residental Rents | Finland Source: Newsec Percent EUR/m2 Percent EUR/m2 200 8 400 9 8 7 6 300 6 5 4 200 4 3 2 100 2 1 0 Gothenburg Malmö 150 0 0 Stockholm Helsinki Average Annual Rental Growth 2010–2015 (left axis) Average Annual Rental Growth 2010–2015 (left axis) Average Annual Rental Growth 2016E–2018E (left axis) Average Annual Rental Growth 2016E–2018E (left axis) Rent Level 2016E (right axis) Rent Level 2016E (right axis) Residential yields Source: Newsec Prime Residential Yields | Finland Source: Newsec 15 16E 17E 18E Prime Residential Yields | Sweden Percent 6.0 Percent 5.5 4.0 5.0 3.5 4.5 3.0 4.0 2.5 3.5 2.0 09 10 11 12 13 14 Helsinki 1.5 10 11 12 13 14 15 16E 17E 18E 09 Stockholm Gothenburg Malmö Annual transaction volumes Source: Newsec Transaction Volumes – Annual | Baltic Region Source: Newsec 15 16E 15 16E Transaction Volumes – Annual | Nordic Region MEUR BEUR 500 450 22 400 20 350 18 300 16 250 14 200 12 150 10 100 8 50 6 0 4 09 10 11 12 13 14 2 0 09 10 11 12 13 14 Sweden Norway Finland Denmark Estonia Latvia Lithuania 43

●  PROPERTY DATA   NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 PROPERTY DATA Quarterly transaction volumes Transaction Volumes – Quarterly | Nordic Region Transaction Volumes – Quarterly | Baltic Region BEUR Source: Newsec MEUR Source: Newsec 7 250 5 230 210 3 190 170 1 150 130 -1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 110 2011 2012 2012 2013 2013 2014 2014 2015 2015 90 2010 70 Latvia Lithuania 50 Sweden Norway Finland Denmark 30 10 -10 Q1 Q3 Q1 2010 2010 2011 Estonia Office new construction Office stock Office New Construction (Capital Office Market) Source: Newsec Office Stock Q4 2015 (Capital Office Market) Source: Newsec Percent of stock ’000 m2 Million m2 240 25 14 20 12 180 10 120 60 15 8 0 10 6 Stockholm Oslo 2015 (left axis) 4 5 2 HMA Copenhagen Tallinn Riga 0 0 HMA Copenhagen Tallinn Riga Vilnius Vilnius Stockholm Oslo 2016E (left axis) 2016 (right axis) 44

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 DEFINITIONS  ● DEFINITIONS Offices Retail Logistics • In the Nordic region, the forecast refers • Rent levels refer to attractive, mod­ • In the Nordic region the size of the prem- to new or newly refurbished modern and ern High-Street or centrally located ises is assumed to be 5,000–20,000 m2 flexible office premises with normal area shopping-centre retail premises with a with 5–10 years lease agreement. efficiency. prime location on the High Street or in • In the Baltic region the size of the prem- • In Finland, the forecast refers to the shopping centre. ises is assumed to be from 3,000 m2 with office premises with normal area • In Norway, rents refer only to shopping 3–5 years lease agreement. efficiency in office buildings in office centres. • In the Nordic region the rent excludes areas. • T he rents do not refer to premises used heating and Property Tax. • The size of the premises is assumed to for groceries and daily necessities • In the Baltic region the market rent be around 1,000 m2. (except in the Baltic region). excludes all applicable taxes. • I n the Baltic region, the forecast refers • The size of the premises is assumed to be around 250 m2. Residential to new or newly refurbished • The rent excludes heating and Prop- • The forecast refers to attractive stand-alone modern business erty Tax in all Nordic countries except locations. centres. Finland where heating and Property Tax • T he standard assumes buildings con- • In Sweden the market rent includes are included. structed in the late 1990s and with an heating and excludes Property Tax. • In the Baltic region the market rent apartment area of around 60–70 m2. • In Finland the market rent includes excludes all applicable taxes. • T he rent includes heating and heating and Property Tax. Property Tax. • In Norway and Denmark the market rent excludes heating and Property Tax. Exchange rates • In the Baltic region the market rent All rents and transaction volumes are excludes all applicable taxes. calculated using exchange rates from January 2016. NEWSEC’S ANALYSIS PRODUCTS Thanks to Newsec’s comprehensive knowledge we are able to offer a number of analysis and market reports which give you a valuable summary of the property market. Order your English report at www.newsec.com/insights/market-reports/ Order your Swedish report at http://www.newsec.se/insikter--rapporter/marknadsrapporter/ 45

●  THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE   NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE Newsec – The Full Service Property House in Northern Europe – is by far the largest specialised commercial property firm in Northern Europe. Newsec manages more properties and OULU carries out more transactions, more lettings and more valuations than any TRONDHEIM other firm in Northern Europe. Through this great volume, and the knowledge BERGEN TAMPERE and depth of our various operations, we acquire extensive and detailed knowledge OSLO HELSINKI of the real estate market. In turn, we can STOCKHOLM quickly identify business opportunities GOTHENBURG that create added value. TALLINN COPENHAGEN MALMÖ Our prime market is Northern Europe, but RIGA through our alliance membership with VILNIUS BNP Paribas Real Estate, we offer our services on the global market. This makes Newsec Northern Europe’s only full ser- vice property house, and provides us with a unique ability to forecast the future. A history of growth Newsec is the result of a unique history of growth, characterised by constant orig- inality of thinking. The first issue of the comprehensive market analysis, Newsec Property Outlook, was published in 2001. The Group expanded internationally into Today, Newsec employs over 700 profes- Finland in 2001, Norway in 2005 and the sionals in over 20 offices and covers all Baltic countries in 2009. The Norwegian parts of the commercial property market. asset and property management com- Newsec provides services to most of the panies First Newsec Asset Management leading property owners, investors and and TM Partner were acquired in 2012. corporates in the region. In 2013, Newsec acquired Jones Lang LaSalle’s Swedish property management operation. Newsec is a stable and long-term player. The company was founded in Sweden in 1994. The founding family have been the main owners from the start, with the rest of the company owned by key executives in the Group. 46

NEWSEC PROPERTY OUTLOOK  •  SPRING 2016 CONTACT AND ADDRESSES  ● CONTACT AND ADDRESSES Sweden Norway Finland Estonia [email protected] [email protected] [email protected] [email protected] Stockholm Oslo Helsinki Tallinn Stureplan 3 Filipstad Brygge 1 Mannerheiminaukio 1 A Roseni av. 7 P.O. Box 7795 P.B. 1800 Vika P.O. Box 52 EE-10111 Tallinn, SE-103 96 Stockholm, Sweden NO-0123 Oslo, FI-00101 Helsinki, Estonia Tel: +46 8 454 40 00 Norway Finland Tel: +372 664 5090 Tel: +47 23 00 31 00 Tel: +358 207 420 400 Stockholm Latvia Humlegårdsgatan 14 Lysaker Tampere P.O. Box 5365 Lysaker Torg 8 Aleksanterinkatu 32 B [email protected] SE-102 49 Stockholm, Sweden P.O. Box 93 FI-331 00 Tampere, Tel: +46 8 55 80 50 00 NO-1325 Lysaker, Finland Riga Norway Tel: +358 207 420 400 Zala street 1 Gothenburg Tel: +47 92 84 46 46 LV-1010 Riga, Lilla Bommen 5 Latvia P.O. Box 11405 Tel: +371 6750 8400 SE-404 29 Göteborg, Sweden Lithuania Tel: +46 31 721 30 00 [email protected] Gothenburg Kungsportsavenyn 33, 5 tr Vilnius SE-411 36 Göteborg, Gediminas av. 20 Sweden LT-01103 Vilnius, Tel: +46 31 733 86 00 Lithuania Tel: +370 5 252 6444 Öresund Office Dockplatsen 12 SE-211 19 Malmö, Sweden Tel: +46 40 631 13 00 47

THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE