Increased employment is supporting continued strong absorption in the office market
Norway’s economy continued to expand during 2019 thereby increasing employment that fed into an expansionary office market. Consequently, the vacancy rate in Oslo fell to a record low of 5.7% by end 2019, down from the peak of 8.6% seen in 2016. Development activity increased although most of the new premises that came to market were pre-let. Low vacancy and strong demand are accelerating rents with the prime rent attaining a record high of €550/sqm/year in 2019, growing 9% over the year.
The development pipeline is modest for 2020, with expectation of increased completion from 2021 onwards. The let-ting market is set to have another year of falling vacancy rates and continued rental growth, however at a slower pace than seen during 2019. From 2021 and onwards, the letting market is set to cool off as the economy slows.
Strong demand for office properties in oslo as rental prices continues to grow
Norway saw yet another year of strong investment volume for commercial real estate in 2019, reaching NOK 90bn (€9.34bn). The office sector was the largest asset class as usual. Interestingly development land acquisitions posted the second highest volume, which reflects new trends emerging in the market. Investors also showed considerable interest in community service facilities (elderly care, kindergarten and health facilities) that are evolving as a new market segment.
The activity for the Oslo office market also remained strong with a 4% increase in volume to NOK 22.7bn (€2.4bn). The market saw several transactions of lower quality office properties with only a few years remaining on the lease contract, bought by investors seeking increased return from renegotiations of lease contracts. This market feature encouraged secondary yields in Oslo to fall while prime yields remained stable. The prime yield will remain stable over 2020, as interest rates may have peaked for now in Norway. 2019 saw foreign investors as net sellers for the first time since entry in 2014. A combination of maturing investments and yield compression plus increased hedging cost, made new in-vestments too expensive. Going forward, strong demand from national investors will support the Oslo market.