Nordic Outlook spring 2023

Hello

Last year was a brutal reminder of the impact of the higher cost of capital on financial markets, in combination with a softer outlook for the economy. Inflation continued to rise, boosting rent index adjustments, while creating further pressure on central banks to act.

To contain inflation, central banks are continuing to tighten their monetary policies and are determined to do what it takes to stop inflation getting out of hand. Funding costs are also up, due to deteriorated liquidity in the capital markets for real estate corporates. Nordic banks are still showing good appetites for lending but are primarily focusing on existing relationships and lower refinancing loan-to-values ratios (LTV), owing to increased focus on interest-coverage-ratios (ICR) following higher interest rates.

The listed real estate sector has come under pressure in the Nordics, and today trade at around 30 percent discount for a median listed real estate company*—which stands in contrast with the 15 percent premiums we recorded in the Spring 2022 edition of this report, a year ago.

In the property market, higher funding costs are affecting all segments. A strong rental market for community service, logistics and prime office properties bodes well for these segments to mitigate, to some extent, yield requirement with higher rents. Residential rental properties are among the segments where values are under pressure also linked to lower visibility on rental growth, short term. The retail and hotel market remains under pressure with caution with regards to rental outlook, despite the already high underlying yield requirement of the properties.

In this edition of the JLL Nordic Outlook, we cover the Nordic office, logistics, retail and residential markets and review developments in investment and capital markets. The theme for this report is devoted to the funding situation in the Nordic market, compared with Europe and the US. Market mix in the Nordics, particularly in Sweden, is more tilted towards listed property companies, which have expanded their balance sheets over the business cycle. Although LTV ratios have declined, higher funding costs will likely put pressure on some companies to raise equity.

Institutionally owned and or government backed property companies with high grade credit ratings (A- or better) are also active in the bond market and are elevating the perceived refinancing risks. These companies now represent 46 percent of bond maturities in 2023–2026 which make up more than SEK 180bn of bonds.

With the interest rate curve now inverted, and the bond market expecting the central banks to focus on battling inflation, recession worries have intensified. This suggests an expected decline for 2023 and a lower than expected outlook for growth also in 2024. Weak consumer confidence

indicators continue to add downside risks, albeit with a continued high employment balance on the upside. We expect the current price discovery in the transactions market, in combination with the decline in GDP during the fourth quarter of 2022 and a further decline during the first quarter of 2023, to limit transaction volumes and total return on assets during the first half of 2023.

Stabilisation of long-term rates, an expected rebound in the general economy and, a stabilisation of the bond market should create fundamentals for an improved market again in the second half of 2023 and in 2024. Real estate assets have historically stood firm in an inflation-induced market, as can be expected of real assets, and assuming the economy recovers as expected, we see no reason why this should change.

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Polarisation among asset classes has continued to increase, and the outlook for net operating income growth will set the tone for total returns.

Niclas Höglund Head of Research, JLL Sweden

Bucharest

Stockholm, Gothenburg, Copenhagen, Paris CBD

Barcelona

Malmö, Budapest, Lyon

Helsinki, Oslo, Luxembourg, Brussels, Berlin, Madrid, Munich, Cologne, Frankfurt

London City

Amsterdam, Hamburg, Milan, London West End, Rome

Edinburgh, Manchester, Prague, Stuttgart, Warsaw, Zurich

Lisbon

Geneva

Istanbul

Rental Growth Slowing

Rents Falling

Athens, Dublin

Rental Growth Accelerating

Rents Bottoming Out

Source: Akershus Eiendom, EDC and JLL

Macroeconomic conditions and the listed property market

Longer term interest rates have stabilised on a slightly lower level in recent month.

Macroeconomic conditions

The general economic environment has come under further pressure across the Nordics and Europe, owing to rising cost inflation and rising interest rates. The outlook for GDP growth in 2023 is expected to decline in all regions, apart from Norway, but we should be back in positive territory again in 2024.

The war in Ukraine has put accelerated upward pressure on inflation, linked to energy, food and transport costs, and there are also signs of salary inflation. To contain the situation, central banks have started tightening their monetary policy more than previously guided and are determined to do what it takes to stop inflation getting out of hand. Inflation rose by 7.3 percent to 8.4 percent across the Nordics and the Eurozone in 2022, but is expected come down in 2023 to a forecasted 4.3 percent and 4.9 percent in the Nordics and across the Eurozone. Foreign Exchange Market (FX) changes are balancing on the negative and the weak SEK is elevating imported inflationary pressure, which risks elevating the central bank response in the short term.

The sharp increase in interest rates will partly be compensated by inflation, over time, through index-linked changes to rents. Strong growth in rents balance on the positive for 2023. However, the combination of negative outlook for real GDP growth and high interest rates could prove negative, since they increase the risks for higher vacancies and might limit market rental growth across cyclical sectors in the second half of 2023 and in 2024.

Listed property sector in the Nordics

The listed property sector in the Nordics consists of more than 40 companies listed on Nasdaq OMX and Nasdaq First North, with a total property value of €155 billion and a market capitalisation of €56 billion. The sector is currently valued at 30 percent discount to NAV* (median) which implies a 13 percent discount to total asset value. The sector performance is down 40 percent* since the end of 2021, despite higher asset values, and today’s valuations stand in sharp contrast to our Spring 2022 report which recorded a 15 percent premium to NAV and an 8 percent premium to total asset value. When we compare companies with different types of property assets, industry/logistics-related companies continue to trade at premium to assets while all of the other segments trade at historically high discount to assets and NAV. Performance so far in 2023 has turned more favourable and the sector is up by 12 percent*.

In the 2022 editions of our JLL Nordic Outlook reports, we argued that the lower multiples would imply less room for consolidation, held back by higher funding costs and a soft bond market. The trend in 2023 will likely start cautiously, due to the same factors. However, if visibility for a stronger bond market and declining interest rates improve, as seen in leading indicators and yield curve, preference for mergers and acquisitions should turn more favourable during the second half of 2023. Preference in the listed market relates to industry/logistics, while all the other segments are being incentivised to reduce exposure, due to the discount levels. We see potential for companies that raise equity to capture lower prices (higher yields) in the market, while reducing refinancing risks, which would create potential for further growth in 2024. Operational synergies and project revaluation potential could also act as a fundamental for consolidation across segments as ‘company-specific’ factors to improve cash flow will be rewarded when expectations are low.

* 9 February 2023

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Refinancing risks and rising yield requirement put pressure on sector performance in 2022.

Interest market

Higher interest rates are here to stay, but how high can they become?

The Federal Reserve (FED) showed the way and aggressively raised the central bank rate by 4.25 percentage points during 2022 and additional 0.25 percent in February. European central banks followed and both the ECB and the Riksbank raised their central bank rates by 2.50 percentage points in 2022 and have followed up in February with additional 0.50 percent. Unlike the US, where consumer prices haven’t moved much since June, Europe still has a problem with rising consumer prices. At the latest ECB meeting the tone was hawkish, with higher inflation forecasts, an upside inflation risk assessment and heavy guidance towards a +50 basis point rise in March. ECB will then evaluate the subsequent path of its monetary policy. The Riksbank followed the ECB and raised by 0.50 percentage in February. The Riksbank is caught between an interest ratesensitive economy and an increasingly weaker SEK. If the SEK is not to weaken further, it is likely that the Riksbank will need to raise the central bank rate at least or somewhat more than the ECB going forward.

Financial uncertainty and concern will continue in 2023 and volatile interest rates are, therefore, to be expected. A likely scenario is that central bank rates will reach their peak during 2023, which the market is pricing, which currently means inverted yield curves where longer rates are priced lower than shorter. When and how high the interest rates will reach is hard to predict, but the market is pricing for short market rates to peak between 0.30–1.00 percentage points higher than current levels, with the peak after summer, while the long-term interest rates may already have seen the peak.

An interesting observation is that short-term rates in the Eurozone and the Nordics are set to converge to just above 2.50 percent in 2025, which is expected in a world where inflation is back at central bank target levels.

80%

Decrease of issuance of real estate bonds in Q3 2022, compared to Q3 2021.

Credit market

Uncertainty around inflation and the number of rate increases that will be required to mitigate these broad price increases is still contributing to deteriorated liquidity in the capital markets for real estate corporates. At times, during the last six months, liquidity has almost been nonexistent in the EUR bond market for real estate issuers. This situation has emerged as investors have sought more secure placements towards other industries with less exposure to interest rates at the same time as central banks have ended their corporate bond purchase programs.

The liquidity shortage in both commercial paper and bond markets has pushed spreads upwards significantly. This is clearly a game changer, especially for investment grade rated companies, as bank financing has become the more attractive alternative. This situation will, in the long run, cause headaches for some of the rated companies as increased

Throughout the second half of 2022 we saw continued high inflation and strengthened resolve from central banks to continue their tightening paths.

amounts of bank financing will decrease the level of unencumbered assets, which is one of the criteria for an investment grade rating.

The Nordic banks are still showing appetite for lending but are primarily focusing on existing relationships. Some of the Nordic banks have even been able to offer unsecured loans to support their clients’ ratings. Even though their appetite is still good, they are now more cautious about offering higher levels of leverage, particularly for low yielding segments. During recent months, it has become more prevalent for some of the Nordic banks to require hedging in the loan agreement. The question is will the banks be able and willing to absorb the volume for the bond market if this situation persists throughout 2023?

Despite the market structure differences in Sweden and Finland, we see the same pattern in financing conditions in both countries. Banks are focusing on existing clients and are very selective and conservative in loan metrics in new financings. They are very much focused on cash flow of the assets and, overall, banks have not yet significantly lowered their interest coverage ratio (ICR) targets for new loans. This means, in this higher rate environment, the only way to meet the ICR targets is to lower the LTV. Hence, LTV is currently the result of the cash flow metric rather than the starting point, which was the norm in the earlier zero rate environment.

Outlook

To solve the upcoming redemption ‘wall’ of outstanding bonds (over € 13 billion annually for 2023–2025, of which 75 percent is related to Sweden) we expect to see a variety of arrangements, including support from current Nordic lenders, divestments, mergers and acquisitions, as well as international lenders providing new liquidity to the loan market. These arrangements are not exclusive to the bond issuers. In general, we are likely to see deleveraging in the entire sector.

Stabilising rates are likely to ease the financing conditions somewhat later this year. However, we expect to see more covenant breaches in the sector -especially in cash flow covenants for investors with lower hedging ratios. Lower valuations will also increase LTV levels in general. This will lead to banks being obligated by regulation to reserve more capital for the real estate sector. Consequently, new lending will be further squeezed and loan margin levels are likely to continue to creep up over the next few months.

Investment market Sweden

Investment volumes for 2022 were down by 50 percent year-over-year and the volume ended on SEK 180 billion. Mergers and acquisitions among listed companies contributed with SEK 30 billion in 2022, which is down from 177 billion in 2021. When we adjust for M&A, volumes are down by 18 percent year-over-year. Pricing has been poor, with gradually lower prices recorded for transactions and lower transparency in both ongoing and finalised transactions. Sentiment continues to be under pressure, owing to the sharp increase in interest rates and lower LTV from secured financing in the Nordic banks. Many transactions remain on hold and await clarity around current trends in the capital markets and rate increases from central banks. All sectors are impacted, although segments with high visibility to rental growth linked to consumer price index (CPI) adjustments can partly compensate for increasing funding costs and mitigating the negative value impact. The residential market continues to be particularly tough at the moment, especially with new build units, owing to limited visibility for rental growth in the short term and changes in the regulatory environment related to new build rental growth. Community service properties and core office properties are doing better, followed by the cyclical segments of logistics, retail and hotels.

Investment market

Interest costs have risen sharply in Sweden, linked to amended policy among the central banks. To contain inflation, they have started tightening their monetary policies more than previously guided and are determined to do whatever it takes to stop inflation getting out of hand. Funding costs are also up, due to deteriorated liquidity

in the capital markets for real estate companies. Nordic banks are still showing good appetites for lending but are primarily focusing on existing relationships. Even though their appetites are still good, they are now more cautious about offering higher levels of leverage, particularly for low yielding segments.

Rising funding costs have clearly put pressure on the yield requirement to compensate for the higher costs and lower availability of funding. Our prime yield estimates are up for all segments from the second quarter of 2022, related to sentiment-based evidence linked to ongoing transactions and discussions. We expect yield requirements to stabilise in 2023, assuming that short-term and long-term interest rates stabilise. The strong rental market in 2022 will be tested in 2023, although the 10.9 percent index impact on rents will mitigate the increase among commercial segments, albeit with a level of risk on vacancies and renegotiations on a lower level towards the second half of 2023, due to a softer economic outlook.

Weaker demand from both international and domestic investors, in combination with a sharp shift in sentiment in the listed sector (which is currently trading at record-high discount-to-NAV compared with large premiums in the first half of 2021) has limited the transaction volumes. The weak start to the year, compared to the strong start to 2022, will be tough to compensate in 2023, although we do expect investment activity in 2024 to stabilise at around SEK 200 billion, which is the same level we saw in 2019 and 2020.

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Stabilising interest rates and economic rebound bodes well for activity to recover in the second half of 2023.

Daniel Anderbring

Head of Capital Markets Sweden

Investment market Finland

The real estate investment market came to an expected slowdown during the second half of 2022, after a very active start to the year. Total transaction volume in 2022 amounted to € 6.3 billion, reaching similar levels as in 2021. Residential remained the most traded segment for the second year in a row, with 26 percent of total transaction volumes. Healthcare and retail accounted for the second and third largest shares, with 20 percent and 17 percent of total volumes, respectively.

The ongoing economic climate of rising interest rates and inflation was the main cause of the change in investor sentiment during the second half of 2022. Many transaction processes were abandoned or put on hold, due to the high uncertainty in the market. Rising interest rates have translated directly into higher financing costs and more difficulty for investors to obtain financing. This is causing upwards pressure on yields, especially in the previously tightest priced sectors such as residential and office. In the last quarter of 2022, prime residential and office yields both stood at 4.00 percent, compared to 3.05 percent and 3.20 percent respectively in the first quarter of 2022. Transactions with higher yield products appear to be easier to carry out in the current market environment.

The outlook for 2023 remains cautiously optimistic, as investors are expected to continue to better adapt to the new market conditions. Investment activity is already showing some signs of recovery after the slowdown in the second half of 2022; however, further improvement in 2023 is heavily dependent on how inflation and interest rates develop going forward.

4.00%

Prime office yield rose from 3.25% in Q2 2022 to 4.00% in Q4 2022.

1.7€bn

2022.

“The outlook for 2023 remains cautiously optimistic, as investors are expected to continue to better adapt to the new market conditions.

Tero Uusitalo

Head

Capital Markets, Finland

Deleveraging in focus: waiting for cost of capital to stabilise

The Nordic real estate market, and in particular the Swedish real estate market, is dominated by private and institutional/government owned real estate companies. Listed and institutional/government owned real estate companies in the Nordics have increased their exposure to the bond market. They operate with higher LTV and net debt earnings before interest, taxes, depreciation and amortisation (ND/EBITDA) multiples, compared with their peers in both Europe and the US. Financial leverage; however, needs to be adjusted for institutional and government-backed bond maturities which exaggerate the perceived outstanding risks, since the market for higher rated bonds is still active. is clear that both the listed sector and funds need more equity when refinancing debt, given the current higher level of funding costs. This acts negatively for the transactions market in the short to mediumterm although it may trigger mergers and acquisitions (M&A) if the cost of capital stabilises towards the end of 2023 and into 2024. Key differences with the US market relates to concentration risk in both banks and bond market exposure. Outlook from US capital market has rebounded in the last month which bodes well for a rebound to support the Nordic bond market also. Combination with better access to capital, slightly lower spreads and more equity initially create basis for a turn in the market over the coming years.

Nordics: Higher leverage acts negatively

The Nordic real estate market, and in particular the Swedish real estate market, has expanded debt sharply, with gross debt of SEK 1,521 billion (made up of SEK 826 billion from listed equity and SEK 695 billion from institutional / government owned real estate companies). This total has risen eightfold since 2010, of which a substantial part relates to outstanding bonds (an estimated 46 percent as of the third quarter of 2022). A lack of liquidity in the investment grade and high yield bond market, in combination with a sharp increase in base interest rates, has caused regulators and financial institutions to raise concerns regarding refinancing risks.

Performance among the Nordic listed sector was strong up until 2021, with a compound annual growth rate (CAGR) of 23 percent per year, over the last five years, which was 5 percent better than all the companies on the Nordic index. Over this period, the sector had been trading in line with its net asset value (NAV), although towards the end of 2021 the sector was trading on 23 percent premium to NAV (median). The sector expected returns stood strong owing to the low interest rate environment, which elevated the valuation downside risks. During 2022, the sector equity

index declined by 43 percent and underperformed the general market by 31 percent, which implies that the five-year CAGR outperformance turned to a negative 1 percent. Some higher levered companies (at the end of 2021) were down by up to 80 percent in the year, and the sector ended 2022 trading close to 40 percent median discount to NAV, substantially lower than the 23 percent premium seen early 2021*.

The financial risks among listed real estate companies have fallen sharply since 2009, with a median LTV of 48 percent, compared with 60 percent previously. However, from an income point of view, the ND/ EBITDA (net operating income less central costs) of today’s lower yields implies substantially higher multiples of 12.5 times EBITDA in relation to ND, which is well above 9.6 times EBITDA seen in 2009, despite a lower LTV. When broadening the exposure to all of the listed real estate companies today, both LTV and ND/EBITDA are higher. This is due to the listing of predominantly residential related companies since 2019 bearing higher financial leverage, albeit with lower operational risky assets and, hence, lower yields than the overall market.

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More equity and higher debt costs put pressure on return requirements.

ND/EBITDA (Annualised Quarterly)

support very high credit ratings and, despite turbulence in the bond market, these institutions have been able to continue to tap the market during 2022, with volumed issues of SEK 35.2 billion. institutional/government owned real estate companies have expanded sharply over the last five years, growing the portfolio predominantly within the low-risk residential segment, and with funding linked to the bond market.

Companies ND/EBITDA (Annualised Quarterly)

Mitigating factors supporting the strength of A- rated companies

• Institutional/Government owned real estate A- rated companies can still access the bond market and issued bonds for more than SEK 32 billions in 2022, which limits refinancing risks for the sector. • LTV and ND/EBITDA multiples are higher within institutional/government owned real estate companies compared with the listed Nordic companies.

Institutional/government owned real estate companies today use the bond market as a main source of finance, which elevates the exposure but not the refinancing risks to the same extent. Institutional/government owned real estate companies today stand for 46 percent of the outstanding bonds maturing in 2023–2026 and SEK 182 billion in volume. These are dominated by Swedish companies: Heimstaden Bostad, Vasakronan, Akademiska hus, Specialfastigheter, Hemsö and Willhem, which are all backed by pension funds: AP funds, Alecta and Folksam or the Government owned: Specialfastigheter and Akademiska Hus. High-quality assets, in combination with strong ownership,

Listed sector volatility is the limiting factor for the direct market in 2022/2023

Listed companies have represented up to 70 percent of the transaction volume in the direct market in Sweden over the last four years, when we include M&A and entity deals while during 2022, the share dropped to 35 percent in Sweden. The sharp increase in funding costs and delayed impact on reported values, in combination with elevated financial risk among some listed companies, has clearly limited transaction volume in 2022, with a risk of continuation in 2023. Lower liquidity in the transaction market is among the factors that rating agencies, banks and bond market participants consider and could trigger a negative spiral of events, which could put further pressure on the cost of capital.

The starting point for liquidity in the Nordic market remains strong, with the Nordic transactions market representing 2.5 percent of GDP during the last five years, compared with 1.9 percent among developed markets. This represents a close to 40 percent higher transactions volume relative to GDP. During years with lower activity, i.e., 2008–2009, 2016 and in 2020, transactions volumes relative to GDP were, on average, 125 percent higher than the developed countries and had relatively stronger relationships than on average.

A temporary normalisation on the lower level should likely not trigger negative events, although in the longer term the liquidity needs to be sustained. Given the negative outlook on the overall economy, in combination with further increases in short interest rates, there is clearly a need for new equity or dilutive effects to NAV, priced in by the market in general.

Transaction Market Compared with GDP (excluding entity/M&A transactions)

Japan

CanadaFranceAustralia

NordicsFinlandSwedenSingaporeDenmarkUnitedUnitedStatesGermanyNorwayKingdom

The need for more equity could also trigger M&A and buy out from the market, although, in the short term, both spin-off, noncash issues and consolidations with credit supportive drivers could elevate total liquidity. The lack of transparency within these structural events might; however, limit read across the market (for example, evidence for valuators). Therefore, there is a need to be clearly positive from a creditor/bank perspective in order to be motivated. Short-term covenants related to interest coverage ratios (ICR) and, to a lesser extent in the Nordics, ND/EBITDA will be an important driver for capital injections and/or divestments. High loan to values could also act as a negative driver for companies with secured interest and capital duration. This will be mostly related to rated companies in which rating agencies take a more negative view on asset decline in the estimates.

European Lender Appetite and Allocations Spectrum

Banks

Many banks are currently preoccupied with managing their existing loanbooks, in particular, resolving bad loans.There are also increasing pressures to the regulatory capital from 1 January 2023, including the mandatory implementation of certain Basel III and IV requirements.

Investment Banks

The recent significant reduction in syndication and securitised liquidity has left many investment banks with large unsyndicated loans sitting on their balance sheets. This has restricted their ability to allocate capital for new loans, particularly for larger transactions.

Insurance Companies

Insurance companies vary in their 2023 real estate lending allocations. Some have increased appetites for mortgages, whilst others have reduced allocations. Overall, this puts the insurer cohort as net neutral, in terms of where they sit in the appetite and allocations spectrum.

Other considerations

Leverage

Increasing lender scrutiny on the portfolio’s existing ESG credentials and, importantly, the go forward business plan, will further futureproof the assets from a sustainability perspective.

Debt Funds

Increases to the underlying indices have improved the returns achievable through the debt component of the capital stack. This has generated higher allocations from fund LPs to private equity debt funds, and has also made it possible for these vehicles to achieve their target returns without utilising large amounts of back-leverage.

Pension Funds & SWFs

Traditionally, pension funds and Sovereign Wealth Funds target equity opportunities. However, with attractive risk adjusted returns in the credit space these groups have increased their allocations to the real estate debt positions. They often focus on writing large loans, so will therefore be a natural fit for this project.

Global Funding

Markets are about to

Stabilise We are catching Michael Kavanau Chairman EMEA Debt Advisory and Senior Managing Director with JLL US Capital Market between meetings at JLL Global Credit conference hosting +500 specialists in Florida US.

Editor: What are the main global trends within financing post covid and in the current higher interest rate environment?

Michael: There are some historical elements that match over in terms of some of the main global trends post COVID and the higher interest rate environment. However, the main issue is that unlike prior recessions or exogenous crises, there's still a lot of liquidity in the system, and in fact more liquidity coming into the credit system everyday. Although investors don't have conviction about buying real estate because they're not sure how you underwrite inflation versus recession there's just so many variables that it makes it very hard to make a convicted equity bet. But investors have a lot of money, and they need to make returns, so we're seeing them move almost completely into credit investments.

Editor: Current higher interest rate environment, what happens from a debt market perspective?

Michael: For several years we had zero and negative interest rates and tight credit spreads, so projects were bought in the two and four percent yield range. They were financed in the one to three percent interest rate environment and now we have the risk-free rate in the US at around 3.75 percent. So it's a pretty big shock to the system across the globe. We have found historically that the loans that get made in these times of uncertainty do come with more structure and sometimes slightly higher pricing and generally higher returns overall, mainly since the underlying risk-free index is higher and investors will likely look back in a few years and recognise that these are the best loans that they've made in a very long time.

Editor: Which are the main differences between US, Europe and the Nordics

Michael: In terms of the main differences between the US and the Nordics, the Nordics are reliant historically on the public bond market and focused on a few local banks with less alternatives as seen in the US credit market – and in the past several years there’s been a significant diversification in lendin sources in the U.K. and Euorpe. In the Nordics it's a concentration risk and that explains a lot of negative movements we're seeing right now. The other thing relates to the corporate bond market we had seen spreads widen out, but lately they’ve come in between 45 and 55 basis points over the last 45 days in the US. So hopefully that's a good sign for the market starting to believe that we're turning down again also in Europe and in the Nordic credit spreads.

Editor: What do you think will drive the financing markets in 2023?

Michael: The outlook will be related to stabilisation of the short term rates and likely clarity depending on if we hit a soft landing or we have a recession. Regardless, given the liquidity, the likely outcome should not be terrible and we're either already entered it or will soon enter it and likely come out quickly. There is some optimism in that the corporate bond market nearly immediately flows through to credit spreads in the secured market, i.e. supported by the banks and insurance companies. This would create the potential for a quick flow through to the credit spreads and or the availability of Corporate debt bonds in in the Nordics. The current view is that this would enable transactions which are starting to happen. The World's functioning again, it's not just lenders trying to exit deals. It's money coming in.

“ Nordics has concentration risks both in bonds and secured bank lending.

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The World’s functioning again, its not just lenders trying to exit deals. It’s money coming in.

Office rents in Europe 2023–2026

The tech sector has taken a notable step backwards across most European cities in recent months, with Finance and Legal becoming the most active sectors across Europe.

The impact of the COVID-19 pandemic on office markets is now waning, with many companies adopting a hybrid working model. Companies are re-thinking their strategies, in many cases reducing their office space requirements.

European office vacancy increased by 40 basis points to 7.6 percent during the fourth quarter of 2022, including Utrecht (+260 basis points to 7.6 percent), the Hague (+250 basis points to 5.7 percent), Dublin (+130 basis points to 13.3 percent) and Milan (+120 basis points to 13.1 percent). Only five markets saw a decrease in available supply during the last quarter of 2022.

Office completions are on the rise, totalling 1.7 million sq. m. in the fourth quarter of 2022 and 5.3 million sq. m. in the year as a whole, the highest annual volume since 2009. Paris (770,000 sq. m.), London (730,000 sq. m.), and Berlin (716,000 sq. m.) accounted for the lion’s share of office space being delivered in 2022. Development levels are expected to remain elevated compared to the 10-year average (4 million sq. m.), with over 6 million sq. m. expected to complete in 2023.

However, faced with ever rising construction and finance costs, many developers are likely to delay decisions to start new office schemes, especially speculative new-build construction. Refurbishments are likely to remain an important part of the market.

Prime office rents continue to outperform. The JLL European Office Rental Index has increased by 2.6 percent since the previous quarter, the highest quarterly rise since the second quarter of 2010. Annual office growth reached 7.2 percent in 2022, the strongest uplift since 2008. The considerable rental growth is a testament of resilience of best-in-class, amenity rich, well-located office space with strong sustainability performance.

Most European office markets continue to be positioned in the ‘growth quadrants’ of the Office Clock. Rental increases were witnessed in 10 of the 23 index markets, including Dusseldorf (+26.7 percent quarter-overquarter), Hamburg (+6.3 percent quarter-over-quarter), London (+4.0 percent quarter-over-quarter), Frankfurt (+3.4 percent quarter-overquarter), Milan (+2.2 percent quarter-over-quarter) and Paris (+2.2 percent quarter-over-quarter) among others. Dublin was the only market that recorded a drop (-3.0 percent quarter-over-quarter), while other European index markets saw no change.

European office vacancy 2022

+7.2%

7.6% European prime office rental growth year-over-year

Strong European leasing activity was recorded in 2022, despite market uncertainties, albeit with lower activity in the fourth quarter. Take-up totalled 2.4 million square metres, which is down 24 percent year-over-year and was the lowest final quarter since Q4 2012.

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The considerable rental growth is a testament of resilience of bestin-class, amenity rich, well-located office space with strong sustainability performance.

Bo Glowacz Head of EMEA Office Research JLL

Office Nordic

Rental market recovery after the COVID-19 pandemic will be tested following the softer outlook for the economy, though the starting points are on healthy levels across the Nordics. Sharply rising interest rates and higher production costs for projects, in combination with the revised economic outlook, have tilted the balance on the negative side. However, appetite should recover again, helped by increases in prime yields boosting return potential, and assuming the economy rebounds in 2024.

Rising funding costs impacted subsegments differently across the Nordic office market and JLL expects a continued flight to safety into the core segment and growth capitals, while value add and lower growth regions will likely see yield requirements to compensate for cost increases and higher perceived risks. Substantial capital has been raised within the value add segment, which could fuel risk appetite during the second half of 2023, assuming stabilisation of the economic outlook and funding costs.

Indications continue to show that tenants are willing to spend more on quality premises, while at the same time requiring less space per employee, owing to the hybrid workspace model. All in all, we continue to see solid demand for sustainable space in prime locations, with a premium for flexible leases. CPI-linked lease agreements will act as a supportive factor to rental growth into 2023–2024, although a weaker outlook for the economy will likely increase polarisation between assets, linked to the quality of property, location and tenants.

-62%

Financial highlights Investment volumes for the office segment in the Nordics in 2022

8.7€bn

Investment volumes for the office segment in the Nordics over the last 12 months (EURbn)

3.69%

Average Nordic prime office yield up 56bp y/y

Investment appetite remains favourable for core properties with high visibility for rental growth.

Office Stockholm

The rental market continued its strong recovery after the COVID-19 pandemic, but with reduced take-up volumes during the second half of 2022. Centrally located properties of high standard remain in focus when tenants are looking for new spaces. On a yearly basis, the vacancies rose in many submarkets, with the most central submarkets seeing a decrease in vacancy levels or a trifling increase, while suburbs further out saw a bigger increase in vacancy levels. A continued strong employment market, together with a high demand for office spaces with high standards, made JLL keep the prime rent estimates flat during the fourth quarter.

Investment market

The first half of 2022 was strong from a historical perspective, with an investment volume of over SEK 21 billion in the office sector, placing office as the second most active sector after residential. However, the investment market plummeted in the second half of the year as inflation worries caused interest rates and total funding costs to rise. Sentiment factors related to ongoing transactions during the second half of 2022 caused yields to be raised in all submarkets by 50–125 basis points, resulting in the yield for Stockholm prime central business district (CBD) reaching 3.50 percent in the fourth quarter of 2022.

Tenant market

The demand for modern, sustainable premises in prime locations continued to grow in 2022 as many companies tried to entice their employees back to the office after the COVID-19 pandemic. A shift in the economic outlook during the summer made companies more reserved when signing new leases, resulting in 74 percent of the total take-up for 2022 happening during the first half of the year. The most central submarkets continued to dominate the rental market and represented 69 percent of the total take-up during 2022, confirming the strength in these rental markets.

Funding status

The softer outlook for the economy, in combination with rising funding costs, is having a negative impact on LTV. Funding costs and LTV from Nordic banks continue to be linked to property owner and tenant type as the banks clearly prioritise existing relationships, favouring domestic investors. However, this could limit the transaction market related to funds and international capital.

Sustainability

Sustainability continues to be an increasingly important aspect, both for tenants and investors. With tenants becoming more cautious about signing new lettings, environmental, social and governance (ESG) practices are becoming an increasingly important factor in their deciding making. This is leading to increased polarisation between sustainable and non-sustainable office buildings.

Outlook for 2023

Despite the threat of a worsening economy, strong office locations in Stockholm remain sought after by investors. However, tenants lease profile and vacancy risk can impact the attractiveness. The polarisation between A- and B/C-properties will most likely continue to grow throughout 2023, making it pivotal for landlords to invest in their older stock to ensure they stay competitive.

“ Visibility for rental growth is in focus for investors to support attractive returns.

Vacancies rose at the end of 2022, correlating with a record-high stock of newly built office spaces that were completed during the year. The new built stock was mostly located in Rest of Inner City and Norra Älvstranden/Lindholmen, slightly shifting the strong focus that has been on CBD over the past few years. The demand for centrally located, environmentally friendly spaces continued to grow, which pushed the rental growth in Gothenburg in 2022 for most submarkets. Continued polarisation in the rental market bodes well for investments in the older stock as landlords seek to avoid risk-increased short-term vacancies in those properties.

Investment market

Rising financing costs, in combination with a weaker economic outlook, is having a negative impact on sentiment. This was reflected in our prime yield estimates for all submarkets, with a 50–100 basis point increase in 2022, resulting in the yield for Gothenburg prime CBD reaching 4.15 percent at the end of 2022.

Tenant market

The first half of 2022 showed an unusually strong tenant market, with record high take-up volumes on a half-year basis. After the summer, the take-up volumes decreased as tenants became more hesitant, mainly due to uncertainties connected with the economic forecast and continued employee support for hybrid work-models. Prime rental levels remained strong; however, supported by mix effects related to new build properties.

Funding status

The softer outlook for the economy, in combination with rising funding costs, is having a negative impact on LTV. Funding costs and LTV from Nordic banks will be linked to property owner and tenant type as the banks clearly prioritise existing relationships, which could limit the transaction market.

Sustainability

Sustainability, as a requirement for investors, has grown in importance in recent years and is now becoming one of the most important aspects, as companies work hard to reduce their CO2 footprint and become more environmentally friendly. This makes the return outlook for sustainability improvement investments favourable.

Outlook for 2023

JLL expects rental levels to remain stable in 2023, owing to newly built projects being finalised that will attract tenants to sign new leases at continued high levels. This will further increase the polarisation between grade A properties and B/C properties as these will struggle with rising vacancies and have a more difficult time attracting tenants without high investment volumes.

“

The strong demand for best locations is backed by visibility for rental growth and cash flow.

Office Malmö/Lund

The office market in Malmö/Lund turned out to be very strong during 2022. Record-level take-up volumes, on a yearly basis, reduced vacancy rates on an aggregated level. Stable rental growth also showed that Malmö/Lund is still attractive and bodes well for the market going into 2023. However, uncertainties connected with the ongoing economic situation did affect the market during the second half of 2022 and will most likely have a continued effect during 2023.

Investment market

Rising financing costs, in combination with a weaker economic outlook, had a negative impact on sentiment. This has been reflected in our prime yield estimates for all submarkets, with a 60–85 basis point increase in 2022, resulting in the yield for Malmö prime CBD reaching 4.60 percent at the end of 2022. A thin investment market, in combination with an already higher yield requirement, has had a stabilising effect on Malmö compared with Gothenburg and Stockholm.

Tenant market

The tenant market in Malmö was strong in 2022 and was more stable compared to both Stockholm and Gothenburg. The total take-up was up 43 percent in 2022, compared with 2021. It’s important to remember that 2021 had a lower volume than previous years, partially due to the COVID-19 pandemic, but it shows that the market had a strong recovery throughout 2022. Vacancies were down in all submarkets in the fourth quarter, compared to the third quarter, which is also an indication that the tenant market is stable.

Funding status

The softer outlook for the economy, in combination with rising funding costs, is having a negative impact on LTV. Funding costs and LTV from Nordic banks will be linked to property owner and tenant type as the banks clearly prioritise existing relationships, which could limit the transaction market related to funds and international capital.

Sustainability

There is a strong focus among investors on property certification and investments to reduce CO 2 footprints. The return outlook for investments in still favourable as it reduces operating costs. Certifications also add a quality angle to the properties, which can support increased rental levels, which might prove to become even more important as yields increase.

Outlook for 2023

A big stock of newly produced office space is expected to be completed during 2023, which might put pressure on the market and reduce rental growth. Fortunately, 82 percent of the stock is pre-let, which will reduce the downside. The high share of pre-let also shows that the demand for high-standard office spaces continues to be high. We expect rents to remain stable during the first half of 2023, with a key focus on new build in good locations.

“

Higher yield requirements and lower rents bode well for relative risk appetite to strengthen.

Head of Capital

Sweden

Office Helsinki

The second half of 2022 finally started showing further signs of recovery, with increasing demand and overall tenant activity in the office market. We had expected this to commence sooner but recovery was delayed due to further financial, economic and geopolitical uncertainties. Active companies have proceeded with clarity in their office requirements and strategy for the mid to long term. The stagnation and confusion of the past few years has diminished, resulting in a healthier and more active market. This is expected to improve further in 2023.

Investment Market

Higher financing costs put significant upwards pressure on yields, especially on core office products where yields have been historically low. Transaction volume in 2022 amounted to €0.9 billion, less than half of the 2021 office volume.

Tenant market

The office market has performed well, despite the uncertain macro conditions and other external influences. The level of activity and number of transactions has almost been comparable to the prepandemic era. Greater demand and market activity helped to offset pressure on real returns caused by the rising cost of construction, inflation and energy costs. Signs earlier in the year suggested that companies might downsize significantly in response to new hybrid working policies, but this seems to have materialised to a much lesser extent. In any case, this impact was reflected in occupancy rates later in the year, especially in secondary assets and locations not accessible by public transport.

Funding status

Financing is available from bank lenders for assets in core locations with a quality anchor tenant or diversified tenant mix. Low yields and higher interest rates are driving LTVs below 50 percent levels. Lenders have also started to focus on potential recession impacts on new leasing. Non-core locations, short weighted average unexpired lease terms (WAULT) and some vacancies/value-add cases are having to look for financing from alternative sources with higher margins.

Sustainability

The current political and environmental climate is increasingly favourable for the promotion of ESG. Clear benefactors are the environmental initiatives and energy-saving measures, which are becoming more profitable through soaring energy costs and fears of supply shortages. In addition, reliance and affiliations with governments, companies and individuals considered non grata are now under tighter scrutiny, and companies must re-evaluate their ESG strategies.

Outlook for 2023

We expect the occupier market to continue the positive trend of 2022, even in the absence of any meaningful improvements to the economic environment. Demand will be driven further from the inevitable release of the bottleneck caused by the pandemic. Relocations, long overdue, will keep commencing and creating more activity and demand for good quality assets near amenities and transport links. In addition, historically high indexations on current leases may also cause movement between sub-markets, creating more opportunities.

“

Relocations, long overdue, will keep commencing and creating more activity and demand for good quality assets near amenities and transport links.

Klaus Koponen Head of Markets, Finland

The transaction market is going through a period of considerable uncertainty and low liquidity due to higher financing costs and sustained uncertainty surrounding future interest rates. The 2022 office transaction volume amounted to NOK 32.6 billion, 54 percent lower than the record-high volume in 2021. On a positive note, the leasing market had a very strong year with rental growth of 14 percent in Oslo.

Investment Market

In the second half of 2022, the Norwegian Central Bank began hiking the key policy rate more rapidly. Although we are nearing the end of a significant interest rate hike from the central bank, the transaction market in the second half of 2022 revealed growing discrepancies between the buyers’ and sellers’ price expectations, and it has taken time to find a new price equilibrium. Office assets were the most traded asset in 2022, accounting for 37 percent of the market. Noticeable transactions during 2022 included Reitan Eiendom’s 50 percent purchase of Furuholmen Eiendom’s properties in Majorstuen (Oslo), and NIAM’s acquisition of Gullhaug Torg 3 from City Finansiering. During the last quarter of the year, Entra ASA sold the prominent KPMG-building localised in Sørkedalsveien 6 to CapMan.

Tenant market

Throughout 2022 we saw a surprisingly high demand for office space in the office leasing market in Oslo. Limited supply and high demand resulted in a fall in office vacancies throughout the year. Combined with an increase in activity levels, this sparked an extraordinary rental growth of 14 percent in Oslo CBD, while most other areas followed close behind. Fourth quarter vacancy levels were recorded at 4.6 percent in Oslo CBD, while the overall vacancy for Oslo was 5.5 percent.

Prime rent for Oslo CBD is NOK 5,700 per square metre, compared to NOK 5,000 one year ago. Weaker economic activity and a higher unemployment rate will influence the tenant market. On the other hand, the constrained supply side will, to some extent, act as a counterweight.

Funding status

During the second half of 2022, the hawkish approach of the Norwegian Central Bank (nw: Norges Bank), exemplified by its introduction of higher policy rates to fight inflation, contributed to a significant drop in liquidity. The bond market dried up during 2022 and became almost unavailable to property companies. Increased uncertainty, related to company earnings, tightened bank lending conditions. We expect that bank financing will be more accessible to property companies in 2023 and that the lending margins will be normalised.

Sustainability

Among investors and property owners, sustainability is slowly becoming a differentiating factor. At a time when energy costs have increased significantly in Norway, having an energy-efficient building in a portfolio has become more attractive than before. In addition to this, the vast

majority of investors state that they are willing to pay a premium for environmentally friendly buildings. This is motivated by being able to meet the future requirements of the taxonomy and to adjust to tenant expectations and, at some point, requirements.

Outlook for 2023

Going forward, we expect that reduced uncertainty around developments in the real economy, inflation and interest rates will lead to a further improvement in the credit markets, both in Europe and in the Nordics. This will therefore improve liquidity in the transaction market during 2023. We forecast a year-end transaction volume of NOK 100 billion. In the leasing market, we still expect good activity, despite weaker economic outlooks.

Financial highlights

5,700NOK

Prime rent Oslo CBD is up by NOK 700 per sq.m since the beginning of 2022

3.75%

Estimated prime yield, given the sharp rise in interest rates during 2022

Source: Akershus Eiendom

Kari Due-Andresen Head of Research, Akershus Eiendom

Office Copenhagen

Employment is at record-high levels, which has increased demand for office space, but this is expected to decline slightly during 2023. We anticipate continued positive tenant activity over the next six months, despite the challenging market conditions.

Investment Market

Modern, sustainable prime assets are still in high demand, but both investors and tenants place a high value on properties with prime locations in the CBD. Because Danish pension funds are heavily active in the sector, prime office assets seem to be less vulnerable to changes in interest rates. Nonetheless, prime yield has increased in recent quarters and is now at 3.50 percent, up 25 basis points from six months ago.

Tenant Market

The tenant market is robust, particularly in the established and emerging central business districts. Flexibility is a top priority for tenants as they demand shorter lease terms and are hesitant to commit to long-term agreements. Demand is driven by record-high employment figures, but this is expected to decline in 2023. Despite this, the outlook for the tenant market remains good, as the supply increase has been restrained.

Funding Status

Prime offices with long-weighted average remaining lease periods and reliable tenants are in high demand, and financing remains affordable. However, there are some concerns, due to the extremely low valuation yields on some of these assets. Additionally, bank financing is still quite restrictive, making it difficult for non-prime offices to find affordable financing.

Sustainability

ESG is becoming increasingly important in the office properties market. For institutional investors, certifying new office properties as sustainable is now a must, whereas a few years ago it was only seen in niche, sustainability-focused properties. The growing public focus on ESG responsibility is driving this trend and affecting both tenants and investors. The main focus is on reducing the CO2 footprint and energy consumption of the building stock, which is a key area in creating a more sustainable future. Additionally, regulations are expected to increase momentum towards sustainability in the short to medium term.

Outlook for 2023

The current flight to safety is intensifying the division between core and non-core assets. Under these circumstances, prime assets in prime locations will have the greatest chance of success.

“

The continued development in employment is crucial for the expectations for the segment.

Thomas Riis

Retail Nordic

Financial highlights

3.9%

Average prime retail yield requirement across the Nordics

5.9€bn

Investment volumes in the Nordics were up by 26 percent in 2022, compared to 2021. While the sector continues to be out of favour among many investors, sentiment has been very mixed, with high interest in grocery-anchored retail, while interest in shopping centres remains under pressure. Yield requirements are also under pressure within the retail segment. Visibility on rents and expected economic recovery in 2024 will create the basis for high cash-on-cash returns for external warehouses and shopping centres, in combination with value growth potential when yields stabilise and consumer confidence recovers again.

Investment volume retail properties in the Nordics in the past 12 months

Retail continues to face uncertainties. Tenant ability to pay continues to be in focus, due to poor consumer sentiment caused by reduced purchasing power and rent increases triggered by contracts linked to CPI indexation. This is giving companies with retail assets a challenge to find a good balance between rental growth and discounts.

Sweden Retail

Polarisation in the Swedish retail market continued in the second half of 2022 and will most likely continue going forward as well. Retail warehouses containing groceries and out-of-town locations remain strong, while shopping centres continue to see challenges.

Investment market

The investment market for retail continued to be volatile in 2022. This trend is expected to continue. We see big differences within the market, with retail containing groceries continuing to show high demand and less increased yields, while external shopping malls continue to face challenges, with vacancies and lower rent levels compared to prepandemic levels.

Tenant market

A weaker outlook and downwardly revised growth figures for e-commerce gave retailers a little breathing space as they continued to have a hard time in 2022. Reduced consumer confidence, together with a weaker economic outlook, will put even more pressure on the sector for the first half of 2023. However, we are more positive for stabilisation and turn towards the end of 2023.

Funding status

Banks and capital markets remain restrictive regarding both capital availability and pricing for the retail segment. Earnings visibility remains crucial for higher LTV, which probably will put pressure on retail in 2023 as consumer confidence is at a record low level.

Sustainability

We expect to see more initiatives to reduce CO2 footprints by landlords and tenants as they work hard to optimise the flow of goods and adaptions to integrate circular economic initiatives to their operations.

Outlook for 2023

The uncertainty for retail continues in 2023, driven by continued supply problems, a weaker economic outlook, rising inflation and higher funding costs. Already pressured tenants might have difficulties with current CPI development, which makes it crucial for real estate companies with retail assets to find a balance between rental growth and discount.

Financial highlights

1.4€bn

Transaction volume for retail assets in 2022

Finland Retail

+45bp y/y

Shopping centre yields up in 2022

Last year’s retail transaction volume more than doubled from 2021. On the occupier side in the second half of 2022, many retailers reported revenue growth while simultaneously seeing the start of a slide in profits.

Investment market

The retail segment transaction volume in the second half of 2022 was €330 million, but over half of the volume came from one shopping centre deal in July. The bulk of the transactions were grocery-anchored retail and small secondary assets. Overall, retail is currently a predominantly domestic investment market.

Tenant market

2022 was a good year in terms of sales, as consumers increasingly spent their savings. At the same time, the 2023 occupier outlook is highly dependent on consumer salary development as savings have now been eaten into and purchase power is under pressure. We are back in a polarised market in which some retailers will continue to experience strong growth, while others will continue to shrink their store networks.

Funding status

Availability of funding is at a relatively good level for assets with reliable tenants, but for secondary properties and properties in need of larger development, funding is limited and margins have moved out.

Sustainability

From a tenant perspective, physical retail spaces equal only a few percent of their total carbon emissions and, therefore, their willingness to pay a green premium in rents is questionable. Other motivators, centering around social and governance factors, are needed to help align the sustainability efforts of owners and tenants.

Outlook for 2023

Low liquidity will continue in the retail sector, due to a lack of active buyers targeting the sector. As in recent years, income will be the key to profits and value growth will not be witnessed.

Financial highlights

5.50%

Shopping centre prime yield failed to reach historical low levels in this cycle

0%

Prime rent stayed unchanged year-on-year, while existing lease stock indexed by 8-9%, along with inflation

“Retail offers high yield properties indicating a better starting point for high cash on cash returns.”

“Those who have the capability to grow income and have a longer hold-period, can find decently priced opportunities in the retail sector, with very limited competition in the field.”

Norway Retail

The Norwegian consumer has started to return to the long-term trend of spending more on services and less on goods. However, the economic situation, with increasing interest rates and rising prices, is likely to slow the consumption of goods and services. Retail leasing activity picked up in 2022 and we experienced solid activity in the retail investment market.

Investment market

There was solid activity in the retail investment market in 2022, with retail transactions accounting for approximately 17 percent of the total Norwegian transaction market. Prime yields on retail assets, high-street, shopping centres and big-box, were adjusted up during the second half of 2022, due to the sharp rise in interest rates.

Tenant market

Retail leasing activity picked up in 2022, especially in the Oslo highstreet market. Recently signed contracts and ongoing work to secure and finalise new leases (known as processes) supported an increase in prime high-street rents, and we adjusted our rent level for high-quality retail space to NOK 25,000 per square metre (up from NOK 20,000 per

Financial highlights

17%

Retail accounted for 17% of the total transaction volume in 2022

Denmark Retail

square metre) in the fourth quarter of 2022. Luxury and Electric Vehicles (EV) continue to be the most active players in the Norwegian market. However, some processes are being halted or delayed, due to financial uncertainty. In particular, this relates to second tier assets and locations.

Funding status

The appetite for retail assets was good in 2022, particularly for assets with defensive income streams including groceries. Shopping centres accounted for almost 70 percent of the total retail transaction volume.

Sustainability

Consumers continue to demand sustainable options and retailers need to increase their ESG focus to gain competitive advantage.

Outlook for 2023

In the short term, high inflation and the rapid rise in interest rates is expected to weaken overall consumption, including online shopping. Online shopping is also expected to return to its former pace.

25,000 NOK/ sq. m.

Stable high-street prime rent. Up from NOK 20,000 / sq. m.

Uncertainties are looming, due to high inflation and historically low consumer confidence.

Investment market

Despite being affected by rising interest rates in the second half of 2022, retail transaction volume was exceptionally high at approximately one fifth of the total transaction volume. This was driven by several large transactions, most notably the sale of four Magasin department stores and several grocery store portfolios.

Tenant market

Due to rising costs and a decrease in consumer confidence, tenants are being more cautious in their decision making. Rental rates have been trending downward, particularly in the fashion retail sector, and there is a growing preference for shorter leases across industries. The bigger tenants also have more leverage in negotiations and can dictate terms, to some extent.

Funding status

The current interest rate hikes are impacting financing conditions, and obtaining funding for retail properties in less desirable locations,

apart from grocery stores and warehouse parks, can be difficult. Funding is more readily available for assets with dependable tenants, but properties that require significant development may have difficulty finding funding.

Sustainability

Adapting to a more sustainable future is becoming increasingly important, with a focus on ESG policies. This mainly affects new developments, rather than existing stock. Sustainability is a key factor for investors and owners, and tenants are now increasingly demanding active ESG strategies. Consumers continue to prioritise sustainability, and retailers need to focus on ESG to stay competitive.

Outlook for 2023

Investment activity is highly sensitive to changes in interest rates. Despite this, overall sentiment is positive, with grocery stores in particularly high demand. Prime assets and warehouse parks also continue to see strong demand.

Financial highlights

3.50%

Prime yield for high-street Copenhagen locations

2.82%

Vacancy rate for retail in Copenhagen January 1, 2023

“High activity in the high-street leasing market pushed rent levels up in 2022 for the best locations.”

Remi N. Olsen Head of Retail, Akershus Eiendom

“Stores are seeing good footfall, but shoppers have a reduced basket size.”

Logistics Nordic

Financial highlights

-3% y/y

Investment market for logistics segment in Nordics in 2022 compared to 2021

We continued to see solid risk appetite for logistic and industrial investments during 2022, although values came under pressure, due to a sharp increase in funding costs. Long duration rental contracts and strong locations for newly built assets remain the key value drivers to return and interest among investors across the Nordics.

In the short term, the higher cash-on-cash return for light industry-type buildings is having a positive impact on investor risk appetite. The main drivers are linked to positive fundamentals for rental growth and development potential and the subsequent higher return potential. Supply growth and strong tenants are both factors that have held back rental growth potential for prime logistics, while very strong take-up and rising construction costs are creating a basis for rents to increase more than inflation in the coming years. Logistics properties remain among the favoured property types for 2023, and we believe the positive fundamentals will balance higher funding costs. With a more stable outlook on yield requirement, value growth potential will likely support total returns in 2023 in growth regions across the Nordics.

+35bp y/y

Average yield up to 4.55 percent in Q4 2022

The logistics rental market in the Nordic region remains strong, fuelled by the structural growth drivers powered by e-commerce, which clearly accelerated during the COVID-19 pandemic.

Logistics Sweden

The demand for modern logistics and industrial assets in strong locations continues to be high, going into 2023, especially for ‘last mile’ assets. The amount of newly produced stock reached record levels in 2022, amounting to approximately 1.5 million square metres, which is way above the 10-year average of 700,000 square metres.

Investment market

Rising interest rates and geopolitical uncertainty have gradually affected the investment market since the second quarter of 2022. However, there is still a robust demand for modern logistics and industrial assets in strong locations with solid tenants.

Tenant market

There were record levels of take-up in 2021; however, the rate somewhat slowed in 2022 but is still at high levels. There is a continued demand from tenants within retail and e-commerce as well as in logistics and distribution.

Funding status

The softer outlook for the economy, in combination with rising funding costs, has had a negative impact on all properties. Funding costs are substantially up and refinancing LTV is lower. Nordic banks are focusing on existing relationships, which is having a negative impact on fund availability and new investors in the market.

Sustainability

ESG has become a hygiene factor for an increasing share of investors who are leading the way, although all will need to adapt to ensure liquidity moving forward. Over 30 percent of the developments with completion in 2022 have a green code certification.

Outlook for 2023

Yield increased in 2022. However, there is still a large capital pool looking for investments. Investment volumes will likely be supported by larger portfolios and new developments, albeit with adjusted return requirements, in part mitigated by a strong outlook for rental growth in capital areas.

Financial highlights

4.50%

Yield requirement prime logistics.

Up 100 percentage points y/y

Logistics Finland

1.2

New logistic developments with completion 2023

Logistics has been one of the sectors most affected by the rapid change in the market sentiment after the summer. The swift rise in interest rates, combined with the poor economic outlook, rampant inflation and growing uncertainty, has resulted in considerable outwards movement in yields, after eight years of continuous compression.

Investment market

Transaction activity decelerated during the second half of 2022. The logistics and industrial sector (L&I) transaction volume amounted to €302 million during the second half of the year, while the total volume in 2022 was €869 million. In the fourth quarter of 2022 the volume was €86 million, just 19 percent of the €452 million volume witnessed in the second quarter of the year.

Tenant market

The occupier demand remained strong in the second half of the year, although there are signs of the tenant market slowing down amid the poor economic outlook. Thus far, landlords have been able to carry out CPI-linked rent indexations in full.

4.65%

869€m

Funding status

The sector is relatively favoured by the bank lenders, but financing conditions have become more challenging, in tandem with the general market. Tenant quality mix, alternative use and reletting possibilities dictate the financing possibilities.

Sustainability

Sustainability is becoming an integral part of investor decision making and record-high energy costs are providing further incentives for energy investments.

Outlook for 2023

The positive long-term outlook of the L&I sector remains unchanged, but rapid changes in market conditions have created a notable gap between buyers’ and sellers’ opinions on value. With considerable headwinds present in the economy and in investment markets, it is likely that transaction volume will remain subdued during the first half of 2023.

“Higher yields create a solid entry point, backed by higher rents and solid demand fundamentals.”

M sq. m.

“Fundamental changes in market conditions have resulted in rapid yield shift outwards.”

Logistics Norway

As the rest of the market, the logistics segment is facing challenging times, both in the transaction and leasing market. During the pandemic, the segment attracted investors fleeing to safety with long WAULTS and strong credit, the same trend is not as clear today. Prime yield has increased 75 bps in the past year, and in the near-term, we see further upward pressure.

Investment market

There is still unemployed capital and willing investors in the market, but it has taken time to establish a new price equilibrium. For now, buyers are hesitant to be first movers in an uncertain market.

Tenant market

The most attractive hubs around Oslo are recognised by low vacancy, and vacant properties still have considerable traction in the leasing market. Strategically located hubs along the main access roads have had the strongest rental growth.

Funding status

The cost of capital has skyrocketed, and a repricing of logistics property is underway. Limited access to capital through the bank and bond market has resulted in fewer reference transactions.

Financial highlights

Sustainability

Persistent high energy prices have once again put the spotlight on sustainability and energy efficiency. Environmentally friendly solutions have suddenly become financially viable, which is likely to accelerate the investments in sustainable solutions, such as solar panels on roof surfaces, charging stations for electric trucks and establishing green roofs that collects rainwater.

Outlook for 2023

A weak currency, lower demand for goods among consumers as well as full inventories have resulted in challenging times for the e-commerce sector, which is pressured on both pricing and margins. Thus, the leasing market is expected to cool down in the near-term, with a flat development in rents. Further ahead, the outlook remains favourable when consumption picks up and e-commerce sales find their way back to their rising, long-term trend.

13.8NOKbn

Prime yield up 75 bps in 2022

4.75% Logistics Denmark

The high demand for logistics space, combined with limited supply, has led to a spike in rental rates. As financing costs have increased, the transaction market in this segment has been going through a period of readjustment in pricing.

Investment market

Logistics and warehouse properties continue to be attractive for investors. Transaction volume remains particularly strong from international investors, who account for 65 percent of transaction volumes. Additionally, prime yield for these properties is at a favorable rate of 4.25 percent, compared to other areas in the Nordic and European regions.

Tenant market

Strong tenant demand and limited supply have led to low albeit rising vacancy rates. Many companies are struggling to find properties that meet their needs, resulting in suboptimal solutions. Additionally, the supply of older industrial areas is decreasing as they are being replaced by residential developments.

Funding status

Obtaining funding for warehouse and logistics properties has traditionally been challenging in Denmark. Despite an increase in transaction volume and investor interest, it remains a segment that is difficult to secure financing for.

Sustainability

The importance of sustainability is increasing as energy costs rise, driving investments in energy-efficient buildings and shortening the payback period. Sustainability is no longer just a trend, as the cost of energy has made it a necessity.

Outlook for 2023

As interest rates rise, yields are shifting to match the real estate markets with the current state of the economy. However, the sector's longterm prospects are still promising, and investor demand continues to be high.

“The cost of capital has skyrocketed, and it has taken time to establish a new price equilibrium, resulting in lower liquidity and few reference transactions.”

Erik Mikael Johnsen Analyst Department: Research and Valuation, Akershus Eiendom

“Demand remains high, but vacancy is beginning to increase.”

Residential Nordic

Financial highlights

11.3€bn

Investment volume for the residential segment in the Nordics in 2022

-49%

A regulated rental market in Sweden and changes in the regulatory environment, regarding presumptions-based new-build rents, have put further negative pressure on the sentiment in Sweden. Activities to reduce costs and improve rental growth on specific properties and portfolios will attract interest and add value across the Nordics.

International investors have grown in importance during the last few years, primarily focusing on the new-build sector, which offers certified buildings with lower operational and maintenance costs. We expect flight to safety factors to support the sector in the medium term and have also started to see a broader interest for the regional growth cities across the region. Listed Nordic residential companies today trade at an average discount-to-NAV of close to 37 percent, which implies a discount-to-assets of approximately 17 percent*, and stands in sharp contrast to the premium-to-NAV of 37 percent which was highlighted in our report twelve months ago.

The multiple contraction among listed companies also confirms a sharp shift in sentiment. The outlook for the sector has changed to mixed. Rising funding costs imply a negative bias to yield requirements across the Nordic countries. However, limited risks for vacancies, in combination with stable cash flow, underpin sector sentiment in the medium term, especially considering a softer outlook for the Nordic economies adding relative strength, compared with cyclical segments.

Investment volume for the residential segment in the Nordics 2022 vs 2021

The Nordic residential market remains strong, based on reported transactions, but it has become mixed with regards to investment sentiment. A sharp increase in funding costs and less availability to funding add pressure on yield requirements throughout the Nordics.

Residential Sweden

The residential market continues to be under pressure, owing to rising funding costs, higher yields and increased construction prices. New supply in 2023 is expected to fall dramatically, leading to fewer forward transactions and an even greater demand-supply imbalance.

Investment market

The residential investment market was down 64 percent in 2022, compared to 2021 when the Swedish transaction market recorded the second highest investment volume in Europe. The outlook for 2023 is soft, although fundamentals should stabilise towards the end of 2023, assuming stabilisation of interest rates and inflation outlook.

Tenant market

Falling supply rates will continue to support pent-up demand. The market is regulated and will not receive the same level of inflation protection as other commercial segments in this high inflation environment. In the event of normalisation; however, rents are expected to rise to the level of or slightly above inflation again.

Funding status

Banks continue to be willing to finance residential property assets, albeit with higher spreads and reduced LTV levels. The combination

Financial highlights

-64%

Investment volume for the residential sector 2022 compared to 2021

Residential Finland

of higher nominal interest rates and rising spreads will act negatively on interest coverage ratios and debt yield parameters.

Sustainability

ESG factors have clearly grown in significance and are today very important to both domestic and international investors. However, when funding costs, rental growth and underlying investment feasibilities in general have risen to the top of the agenda, ESG has come to be somewhat overshadowed.

Outlook for 2023

We have seen a clear shift in investor sentiment from the end of the second quarter of 2022, owing to a sharp increase in funding costs and a relatively soft rental growth outlook. The low-risk characteristics will likely improve relative sentiment when rates stabilise and/or the economy softens, while the medium-term outlook for 2023 continues to be cautious.

~4.15%

Prime yield for new build multifamily buildings in Stockholm

Residential was, once again, the most traded segment in 2022. However, the high inflation followed by rapid increases in interest rates and overall uncertainties in the markets slowed the residential transaction activity towards the year end.

Investment market

Residential yields have been the lowest of all segments, thus the impact of increasing financing costs has been strongest. High inflation puts pressure on operating costs, which can partly be covered by rent indexations. The prime yield was 4.00 percent in the last quarter of 2022—a 70 basis point increase, quarter-on-quarter, and a 90 basis points increase, year-on-year.

Tenant market

Rent indexation possibilities vary among cities and submarkets. Despite of common 100 percent CPI indexation clauses, it seems challenging to transfer the whole inflation figure to rents. In terms of supply and demand, the amount of new construction starts have been decreasing, which will realise as a lower amount of new supply in the next few years. Long-term demand for rental apartments in the growth centres is supported by their growing populations.

Financial highlights

4.00 %

Helsinki prime yield Q4 2022, expected to face some upwards pressure in the future due to uncertainty regarding inflation and increasing interest rates

1.7€bn

Funding status

Lenders have decreased their maximum LTV levels and are more selective. The margins have been increasing and availability of project financing has tightened.

Sustainability

The significance of sustainable solutions, especially relating to energy efficiency, is increasing continuously, and is driven by investors, shareholders and occupiers. New developments are driven by sustainable aspects, which are a prerequisite for a growing number of investors.

Outlook for 2023

Activity is expected to invigorate moderately, if compared to final quarter 2022 levels. Investors are monitoring inflation figures and interest rates closely; however, they also have significant dry powder ready to be deployed to new acquisitions.

The transaction volume of the residential sector did not reach 2021 amounts in 2022

“Despite a quiet year end, residential was the most traded segment during 2022. Activity is expected to increase.”

“Lower construction costs and more stable financing conditions would have a positive effect on investor and developer risk appetite.”

Residential Norway

As mortgage costs tick upwards, housing prices are expected to continue to fall. However, considering the positive marked indicators from December, the housing market might not be as gloomy as many predicted. On the rental side, prices are on the rise.

Investment market

In 2022, Norges Bank increased the key policy rate more than fivefold from 0.5 to 2.75 percent. In the last three months, house prices in Norway have fallen by 6.5 percent. It is the biggest fall in house prices since the global financial crisis, and the strong price growth in the first half of the year has now virtually been erased in most areas. Despite this, demand among professional investors for residential property, particularly for residential development and private rented property, remains strong.

Tenant market

According to Eiendom Norge, the rental housing price statistics show a historically strong rise in rental housing prices in Norway, both in the last two quarters and in 2022 as a whole. Rental prices normally fall in the last quarter of the year, but in the last quarter of 2022 they rose.

Sustainability

Property developers continue to set higher ambitions for their development projects. 55 percent of new residential projects in Oslo in the second half of 2022 carried a Building Research Establishment Environmental Assessment Method (BREEAM) certification. There is also increased focus among homeowners to improve existing buildings, particularly when it comes to bettering energy efficiency.

Outlook for 2023

Norges Bank expects housing prices to fall by 4.5% in 2023. Housing and rental price growth tend to move in opposite directions, and we expect the growth in rental prices to continue, because the higher interest rate has not yet been priced into the housing market.

Financial highlights

10.9% Residential Denmark

5.88%

Share of residential transactions in 2022

Average increase in rental price y/y

The residential market continues to be the most soughtafter segment for investors in Denmark, as it is still highly desirable among both investors and tenants.

Investment market

The residential investment market continues to be the largest sector by far, being more than twice as large as any other sector in terms of transaction volume. More investors have been specialising in subsegments, such as student, youth and senior housing.

Tenant market

Demand has been growing as an increasing share of households are choosing (or are forced) to rent instead of owning. Additionally, demographic fundamentals such as smaller household sizes and continued urbanisation guarantees demand long term. Completions of residential construction will be limited in 2023, as rising material and financing costs have delayed or cancelled projects.

Funding status

As interest rates have increased, funding has become more difficult. This has been particularly noticeable for older unrenovated buildings, where the mortgage bank’s critical rent calculations have come into play, as net rental income must exceed financing costs.

Sustainability

Sustainability and energy efficiency are becoming increasingly important for investors, tenants, and regulators, with plans in place to convert many households in Denmark to district heating.

Outlook for 2023

Overall, the outlook for 2023 is positive with a continued increase in transaction volume and the emergence of niche residential products such as senior housing and co-op living.

Financial highlights

3.25%

Prime yield for new residential properties in Copenhagen

8,951

Person population growth in Copenhagen Municipality October 1, 2021–October 1, 2022

“There is an imbalance in the market and we expect housing prices to continue to fall in 2023 before flattening out.”

“The residential sector remains the most attractive sector, particularly for international investors.”

One JLL Services

in Sweden

JLL is a world leader in real estate services, powered by an entrepreneurial spirit. We are in business to create and deliver value for our clients in a complex and constantly changing world.

JLL is a leading professional services firm that specialises in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with operations in over 80 countries and a global workforce of nearly 92,000 employees. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated.

For further information, visit www.jll.com or www.jllsweden.se

Linus Ericsson, CEO JLL Sweden

+46 8 545 017 05

Capital Markets

Through proactive and inventive advice, our Capital Markets team creates value and makes transactions happen in the Nordic real estate market. We have an experienced transaction team, all of whom are passionate about real estate. Our edge is a unique combination of competence within transaction advisory services, corporate finance and financing through our Capital Markets team, together with the Debt & Financial Advisory team. Capital Markets has a broad knowledge base with strong local representation and a global network to help you succeed with your transactions, regardless if it is local transactions, cross border transactions, mergers & acquisitions or equity raising.

Daniel Anderbring, Head of Capital Markets Sweden

T: +46 8 453 5086

Thomas Persson, Head of Capital Markets Nordic

T: +46 8 453 5268

Debt & Financial Advisory

JLL Debt & Financial Advisory offers leading-edge financial advice with a primary goal to help clients find the best available financial solution for their investments and to manage their debt portfolios efficiently. JLL Debt & Financial Advisory is authorised by the Swedish Financial Supervisory Authority to trade in securities, which allows us to provide a full range of financial advice on conventional bank loans, mezzanine financing and derivatives, as well as raising funds from financial markets in the form of commercial papers or bonds. After the acquisition of HFF, JLL is the leading debt advisor globally.

Joakim Nirup, Head of Debt & Financial Advisory

T: +46 8 545 017 10

Agency

At Agency we offer leasing and development advisory to property owners, and strategic advisory and tenant representation to corporates. JLL Leasing helps property owners find the right tenants for vacant premises and helps them make the right investments for commercially viable leasing terms. With our specialist expertise in the office, warehousing & logistics, and retail segments, we provide accurate, detailed knowledge upon which to base strategic decisions. JLL Tenant Representation helps corporates with their strategic real estate issues during establishment or relocation. We provide advisory during the process of finding premises that best support specific business operations through an inspiring occupational environment at an efficient rental cost. Our strength lies in our extensive market knowledge due to our local and global presence, which unlocks added value for our clients.

Erik Skalin, Head of Markets

T: +46 8 453 5289

Valuation & Strategic Analysis

Knowledge of a real estate’s market value is a prerequisite for a successful property transaction—whether an investor is buying or selling. JLL Valuation & Strategic Analysis provides essential input during property transactions, for mortgages and financial statements, or when reporting to the MSCI Global Property Index. Our valuation team is certified in accordance with both national and international standards. We appraise all types of commercial real estate, from office and industrial/logistics facilities to retail premises and apartment buildings.

Patrik Löfvenberg, Head of Valuation & Strategic Analysis

T: +46 8 453 5246

Research

JLL Research produces accurate, relevant analysis that underpins strategic decisions and contributes to successful property transactions. We monitor and measure current market trends and collect data on, for example, vacancy rates, take-up volumes and rental levels. For the past 20 years, we have compiled unique data sets. No matter what the property type—logistics facility, office space or retail premises—you can be sure that we will add knowledge and depth to your decision making.

Niclas Höglund, Head of Research

T: +46 8 453 5186

Project & Development Services (P&DS)

JLL P&DS offers strategic advisory and project management services during office changes or property development. Our goal is to ensure that projects are profitable for our clients and that they are implemented efficiently. Our experienced project managers possess broad knowledge of the processes involved in construc tion, technology (IT, security and AV), architecture/ interiors and change management. Guiding organisations through the process of either developing their property or implementing changes in their office (relocation or refurbishment) is an integral part of our core business.

Maximilian Keysberg, Head of Project & Development Services

+46 8 453 5125

Services in Finland

JLL Finland offers Capital Markets, Debt and Financial Advisory, Valuations, Strategic Consulting, Leasing, Tenant Representation, Asset Management and Development & Design Services to domestic clients and international investors in, and occupiers of, real estate in Finland. Our extensive global platform and in-depth knowledge of local real estate markets enable us to serve as a single-source provider of solutions for the full spectrum of our clients' real estate needs.

Capital Markets

Our Capital Markets team is the market leader in property transaction advice, delivering tailored solutions and providing strategic advice to clients looking to acquire or sell properties or portfolios. We advise our clients in both sell and buy side transactions across all property sectors, combining first-hand knowledge and comprehensive market data with rigorous analysis to maximise value and deliver results.

Tero Uusitalo, Head of Capital Markets Finland

T: +358 400 103 450

Valuation & Strategic Consulting

Our expertise encompasses valuation of single assets and portfolios to complex development schemes and ranges from shopping centres to residential properties. Valuations are carried out in accordance with International Valuation Standards (IVS), RICS Valuation Standards and local AKA/KHK guidance. Our strategic consulting services include data-driven advice on high-level investment strategies, portfolio planning, market entry strategies, asset-level business plans and commercial due diligence. For occupiers, we provide network, location, and real estate strategies.

Kaisu Pienimäki, Head of Valuation & Strategic Consulting

T: +358 407 032 783

Debt and Financial Advisory

Our debt team is dedicated to helping clients to find the best possible financing, regardless of that being a senior term loan, a construction facility, mezzanine financing, a bond or a commercial paper program. The service encompasses procuring financing for acquisitions and developments, arranging and negotiating the terms of refinancing, assessing and optimising the portfolio capital structures as well as developing or updating financial risk management and hedging strategies. JLL is the leading real estate debt advisor in Europe, which enables us to reach to broad European debt markets and financing sources.

Eemeli Lehto, Head of Debt and Financial Advisory Finland

T: +358 503 245 919

Leasing

Our Leasing team is the number one leasing agent in the Helsinki Metropolitan Area and is best known for offering tailored leasing solutions for landlords and investors to maximise the profitability of their investment. We specialise in office, logistics and retail properties with services ranging from traditional leasing to facelifts, property development and property branding.

Klaus Koponen, Head of Markets

T: +358 503 854 571

Tenant Representation

Our Tenant Representation team provides corporates and public institutions with strategy, services and technology that enhance the performance of their workplaces, real estate, and people. Our mission is to create and shape the future of workplace and real estate for our clients. We advise our clients in all aspects of their workplace and real estate matters to secure optimal functional and financial outcome. Due to our global reach, we can provide these advisory services to clients that have international real estate portfolios.

Klaus Koponen, Head of Markets

T: +358 503 854 571

Development & Design

Our Development & Design services consists of three service lines: Property Development Services, Project Management & Design Services and Workplace & Design services. With our three service lines, we help property owners in creating and executing a new revolutionary step for their properties. We design and execute minor and major renovation projects, help our customers analyse their current work environments and create a new work environment, best suited to the user's future business needs.

Tomi Tiainen, Head of Development & Design

T: +358 503 440 986

Asset Management

Our Asset Management service is aimed at both domestic and foreign real estate investors. We provide a holistic and result oriented approach to asset management. As part of the service, we create portfolio and property-specific strategies for leasing and property development, identifying the potential for profit and value creation. The portfolio’s strategy is achieved by leading, leasing, key customers, Property Management service providers and ESG development professionally.

Julia Aarni, Head of Asset Management

T: +358 40 768 4885

Services in Denmark

EDC Poul Erik Bech

EDC Poul Erik Bech was founded in 1978 and currently has 140 employees located across Denmark in 19 commercial business centres. Hard work, ethics and a solid business sense are the three pillars on which the company was founded in 1978. EDC Poul Erik Bech is primarily owned by the Poul Erik Bech Foundation, which supports non-profit organisations where volunteer enthusiasts make a difference for children.

EDC International Poul Erik Bech

EDC International Poul Erik Bech is the one point of entry for international clients, which ensures efficient communication and services tailored to your business. EDC International Poul Erik Bech will ensure that the best team is assembled for the job, whether these are local estate agents or external business partners.

Contacts

Helle Nielsen Ziersen Partner, Director, Head of International Relations, EDC Poul Erik Bech, MRICS

T: +45 33 30 10 17 | M: +45 40 99 99 46 hni@edc.dk

Joseph Alberti Head of Research, EDC Poul Erik Bech, MSc Econ.

T: +45 58 58 74 67 joal@edc.dk

Services in Norway

About Akershus Eiendom:

Akershus Eiendom was established in 1992, offering services within transactions and leasing advisory of Norwegian commercial real estate. The company has taken part in many of the largest transactions in the Norwegian commercial real estate market. In 1997, the company established a separate leasing department in order to focus further on the Oslo office leasing market, and in 2001 the department for research and valuation was added to the organisation. In 2015, the tenant representation department was started.

In 2001, Akershus Eiendom entered into a cooperation agreement with JLL, one of the world’s leading commercial real estate agents. The cooperation has led to considerable synergies between the companies both in tenant representation, research and large transactions advisory.

Contacts

Jørgen Haga Head of Capital Markets, Akershus Eiendom

T: +47 907 27 359 jh@akershuseiendom.no

Kari Due-Andresen Chief Economist/Head of Research, Akershus Eiendom

T: +47 911 30 526 kda@akershuseiendom.no

Services

• Capital markets

• Buyside advisory

• Due diligence

• Corporate solutions

• Letting and tenant representation

• Project development

• Valuation

• Research

• Property management

Services

• Capital markets

• Buy- and sell-side advisory

• Due diligence

• Leasing

• Tenant representation

• Project development

• Valuation

• Research

Property Data Definitions

Prime Office Rent

Represents the top open-market rent that could be expected for a notional office unit of the highest quality and specification in the best location in a market, as at the survey date (normally at the end of each quarter period). The rent quoted normally reflects prime units of over 500 square metres of lettable floor space, which excludes rents that represent a premium level paid for a small quantity of space. The Prime Rent reflects an occupational lease that is standard for the local market. It is a fair rent that does not reflect the financial impact of tenant incentives, and excludes service charges and local taxes. It represents JLL’s market view and is based on an analysis/review of actual transactions for prime office space, excluding any unrepresentative deals.

Prime Yield

Represents the best (i.e. lowest) 'rack-rented' yield estimated to be achievable for a notional office property of the highest quality and specification in the best location in a market, as at the survey date (normally at the end of each quarter period). The property should be let

at the prevailing market rent to a first class tenant with an occupational lease that is standard for the local market. The prime initial net yield is quoted, i.e., the initial net income at the date of purchase, expressed as a percentage of the total purchase price, which includes acquisition costs and transfer taxes. The Prime Yield represents Jones Lang LaSalle’s 'market view', based on a combination of market evidence, where available, and a survey of expert opinion.

Vacancy

Vacancy represents completed floor space offered on the open market for leasing, vacant for immediate occupation on the survey date (normally at the end of each quarter period), within a market. It includes all vacant accommodation inclusive sub-letting space irrespective of the quality of office space, or the terms on which it is offered. Vacancy excludes 'obsolete' or 'mothballed' office property, i.e. floor space held vacant and not being offered for letting, usually pending redevelopment or major refurbishment.

Offices

Stockholm

Birger Jarlsgatan 25

Box 1147

SE-111 81 Stockholm

Tel: +46 8 453 50 00

jllsweden.se

Gothenburg

Kungsportsavenyn 21

SE-411 36 Gothenburg

Tel: +46 31 708 53 00

jllsweden.se

Helsinki

Keskuskatu 7, 4th floor

FI-00100 Helsinki

Tel: +358 207 61 99 60

jll.fi

In cooperation with Oslo

Akershus Eiendom AS

Ruseløkkveien 30 (10th floor)

NO-0251 Oslo

Tel +47 22 41 48 00

akershuseiendom.no

Copenhagen

EDC International Poul Erik Bech

Bremerholm 29

DK-1069 Copenhagen K

Tel: +45 33 30 10 00

poulerikbech.dk

© 2023 Jones Lang LaSalle IP, Inc. All rights reserved. The information contained in this document is proprietary to JLL and shall be used solely for the purposes of evaluating this proposal. All such documentation and information remains the property of JLL and shall be kept confidential. Reproduction of any part of this document is authorized only to the extent necessary for its evaluation. It is not to be shown to any third party without the prior written authorization of JLL. All information contained herein is from sources deemed reliable; however, no representation or warranty is made as to the accuracy thereof.