Oslo’s office supply situation is improving
Since the oil price bust in 2014, Oslo office market has struggled with its supply situation. The restructuring of companies, leading to vacant space and subletting of premises, negatively affected Oslo’s office market, particularly in rental prices. The response of recent years has been to reduce stock through office conversion to residential. The improving Norwegian economy over 2017 caught up with the conversion process with an improvement in the occupational situation through more letting transactions.
It is testament to the changing supply situation in Oslo that the vacancy rate which was at a record high of around 8.6%,in 2015 had by Q2 2017 fallen to about 7.5%. The overall vacancy rate fell just above 7% by end of 2017 and is expected to continue to fall, lower still in Oslo city centre. It is likely to create an unexpected supply shortage of modern space in the near future, particularly in the core city centre area of Oslo. This is affecting rents positively, which are growing again; the prime rent posted at €468 in 2017.
Foreign investors have renewed interest in the Oslo office market
Norway saw transaction volume for the year reach NOK 88 billion. The volume is nearly 10 billion higher than 2016 and the number of transactions reached a record high of 340, crushing the previous record set last year of 285. Office buildings dominated total volume with roughly NOK 43 billion or 50% of total volume. Oslo accounted for 50% of the total volume in 2017 and secondary markets such as Trondheim and Stavanger enjoyed a notable surge in transaction velocity. Foreign investment is a significant contributor to activity with 20% of the transaction volume came from overseas, up from 11% in 2016, but below 2015 figures at 33%. Renewed appeal of Norway to foreign investors is seeing yield contraction in the office sector with the office yield running at 3.75%.