Oslo facing supply shortages as vacancy rates continue to fall
Norway’s economy is in a better position following the oil price bust and is expanding again. Consequently demand for office space improved greatly over 2018 with strong growth in employment. By Q4 2018, the vacancy rate in Oslo fell to 5.9%, the lowest level in years and below the record high of 8.6% seen in 2016.
The Oslo occupational market is looking at space shortage situation. Lack of construction of new offices plus conversion of offices in alternative uses like residential (where prices have been higher) is catching up with the market; modern space availability is much lower.
Going forward, the upturn in the Norwegian economy is expected to continue and the rental market is projected to remain strong. The development pipeline is modest and with employment projected to increase, it is likely to create further market pressure on rents. The current situation is already affecting rents positively, which have been steadily increasing since 2016 and the prime rent posted at €506/sq m/year in 2018. It is likely that rents will continue to increase over 2019.
Investors keen on Oslo are also looking elsewhere for value
Norway saw transaction volumes for 2018 reach NOK 87 bn (€9.03bn), just shy of NOK 89 bn (€9.22bn) in 2017. As normal, office buildings dominated total volume with roughly 41% share. The interesting feature of 2018 was that for the first time in history logistics surpassed the retail segment, with the former taking 21% of total volume and latter only 16%. For Oslo, activity remains high, with a volume of NOK 42 bn (€4.4bn) versus NOK 43 bn (€4.45bn) in 2017. Foreign investors have, to a large degree, been absent from the Oslo market in 2018. Prime office yields are still at an all-time low of 3.75%, and combined with hedging costs increasing due to a volatile NOK, prime assets are becoming expensive in the capital city. As a result, we see increased activity from the foreign investors in secondary cities such as Stavanger where yields are higher.