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<a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=1">Newsec Property Outlook - Spring 2010 1 newsec pro</a> perty outlook SPRING 2010 Sweden | Finland | Norway | Denmark | Estonia | Latvia | Lithuania SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 SWEDEN 1 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=2">Newsec Property Outlook - Spring 2010 Sida 2 ESTON</a> IALATVIA LITHUANIA newsec property outlook spring 2010 NORWAYDENMARK <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=3">Newsec Property Outlook - Spring 2010 Sida 3 CONTE</a> NTS EXECUTIVE SUMMARY ..................................................6 NORTHERN EUROPEAN REGION ...............................8 K 1. SWEDEN .......................................................................12 1.1 STOCKHOLM OFFICE MARKET ................................................15 1.2 GOTHENBURG OFFICE MARKET ............................................19 1.3 MALMÖ OFFICE MARKET .........................................................22 1.4 RESIDENTIALS IN SWEDEN ......................................................25 1.5 RETAIL IN SWEDEN .................................................................... 27 2. FINLAND......................................................................29 2.1 LOGISTICS MARKET ..................................................................34 2.2 RETAIL IN FINLAND ...................................................................35 3. NORWAY ......................................................................37 3.1 RETAIL IN NORWAY .....................................................................42 4. DENMARK ...................................................................44 4.1 RETAIL IN DENMARK .................................................................48 5. ESTONIA ..................................................................... 50 6. LATVIA .........................................................................54 7. LITHUANIA ..................................................................58 RETAIL IN THE BALTIC REGION ............................................ 62 TRANSACTIONS .....................................................................................64 COUNTRY DATA .....................................................................................66 DEFINITIONS ..........................................................................................67 CONTACT .................................................................................................. 71 COPYRIGHT NEWSEC© 2010 This report is intended for general information and is based upon material in our possession or supplied to us that we believe to be reliable. Whilst every effort has been made to ensure its accuracy and completeness, we cannot offer any warranty that factual errors may not have occurred. Newsec takes no responsibility for any damage or loss suffered by reason of the inaccuracy of this report. Editor: Marie Bucht, Newsec, Box 7795, SE-103 96 Stockholm, Sweden. Phone + 46 8 454 40 00, Fax +46 8 454 40 01, www.newsec.se. You may use the information in the Newsec Property Outlook but acknowledgement must be made for all quotations and use of data/graphics. Design: Liedgren Design. Production and layout: MAINT.SE. Printing: Billes tryckeri, Mölndal, 2010. INTRO 3 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=4">Newsec Property Outlook - Spring 2010 Sida 4 EDITO</a> RIAL “WE ARE LOOKING FORWARD TO AN INTERESTING PERIOD AS A NEW WINDOW OF OPPORTUNITY IS OPENING ON THE NORTHERN EUROPEAN PROPERTY MARKET” Percent 2 0 1 THIS IS THE 15TH EDITION of the Newsec Property Outlook and our latest survey of the Northern European property market. The Outlook takes as its backbone Newsec’s internal survey ‘The Five Year Forecast’, which outlines the likely development of the property market over the next five years, and then adds snapshots, articles and presentations of especially interesting submarkets and segments on the Northern European property market. The purpose of the Outlook concept is to channel some of Newsec’s knowledge and experience to pinpoint property segments with exceptional future potentialities. TIME TO ENTER THE MARKET After experiencing a tough 2008/2009, we started to see some positive signals during the second half of last year. The world economy bottomed out during the summer, activity on the leasing market turned upwards during the autumn and liquidity on the investment market recovered, resulting in increasing transaction volumes. Although the volumes are still low, the signs became more obvious during the last quarter of 2009 and in Sweden the volume more than trebled compared to the first and the second quarters. The increasing activity on the leasing market stabilised the downturn in market rents, and the forecast is that we have now passed the largest drop. As a result of an improving financial market, rising transaction volumes and stabilising market rents, Newsec now expects yields to have reached their highest levels, and in 2010 and 2011 we will see the first recoveries on the Northern European property markets. -7 -6 -5 -4 -3 -2 -1 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E Sweden UK USA Residential Market | Sweden Percent 10 15 20 25 30 35 0 5 -15 -10 -5 Source: IMF 4 Percent 2 3 -4 -3 -2 -1 0 1 Source: Newsec 10 15 20 25 30 35 0 5 2005 2006 2007 2008 2009 2010E Residential transactions, percent of transaction volume Development of residential prices in major Swedish cities 2011E 2012E -15 -10 -5 Percent 2005 Residen Develop 4 EDITORIAL Sweden <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=5">Newsec Property Outlook - Spring 2010 Sida 5 IF YO</a> U ARE AWARE OF CURRENT TRENDS, this is the time to enter the market since we are currently in the beginning of the recovery from the global recession, a recession that has affected all the Nordic and Baltic countries. However, the recovery is not equally distributed among the property submarkets and segments, and the market is still characterised by selectivity. RESIDENTIAL PROPERTIES IN SWEDEN form one of the segments that have been identified as having exceptional potentialities during coming years, and the segment is heading towards a smooth recovery because of its stable cash-flows. The potentialities of residential properties are not unrecognised by investors; in fact, Newsec currently has over 100 prospective investors in residential properties in regional Swedish cities, and is involved in a number of ongoing transactions. Investors with the right expertise and contacts now have every possibility of doing great business on the property market and we are looking forward to an interesting period as a new window of opportunity is opening on the Northern European property market. THE WELL-KNOWN GOLDEN RULE of the importance of ‘location, location, location’ remains true, but some trends have become stronger and will be even more important in the near future: • Tenants’ focus on the total cost of premises has increased and the rent per square metre has become less important. Key words are quality and space-efficiency. • Tenants increasingly profile themselves through their premises, which have become a part of their brand. • There is greater environmental consciousness – on both the investment and the rental market. Older and unmodernised premises and properties will face an even harder future in coming years. TAKING THESE TRENDS INTO CONSIDERATION will be especially important because of the expectations of increasing competition for office and retail properties, with the risk of high vacancies in the unmodernised part of the property stock. To sum up, we would now add one more item to ‘location, location, location’, and that would be ‘quality’. IT IS ALWAYS IMPORTANT TO FOCUS on cash flows and property management, but after the economic downturn it has become even more vital. This will continue in coming years and the winners on the property market will be the ones who have the best knowledge and understanding of the local submarket’s development. This edition of the Newsec Property Outlook gives a good overall picture of the development on the Northern European property market. If you are interested in more detailed analysis of submarkets and property segments – don’t hesitate to contact us! HOW CAN NEWSEC SEE THROUGH THE VEIL OF THE FUTURE? Newsec’s forecasts are based upon our macro forecast, regional analysis, supply and demand analysis, trends on the investment market and the broad market presence of our more than 600 employees all over the Northern European region. The forecasts are not based entirely on purely mathematical connections but are instead based on our combined knowledge and experience of the property market’s development in relation to the general economy. Newsec’s macro forecast, which is one important part of the groundwork for understanding trends on the Northern European property market, uses the following three basic assumptions: 1. Economic recovery but relatively slow export growth 2. Low inflationary pressure generating low interest rates 3. A gradually normalising credit market Output-Gap Percent 2 0 1 -7 -6 -5 -4 -3 -2 -1 4 Percent 2 3 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E Sweden UK USA -4 -3 -2 -1 0 1 Source: IMF 35 Percent EDITORIAL 5 Source: Newsec 35 Percent Sweden <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=6">Newsec Property Outlook - Spring 2010 Sida 6 EUR/m</a> 2 Percent EXECUTIVE SUMMARY 12 15 9 12 15 3m 3m MACRO DATA GDP Growth Percent Percent GDP 10 15 10 15 -10 -5 0 5 -10 -5 0 5 -20 -15 -20 -15 20002000 20012001 SwedenSweden 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E NorwayNorway 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Finland Finland Denmark Denmark EstoniaEstonia LatviaLatvia Lithuania Lithuania Source: Newsec Source: Newsec GDP GDP vacancies vacancies 9 6 0 3 6 OFFICE VACANCIES Office Vacancies | Nordic Region 0 3 2004 Sweden 2004 Sweden 2005 Norway 2005 Norway 2006 Finland 2006 Finland Office rents EUR/m2 500 500 20 Percent 20 400 400 12 16 300300 8 12 16 200200 100 100 0 4 0 4 8 Percent EUR/m2 Percent 10 15 Percent -10 -5 0 5 10 15 -20 -15 20002000 -10 -5 0 5 2000 20012001 StockholmSweden StockholmStockholm -20 -15 2000 3M Market Interest Rates Percent 12 15 3m 3m 9 9 6 6 0 3 0 3 2004 2004 Sweden Sweden 2005 2005 Norway Norway 2006 2006 Finland Finland 2007 2007 2008 2008 Denmark Denmark • The world economy bottomed out during the summer of 2009, largely due to expansionary fiscal and monetary policies. The global recovery is affecting the Nordic and Baltic countries through increasing demand for exports and higher willingness for risk among investors. 20 20 Percent Percent vacancies vacancies • The forecast is more pessimistic for the Baltic countries than for the Nordic, foreseeing a slow recovery due to large imbalances in the economies. 12 16 8 8 • The Nordic market interest rates are currently historically low. However, the Bank of Norway started to increase its interest rate during the autumn of 2009 due to the country’s early economic recovery. 0 4 0 4 2000 2000 2001 2001 Stockholm Stockholm Gothenburg CBD Gothenburg CBD 60 Percent 60 Percent 6 EXECUTIVE SUMMARY vacancies vacancies 30 40 50 30 40 50 12 16 2009 2009 Estonia Estonia 2010E 2010E Latvia Latvia 2011E 2011E Lithuania Lithuania • Because of risks in the countries’ currency pegs and weak economic development, the Baltic economies did not benefit from the lower international interest rates until late 2009. The Baltic market interest rates then decreased substantially during late 2009 and early 2010. Source: Newsec Source: Newsec retails yield retails yield 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Malmö CBD Malmö CBD Oslo Oslo Helsinki Helsinki • Newsec expects interest rates to remain relatively low during 2010-2011 due to a low inflationary pressure. The financial market is expected to normalise gradually during 2010-2011, although banks’ interest-rate margins are forecast to stabilise at higher levels than the extremely low levels that prevailed before the financial crisis. Copenhagen Copenhagen 14 Percent Source: Newsec Source: Newsec retail yield retail yield 10 11 12 13 vacancies 8 9 10 11 12 9 10 11 12 10 11 12 13 8 9 13 Percent 14 Percent 13 Percent vacancies vacancies 12 15 Percent 2001 2001 20022001 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Norway Gothenburg StockholmSweden Source: Newsec Source: Newsec 300 350 EUR/m2 EUR/m2 Percent 300 350 vacancies vacancies 3m 3m 200 250 200 250 20 30 40 50 60 150 100 150 10 20 30 40 50 60 100 10 0 0 2000 20002002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Gothenburg CBD Gothenburg CBD Malmö 2001 Gothenburg Malmö Norway Finland Denmark Oslo Estonia Helsinki Latvia Office Vacancies | Baltic RExegionExchange rate – January 2010 | Source: Newsec Percent Percent 12 15 9 Percent 12 15 6 9 20002000 20012001 2002 2003 2004 2005 2006 2007 2008 2009 2010E Tallinn 2000 Tallinn CBD RigaRiga CBD 2004 Tallinn 0 3 Tallinn CBD 0 3 2001 Riga 2001 Vilnius 2002 2005 SwedenRiga CBD 2004 Sweden Percent Percent 8 7 7 Percent 7 6 7 6 Percent 8 Vilnius 003 2004 2005 2007 Norway Vilnius CBD 2006 2005 Norway Vilnius CBD 2006 Finland Finland • Employment is expected to keep on falling in 2010 throughout the Nordic and Baltic region. However, in 2011 employment is expected to stabilise or in some cases start to increase; only Finland is expected to experience further decreases in 2011. 6 Percent 20 Percent 5 6 5 • In Stockholm, Helsinki and Copenhagen the vacancy rate is expected to keep on increasing in 2011 due to the time lag between the labour and rental markets. 5 4 5 4 3 4 4 2000 3 2006 2000 StockholmStockholm Stockholm 2006 0 4 Stockholm 0 4 2000 8 2001 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2007 Gothenburg Gothenburg Gothenburg 2007 2001 Gothenburg 2001 2008 Malmö 2008 Malmö Malmö Malmö 2009 Oslo 2010E 2011E Helsinki Oslo 2009 Helsinki Oslo 2000retail yields baltic Stockholm Stockholm 60 Percent 30 40 50 60 Percent 40 50 Gothenburg CBD 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Gothenburg CBD Helsinki Helsinki Oslo 2010E Copenhagen Copenhagen CopenhagenCopenhagen Oslo Malmö CBD retail yields baltic Helsinki Malmö CBD Oslo Source: Newsec Helsinki 2011E 20 • Newsec expects increasing vacancies in all the Nordic capitals in 2010 due to the weak labour markets. 12 16 8 12 16 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec • In general the Baltic countries have experienced sharper rises in vacancy rates than the Nordic countries due to vast supplies of new office space in 2008-2009 in combination with sharply decreasing employment. Vacancies in the CBDs are benefiting from the more limited new supply there, and occupancy rates of 80% and more are quite sufficient. However, some new office buildings mainly situated in suburban areas are struggling with vacancies of 30% or higher. Source: Newsec Copenhagen Copenhagen Source: NewsecSource: Newsec Source: Newsec 1,000 Yields 500 1,000 006 2007 2008 2009 2010E 2011E 2011E Denmark 2008 Estonia 2007 2008 Denmark 2009 Estonia 2010E Latvia 2010E Latvia Lithuania 2011E Lithuania • In Oslo, the early economic recovery and rather stable labour market will generate a recovery in vacancy in 2011. Source: Newsec Source: Newsec Source: Newsec Source: Newsec Source: Newsec EUR/m2 2,000 EUR/m2 2,000 1,500 1,500 Percent 8 7 Exchange rate – January 2010 | Source: Newsec Yields 500 • In Stockholm rents fell by 5-10% in most submarkets outside the CBD and by 15% in the CBD during 2009. Market rents are expected to fall a little further - but as the largest fall has already occurred, rents are expected to stabilise during 2010 and remain stable in 2011. Percent 8 7 6 EUR/m2 270 25570 24055 22540 225 210 yields 180 195 yields 180 195 210 • In Helsinki the smallest falls have so far been in the CBD and other prime submarkets. However, rents in all submarkets have fallen and are expected to fall further in 2010 before stabilising. Stockholm 2006 5 2006 5 6 Stockholm 4 2000 EUR/m2 • The effects on the rents in Copenhagen are moderated by the drastic slowdown in new construction; 4 2000 2001 Stockholm 14 Percent 10 11 12 13 8 9 14 Percent 10 11 12 13 Gothenburg 2007 Gothenburg 2007 Gothenburg 2001 Stockholm 2008 Malmö 2008 Malmö 2009 Helsinki 2009 Helsinki Malmö however, rents are expected to keep on decreasing in 2010 and then stabilise in 2011. Source: Newsec Oslo • Office rents in Oslo CBD rose strongly during recent years, with rent levels almost doubled between 2005 and 2008. However, rents fell significantly in 2009 and are expected to decrease somewhat further in 2010 before stabilising. Source: Newsec 2010E 2010E 2011E Copenhagen Oslo Exchange rate – January 2010 | Source: Newsec Oslo Helsinki Oslo 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Gothenburg Copenhagen Malmö Copenhagen 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Exchange rate – January 2010 | Source: Newsec • In the Baltic countries, rents seem set to stop falling in 2010, although some minor changes are possible in lower-grade buildings in the suburban areas of the capitals. Helsinki 2011E Copenhagen Source: Newsec Source: Newsec retail rents retail rents 2008 2009 2010E 2011E yields retails rents retails rents Yields Yields 6 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E2011E 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Denmark Malmö CBD Oslo Oslo Helsinki Oslo Helsinki Helsinki Copenhagen Copenhagen Latvia 2002 20032002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Estonia 2004 2005 2006 2007 2008 2009 2010E 2011E Finland Copenhagen Lithuania 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Malmö CBD Copenhagen change rate – January 2010 | Source: Newsec Source: NewsecSource: Newsec Source: Newsec Lithuania Office rents Exchange rate – January 2010 | Source: Newsec Exchange rate – January 2010 | Source: Newsec Source: Newsec Source: NewsecSource: Newsec 7 6 Rents Rents 5 6 5 300 200 4 2000 4 2000 2001 Stockholm200 100 2001 Stockholm 100 Percent 10 11 12 13 14 rents rents 150 2002 100 6 7 8 9 6 7 8 9 2002 Tallinn 100 10 11 12 13 14 300 350 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Gothenburg Malmö Stockholm Gothenburg Oslo Malmö Oslo Helsinki Helsinki Oslo Oslo Copenhagen 20002002200120032002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Gothenburg 2004 2005 2006 2007 2008 2009 2010E 2011E Malmö Helsinki 2000 2001 Stockholm Percent EUR/m2 Gothenburg Malmö Copenhagen Helsinki Copenhagen 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec Copenhagen Office Rents CBD | Baltic Region EUR/m2 200 250 300 350 200 250 2003 Tallinn 150 Riga 20002003 2001 Tallinn Riga 2000 Tallinn 2004 2005 Vilnius 20042002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Riga 2005 Vilnius 2001 Riga 2006 Vilnius 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Exchange rate – January 2010 | Source: Newsec Vilnius 2007 2008 2009 2010E 2011E 2006 2007 2008 2009 2010E 2011E yields yields Exchange rate – January 2010 | Source: Newsec Source: Newsec Exchange rate – January 2010 | Source: Newsec 2007 2007 2008 Denmark 2008 Denmark 2009 Estonia 2009 Estonia 2010E Latvia 2010E Latvia 2011E Lithuania 2011E Lithuania Percent Source: Newsec Source: Newsec 300 350 EUR/m2 200 250 300 350 200 250 150 150 100 2000 100 2000 2001 Tallinn 2001 Tallinn 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Riga Vilnius OFFICE RENTS PercentOffice Rents CBD | Nordic Region Vilnius 8 Percent EUR/m2 8 500 7 EUR/m2 500 400 400 300 Yields Yields Exchange rate – January 2010 | Source: Newsec Office rents Office rents 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Riga Exchange rate – January 2010 | Source: Newsec Exchange rate – January 2010 | Source: Newsec rents rents Source: Newsec Exchange rate – January 2010 | Source: Newsec Source: Newsec Rents Rents rents rents <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=7">Newsec Property Outlook - Spring 2010 Sida 7 100 E</a> 2000 Stockholm 0 4 EUR/m2 ec sec 300 350 300 350 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Gothenburg Malmö 2000 Stockholm EUR/m2 2001 Oslo Helsinki Malmö CBD Oslo Copenhagen 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Gothenburg CBD Exchange rate – January 2010 | Source: Newsec Helsinki Copenhagen Exchange rate – January 2010 | Source: Newsec 20 200 250 vacancies 200 250 150 150 100 100 Percent 2000 OFFICE YIELDS 20 30 40 50 60 2000 Tallinn 10 Tallinn 0 Office Yields CBD | Nordic Region Tallinn CBD 2000 Percent 8 ec sec 7 6 6 retails yield 6 5 5 5 4 2000 4 4 E agen E hagen ec sec 2000 3 Percent 2001 Stockholm 2001 Stockholm 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Gothenburg Malmö Malmö 2006 Stockholm 10 11 12 13 14 retail yield E E 2,000 6 7 8 9 10 11 12 13 14 6 7 8 9 2007 Gothenburg 2008 Malmö Oslo Oslo Helsinki Helsinki 2009 Copenhagen 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Gothenburg Copenhagen 2010E Office Yields CBD | Baltic Region Percent Percent 10 11 12 13 2002 2002Tallinn 2003Riga Tallinn 7 8 9 • Office yields are now stabilising in all the Nordic and Baltic capitals. EUR/m2 EUR/m2 ec sec • In Stockholm and Helsinki the effects of high bank interest-rate margins, increasing vacancies and lower rents are balancing the positive impacts of the low interest rates, generating stable prime yields in 2010. 2,000 1,500 1,500 1,000 1,000 • In Copenhagen, yields are also stable in prime locations due to the limited supply of office premises. 500 500 2006 • Norway experienced the yield shift earlier than the rest of the Nordic countries due to high interest rates, hard financing prerequisites and expectations of declining rents, Stockholm2006 Stockholm Gothenburg Gothenburg 2007 2008 Malmö Malmö ec sec 210 225 240 255 270 195 210 225 240 255 270 EUR/m2 EUR/m2 2007 2008 Tallinn Riga Vilnius Riga 2003 2004 2005 2004 Vilnius Vilnius 2008 2005 2006 2006 2009 2007 2007 2008 2008 2009 2009 2010E 2010E 2010E 2011E 3 2011E 2011E Exchange rate – January 2010 | Source: Newsec Exchange rate – January 2010 | Source: Newsec which resulted in a steep increase in yield levels during 2008. Currently the impact of the low interest rates is outweighing the negative impact of high bank interest-rate margins and increasing vacancies, leading to decreasing yields. 2009 2009 Helsinki Helsinki Exchange rate – January 2010 | Source: Newsec Exchange rate – January 2010 | Source: Newsec • In the Baltic countries the high cost of capital, equity tie-up and risk premiums related to emerging markets drove office yields rapidly upwards in 2008-2009. Yields have now stabilised and a recovery is expected in 2010-2011 due to lower interest rates and a slightly improving credit situation. However, a long-term yield recovery is not expected until the economies recover. 2010E Oslo Oslo 2010E 2011E Copenhagen 2011E Copenhagen retail yield retails rents retails rents • Retail rents generally decreased in 2008-2009 due to the sluggish retail turnover growth. However, the economic recovery is now generating stable rents in prime locations which are expected to continue through 2010-2011. 10 11 12 13 7 8 9 2008 Tallinn Riga 2009 Vilnius • All the Nordic countries experienced faltering retail turnover growth as the recession hit private consumption. However, consumer confidence improved during 2009 and Sweden and Norway are expected to experience the strongest rebound in 2010. Percent retail yields baltic • Low interest rates and increased investor interest have resulted in stabilised yields in all Nordic markets during 2009 and the beginning of 2010. Yields are expected to recover in 2011 due to the economic recovery and increasing consumption. Source: Newsec • Norway is experiencing the strongest economic recovery among the Nordic countries. Retail yields in Oslo peaked in mid 2009 and are expected to recover in 2010-2011. 2010E 2011E Helsinki retail yields baltic Oslo 2011E Copenhagen Source: Newsec Source: Newsec Source: Newsec retails yield 210 225 240 255 270 yields 4 180 195 2008 Tallinn 2006 Stockholm Riga 2007 2009 Vilnius Gothenburg 2008 Malmö 2010E 2009 Helsinki 2010E Oslo 2011E 2011E Copenhagen EUR/m2 • A rapid cooling of investor interest occurred in the Baltic region during the end of 2008, and the economic recession has put a hold on many new investments. • Private consumption accounted for a substantial part of the GDP growth seen in previous years, to a large extent financed by an overheated real estate market. 210 225 240 255 270 180 195 2008 Tallinn Riga 2009 • The retail market is expected to experience some hard years, due to the sluggish economic development Vilnius vacancies retail yield Percent 8 7 Percent 7 2001 Vilnius CBD Vilnius 2001 Vilnius Source: Newsec vacancies 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Riga 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Riga 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Riga CBD Source: Newsec Source: Newsec Source: Newsec rents retails yield rents 10 11 12 13 14 RETAIL – NORDIC REGION 6 7 8 9 0 4 2002 2000 4 Tallinn Prime Retail Rents | Nordic Region2009 3 Stockholm 2006 2,000 EUR/m2 Percent 1,500 Yields Yields 1,000 20 30 40 50 60 10 500 0 Gothenburg CBD 2007 Stockholm Gothenburg Malmö CBD 2008 Malmö 2003 2001 Riga 2004 2005 2006 2007 2008 Oslo Helsinki retail yields baltic Percent 10 11 12 13 2000 7 8 9 EUR/m2 2006 Stockholm Tallinn CBD 2001 2007 Gothenburg Riga CBD 2008 Malmö Vilnius CBD EUR/m2 Prime Retail Yields | Nordic Region2010E Tallinn 2008 Riga Percent 7 6 retail yield 5 yields 1,000 2009 Vilnius 2011E Exchange rate – January 2010 | Source: Newsec Source: Newsec 2,000 2009 Helsinki 2010E Oslo 2011E 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Copenhagen Source: Newsec retails yield 2009 2010E Helsinki 2010E Oslo 2011E 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Vilnius Copenhagen 2011E Copenhagen Exchange rate – January 2010 | Source: Newsec Source: Newsec Percent 12 16 8 5 Percent 7 6 Source: Newsec 6 vacancies 5 Percent Percent 4 10 2000 Sweden 2001 Stockholm 0 Norway 2000 Tallinn CBD 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Gothenburg Finland Denmark Malmö Oslo Vilnius CBD Estonia Helsinki Latvia Lithuania Copenhagen 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Riga CBD Source: Newsec Source: Newsec 7 Percent 8 6 0 2000 Stockholm 2002 Tallinn 2001 20032002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E2011E RigaGothenburg CBD 2004 2005 Vilnius 2006 2007 Malmö CBD 2008 Oslo 2009 2010E Helsinki Copenhagen Percent Source: Newsec 2,000 1,500 yields10 4 1,000 500 20 30 40 50 60 EUR/m2 Percent Exchange rate – January 2010 | Source: Newsec Source: Newsec 10 11 12 13 14 Yields RETAIL – BALTIC REGION 2000 0 2001 Stockholm 2000 2006 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Gothenburg StockholmTallinn CBD 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Copenhagen Malmö 2007 Gothenburg Riga CBD 2008 Malmö Oslo Helsinki 2009 Vilnius CBD Helsinki Prime Retail Rents | Baltic Region EUR/m2 10 11 12 13 14 retails rents 6 7 8 9 210 225 240 255 270 180 195 5 4 2002 Tallinn 3 2003 2008 Riga Tallinn 2006 Stockholm 2004 Riga 2005 Vilnius 2007 2006 2009 Vilnius Gothenburg 2008 Malmö 2007 2008 2009 Helsinki Prime Retail Yields | Baltic Region Percent 1,500 retail rents 500 10 11 12 13 Stockholm 7 8 9 2006 2007 Gothenburg 2008 Tallinn Riga 2008 Malmö 2009 Vilnius Exchange rate – January 2010 | Source: Newsec in combination with an oversupply of retail space. • Rents have fallen substantially in recent years but are expected to stabilise in 2010 in all Baltic capitals. 2010E • Yields peaked in 2009 and are expected to stabilise or slightly decrease in 2010-2011 due to low interest rates and decreasing bank interest-rate margins. However, any long-term yield recovery is not expected until the real economy recovers. 2011E retail rents 2009 Helsinki 2010E Oslo 2010E 2011E Copenhagen 2011E retail yields baltic Source: Newsec 2009 2010E 2010E Oslo 2010E 2011E 2011E 2011E Copenhagen EUR/m2 Exchange rate – January 2010 | Source: Newsec retails rent 210 225 240 255 270 180 195 Talli Percent 7 6 1,000 yields retail re 20 500 Stoc Copenhagen 2010E Oslo EUR/m2 Source: Newsec Exchange rate – January 2010 | Source: Newsec Source: Newsec 1,500 2,000 2011E retails r 6 7 8 9 2002 Talli CONTACT: ARVID LINDQVIST arvid.lindqvist@newsec.se EXECUTIVE SUMMARY 7 retail rents retail rents <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=8">Newsec Property Outlook - Spring 2010 Sida 8 NORTH</a> ERN EUROPEAN REGION Economic Overview The economic recovery has started in several economies around the world and a number of Asian and Latin American countries, particularly China, are leading the recovery. The US economy, as well as European countries like Germany and France, is showing clear signs of recovery, and GDP in both the USA and the euro area started to grow during the second half of 2009. However, the current global recovery is to a large extent due to stock adjustments, government stimulations and expansive monetary policies - all temporary factors which do not solve the fundamental problems of declining housing prices and high-leveraged consumers in countries like the USA, the UK, Ireland and Spain. The economic recovery is expected to be slow in these countries, while emerging economies in Asia and Latin America, with stronger growth potentials, are expected to increase their share of the world economy. The Northern European region is heterogeneous, with large differences between the Nordic and Baltic countries. The real economic fundamentals for Sweden, Norway and Finland differ from those of the USA and the UK due to the lack of housing bubbles, an intact banking system and strong government finances. Norway is expected to have the fastest recovery because of the stability generated by the country’s oil and gas exports. The recovery in Finland is relatively slow due to a strong euro, which is hampering the export recovery, together with the heavy dependence on investment goods and The current global re- covery is to a large extent due to stock adjustments, government stimulations and expansive monetary policies. structural changes in the important forestry sector. Sweden has experienced a faster recovery than Finland due to a high saving ratio and a stable private consumption in combination with a weak currency that has benefited exports. Denmark was the first Nordic country to enter recession and has had a scenario more like the USA and the UK, with an expected slow recovery due to a strong euro and slumping house prices. Overall, though, stable government finances, well-functioning labour markets and competitive industrial production are generating good fundamentals for stable long-term development in the Nordic region. The economic downturns in the previously overheated Baltic economies are expected to be both deeper and longer-lasting than in the Nordic countries due to large economic imbalances. Latvia has been most affected by the global recession due to a large budget deficit, its unwillingness to embark on economic reforms and speculations about devaluation of the currency. TRONDHEIM TAMPERE TURKU BERGEN OSLO STOCKHOLM STAVANGER GOTHENBURG RIGA COPENHAGEN MALMÖ VILNIUS KALININGRAD HELSINKI TALLINN 8 NORTHERN EUROPEAN REGION <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=9">Newsec Property Outlook - Spring 2010 Sida 9 10 10</a> 0 20 40 60 80 -20 0 Country Balance Sweden Norway Germany Percent of GDP 100 20 40 60 80 -20 0 20 40 60 80 100 -20 0 Sweden Norway Germany Gov gross debt 2009E Finland France Denmark United Kingdom Gov budget balance 2009E Current account balance 2009E Exports 2008 Office Rental Cycle Q1 2010 Percent of GDP Estonia is in a better position due to good government finances and greater will for reform. Lithuania has lagged behind its neighbouring countries in economic development; the boom of recent years, largely driven by domestic demand and increasing property prices, came to an end in 2008 and the country sustained a large GDP drop in 2009. All in all, the Baltic countries are in a deep recession. Their economies have been excessively leveraged with too-large private consumption growths, which created asset-bubbles and deterioration of their domestic competitiveness. Since the countries are determined to hold on to their fixed exchange rates, these problems will need to be solved through internal devaluation, a process that will generate a sluggish domestic demand for several years. 20 40 60 80 100 -20 0 Gov gross debt 2009E Gov budget balance 2009E Current account balance 2009E Exports 2008 As oil and food prices, and thereby inflation, fell back during the second half of 2008, the world’s central banks have cut their interest rates, leading to low market interest rates. Newsec expects inflation and short-term interest rates to Source: European Commission/DnB Nor remain low for some years, due to the large output gap in the world economy and an intense global competition that puts strict limits on price increases. The large deficits in the US economy, both governmental and private, are also generating strong US incentives to create low inflation expectations as a means to keep down long-term interest rates and thereby shrink the deficits in a controlled way. 20 40 60 80 100 -20 0 Source: Newsec/European Commission 2010E 2011E In Helsinki Metropolitan Area around 70,000 m2 be finished up to 2015, while about 160,000 m2 of office premises are expected to come onto the market in 2010. In Stockholm some 500,000 m2 of new retail area is expected to of new office Despite the low interest rates, however, there is currently an endogenous tightening in the credit market, and the banks’ interest-rate margins are high due to consolidations in their balance sheets. The financial market is expected to normalise gradually during 2010-2011, although banks’ interest-rate margins are forecast to stabilise at higher levels than the extremely low levels that prevailed before the financial crisis. Supply Development Despite slowing construction activity in the Nordic region, there are still office projects due to reach the market soon. premises are expected to be completed during 2010. In the Oslo area, start-ups of commercial projects fell by 40% from 2008 to 2009. In 2010, start-ups are expected to decrease by 15% in Norway as a whole but to increase slightly in Oslo. In Copenhagen, building activity has slowed significantly, mainly due to increased equity requirements, and the new supply is expected to be low in coming years. In the Baltic countries the planned new development volumes for 2010-2011 are modest and the few projects that will actually come onto the market are generally completions of previous years’ projects. Nevertheless, there remains a great development potential in the office segment as there is a gradual shift in the economies from lower-cost industrial suppliers to higher-value-added suppliers. Estonia United States Latvia Lithuania 2010E 2011E Finland France Denmark United Kingdom Estonia United States Latvia Lithuania 2010E 2011E Million m2 Source: European Commission/DnB Nor Source: European Commission/DnB NOR 0.0 0.1 0.2 0.3 0.4 0.5 0.6 GDP Development Percent 2 3 4 -4 -3 -2 -1 0 1 20 40 60 80 100 -20 0 Tallinn Riga Source: Newsec/European Commission 2010E2010E Sourc opean Commission 2011E2011E Rental growth slowing Rental growth accelerating Vilnius Rents falling London West End Source: Newsec Source: European Commission/DnB NOR 0 2 4 6 8 Percent 2 3 4 -4 -3 -2 -1 0 1 Stockholm Helsinki Oslo Source: Newsec/European Commission 2010E 2011E Copenhagen Rents bottoming out SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 N.E.R 9 London City Copenhagen Gothenburg, Stockholm Central Malmö Munich Helsinki CBD Stockholm CBD Stockholm Prime Suburb, Tallinn Moscow Riga, Bergen Oslo CBD Paris, Frankfurt USA Germany France UK Lithuania Estonia Latvia Denmark Finland Lithuania Sweden Norway Estonia Latvia Denmark Denmark Finland Finland Lithuania Sweden Norway Sweden Norway Estonia Latvia Denmark Finland USA Germany France UK Lithuania Estonia Latvia Denmark Finland Sweden Norway USA Germany France UK Lithuania Estonia Latvia Denmark Finland Sweden Norway Sweden Norway Estonia Latvia Lithuania United Kingdom United States Germany France Germany France Germany France UK United Kingdom United States USA Vilnius Stavanger <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=10">Newsec Property Outlook - Spring 2010 Sida 10 Tran</a> saction Volumes | Nordic Region Billion EUR 20 12 16 8 * Helsinki Metropolitan Area ** Country total 2009 0 4 2002 Sweden 2003 Finland 2004 2005 Norway 2006 Denmark 2007 2008 2009 Macroeconomic data Country (Capital) GDP 2010E (%): urce: IPD 2008 Newsec Investment Market Trends In mid 2009 the trend of decreasing liquidity on the Nordic property markets was broken and activity started to increase. From 2008 until mid 2009 the property markets were dominated by uncertainty, the high-leveraged investors left the market in favour of cash investors and transaction volumes decreased significantly. The low liquidity can be explained by the lack of distressed sellers - as banks have refrained from initiating forced sales processes due to the low interest rates - in combination with investors’ difficulties in obtaining financing on reasonable terms. Although bank interest-rate margins are still high, some international players increased their activity during the second half of 2009 and a number of major cross-border transactions have occurred. Liquidity is expected to keep on increasing during 2010-2011 as the financing market gradually improves and prices start to bottom out. However, as bank interest-rate margins are expected to normalise at higher levels than before the credit turmoil, liquidity is not expected to reach the high levels of former years. Million EUR 300 350 200 250 100 150 50 0 2006 Estonia Latvia 2007 Lithuania 2008 2009 In the Baltic countries hardly any major property transactions at all were completed during 2009. There were just a few transactions in Estonia where the buyers were local investors. Macroeconomic difficulties and the consequent challenges in the occupier market seem to be the major obstacles preventing new investors from entering the market. Until the economy shows clear signs of recovery, therefore, the investment volume is expected to remain low. Among the Nordic countries Norway held its ground best during 2009; the total transaction volume was EUR 1.7 billion, en 10 NORTHERN EUROPEAN REGION Office yields increased in Stockholm and Helsinki during 2009, while while Oslo started to recover and Copenhagen remained Source: Newsec Inflation 2010E (%): Employment growth 2010E (%): Capital population (million): Sweden (Stockholm) 1.5 1.0 - 2.0 2.0 Finland (Helsinki) 0.5 1.3 - 3.6 1.2* Norway (Oslo) 2.0 1.5 - 0.5 1.0 Denmark (Copenhagen) 1.0 1.5 - 2.0 1.8 Estonia (Tallinn) 0.0 1.0 - 3.0 0.4 Latvia (Riga) - 3.5 -4.0 - 5.5 0.8 Lithuania (Vilnius) - 2.0 2.0 - 3.0 0.5 * Helsinki Metropolitan Area Office property data and trends in the Nordic Capitals Q1 2010 Source: Newsec City Prime Rent (EUR/m2 CBD Vacancy (%): Stock (million m2 ): /year): Stockholm HMA* 375 6.5 11.8 Investment Volume (billion EUR)**: 3.0 300 5.5 8.0 1.7 Oslo 340 7.0 8.8 1.7 Copenhagen 215 9.6 11.0 2.2 Tallinn 175 10.0 0.5 1.5 Riga 156 12.0 0.5 0.0 Vilnius 160 12.0 0.3 0.0 a 43% decrease from the EUR 3 billion volume the year before. Denmark showed a 59% decrease in transaction volume to EUR 2.2 billion, while Finland’s volume decreased by 60% to EUR 1.7 billion. Sweden was the country in the Nordic region that showed the largest fall, 76% down to EUR 3.0 billion. stable. In Stockholm and Helsinki the effects of increasing vacancies and falling rents are balancing the positive impacts of the low interest rates and gradual improvements on the financial markets – generating stable prime yields in 2010. In Copenhagen yields are stabilising in prime locations due to the limited supply of office premises. Norway experienced the yield shift earlier than the rest of the Nordic countries due to high interest rates, hard financing prerequisites and expectations of declining rents, which resulted in a steep increase in yield levels during 2008. Currently the impact of the relatively low interest rates, the gradual improvement of the financial market and expectations of a smooth economic recovery are outweighing the negative impact of slightly increasing vacancies and declining rents; office yields fell in 2009 and are expected to keep on falling in 2010. In the Baltic countries the high cost of capital, equity tie-up <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=11">Newsec Property Outlook - Spring 2010 Sida 11 -4 -</a> 3 -2 -1 Sweden Norway Germany Finland France Denmark United Kingdom Million m2 Billion EUR 20 q1 Estonia United States Latvia Lithuania 2010E 2011E 12 16 8 0 4 total property returns Total Property Returns | Nordic Region Percent (in Local Currencies) 20 25 10 15 -5 0 5 2000 Sweden 2001 2002 Finland 2003 Norway 2004 2005 Denmark 2006 2007 2008 Source: IPD 10 12 14 0 2 4 6 8 2002 Stockholm Sweden 2003 Finland 2004 Helsinki Norway 2005 2006 Denmark Oslo 2007 2008 Copenhagen 2009 Source: Newsec Source: Newsec Percent (in Local Currencies) 20 25 10 15 -5 0 5 2000 Sweden Office Stock Q1 2010 | Baltic Region Million EUR Million m2 0.0 0.1 0.2 0.3 0.4 0.5 0.6 300 350 200 250 100 150 50 0 2006 Estonia Tallinn Latvia 2007 Lithuania Riga 2008 2009 Vilnius q1 2001 2002 Finland 2003 Norway 2004 2005 Denmark Office Stock Q1 2010 | Nordic Region Source: Newsec Source: Newsec Million m2 10 12 14 0 2 4 6 8 Rental growth slowing Rental growth accelerating Stockholm Rents falling Source: Newsec 2006 2007 2008 E Source: IPD Million EU 300 350 200 250 100 150 50 0 London West End Rents bottoming out Helsinki Oslo Copenhagen The recession showed effects on the labour market in the Nordic and Baltic economies during 2009, with falling capacity utilisation and declining employment. Million m2 10 12 14 and risk premiums related to emerging markets have driven office yields rapidly upwards in 2008-2009. The office vacancies created by the new supply are putting pressure on projected cash-flows and are factored into the yields. Yields have soared during 2008-2009 and a stabilisation or slight decrease is expected in 2010 due to significantly lower interest rates and a slightly improving credit situation. However, a long-term yield recovery is not expected until the Baltic economies recover. 0 2 4 6 8 Stockholm Helsinki Oslo Copenhagen Rental Market Trends The recession showed effects on the labour market in the Nordic and Baltic economies during 2009, with falling capacity utilisation and declining employment. In the Nordic region, Finland, Sweden and Denmark were hard hit by the downsizing in production, with declining employment of around 2.5-3.3% Million m2 0.0 0.1 0.2 0.3 0.4 0.5 0.6 SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 Tallinn Riga Vilnius Source: Newsec Source: Newsec in 2009. Despite the turnaround in the economy in mid 2009, this trend is expected to continue during 2010 due to the time-lag between GDP development and the labour market, and employment is not expected to stabilise until 2011. Norway has had a high rate of capacity utilisation in recent years in combination with a labour market that includes guest workers. However, the country is expected to have a relatively smooth recovery and employment is expected to decrease only slightly in 2009 and 2010. In the Baltic countries, the recession’s effects on the labour market are extensive, with falling wages and slumping employment in all sectors of the economies. However, there are signs of recovery in exports and employment is expected to stabilise in 2011. The largest part of the rental fall has already occurred on the Nordic rental markets and rents are now starting to stabilise. In Stockholm, office rents fell by 5-10% last year in most submarkets outside the CBD and by 15% in the CBD; rents are expected to fall further in 2010, although at a slower pace than earlier, and stabilisation is expected in late 2010. In Helsinki the smallest falls have so far been in the CBD, where stabilisation is expected in 2010; rents in the other submarkets are forecast to keep on falling. In Copenhagen, rents for prime Rental growth slowing Rental growth accelerating Rents falling London West End CONTACT: ARVID LINDQVIST arvid.lindqvist@newsec.se Rents bottoming out N.E.R 11 locations fell during 2009, but the fall was relatively small due to the limited supply. Office rents in Oslo CBD rose strongly in recent years, with rent levels almost doubled between 2005 and 2008. However, rents fell significantly in 2009, are expected to decrease a little more in 2010 and recover in 2011. The Baltic CBDs are expecting a rental stabilisation due to the substantial fall already seen in 2008-2009. Million m2 The harder economic environment in combination with companies’ continued emphasis on attracting competent workers is spurring the trend seen in recent years whereby companies have considered it increasingly important to locate in newly constructed or highly efficient refurbished office premises. The results of this have been a fairly quick absorption of new space put on the market but at the same time higher vacancies in the older, unmodernised stock. 0.0 0.1 0.2 0.3 0.4 0.5 0.6 Tallinn Riga Vilnius Source: Newsec acce London City London City Copenhagen Copenhagen Gothenburg, Stockholm Central Gothenburg, Stockholm Central Malmö Malmö Munich Munich Helsinki CBD Helsinki CBD Stockholm CBD Stockholm CBD Stockholm Prime Suburb, Tallinn Stockholm Prime Suburb, Tallinn Moscow Riga, Bergen Moscow Riga, Bergen Paris, Frankfurt Oslo CBD Paris, F Oslo CBD Vilnius Vil Stavanger Stavanger <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=12">Newsec Property Outlook - Spring 2010 Sida 12 SWED</a> EN SWEDEN 20 40 60 80 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Percent 1. SWEDEN 2 3 4 5 6 Macroeconomic Forecast The global economic recovery has now begun and is led by a number of Asian and Latin American countries, particularly China. The USA and several European countries are also showing clear signs of economic recovery, and GDP in both the USA and the Euro area started to grow during the second half of 2009. At present, however, the global recovery is to a large extent due to stock adjustments, government stimulations 0 1 2003 2004 2005 Central Bank Interest Rate 2006 2007 2008 3M Treasury Bill 2009 3M STIBOR 2010E 2011E 5Y SWAP Economic Indicators | Sweden Percent 2 3 4 5 6 -1 0 1 -5 -4 -3 -2 2000 2001 GDP 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Private consumption Inflation Employment Source: Newsec In Sweden the real economic fundamentals differ from those of the USA and the UK because of the absence of housing bubbles, an intact banking system and strong government finances - which give it a good starting position in the ongoing recovery. However, Sweden is heavily affected by the global economy since around half its GDP consists of exports, of which around 80% go to the OECD area and more than half to EU countries. Swedish exports consist largely of investment goods, which have experienced a sharply falling demand since 2008 and have a late position in the economic recovery. The fall in exports has been moderated by a weak Swedish krona, but this factor may vanish over the next few years due to an expected gradual appreciation against larger currencies. As the recovery in the USA and the UK is expected to be slow, emerging economies in Asia and Latin America, with strong growth potentials, are expected to absorb an increasing share of Swedish exports during coming years. Swedish exports will grow in 2010-2011 and are an important engine in the country’s economic recovery. and expansive monetary policies - all temporary factors which do not solve the fundamental problems of declining housing prices and large debts in countries like the USA and the UK. STOCKHOLM Source: Newsec GOTHENBURG MALMÖ # Population: 9.3 million 12 SWEDEN <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=13">Newsec Property Outlook - Spring 2010 Sida 13 N N </a> Billion SEK 20 40 60 80 100 120 140 160 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: Newsec The recession has significantly reduced inflation since 2008 and inflation is expected to remain low in coming years due to a combination of factors. First, capacity utilisation in the world is currently exceptionally low, which generates a low inflationary pressure. Second, salaries are expected to rise slowly as intense global competition puts strict limits on price increases. Third, a growing number of central banks now have clear mission statements focusing on low and stable inflation. All in all, this generates a situation with a low inflationary pressure even if energy and commodity prices rise further. The labour market has a time-lag of around 12-18 months behind the rest of the economy, and employment is expected to keep on falling until mid 2011. Manufacturing industry has been hardest hit due to the large fall in export demand, which has especially affected regions with large industrial production. On the other hand the service sector has been affected more gently by the recession due to a more stable development in demand. The recession initially depressed productivity in the economy as companies were not able to reduce their labour forces in line with the falling demand. However, productivity is expected to increase in 2010-2011 as employment starts to fall to match production. Employment in Sweden is expected to fall by 2% in 2010 and then stabilise in mid 2011. Another important engine in the Swedish economic recovery is private consumption, which so far has been relatively stable during the recession. The real disposable incomes of Swedish households increased during 2008-2009 and are expected to keep on increasing during 2010-2011 due to a combination of higher transfer payments, low interest rates and a low rate of inflation. The mood of households has improved and is forecast to improve further, resulting in a lower saving ratio and growing private consumption despite increasing unemployment. Interest Rates | Sweden Percent 2 3 4 5 6 0 1 2003 2004 2005 Central Bank Interest Rate 2006 2007 2008 3M Treasury Bill 2009 3M STIBOR 2010E 2011E 5Y SWAP Interest Rate Forecast In order to stimulate the economy, the Riksbank has reduced the repo rate to a record low of 0.25% and has also increased lending to the Swedish banks at a fixed rate just above the repo rate. The repo rate and the short-term market interest rate – the 3-month STIBOR - are both expected to remain at relatively low levels during the coming years due to the low inflation pressure. Percent The situation on the financial market has improved since autumn 2008 and a number of foreign banks that were inactive in Sweden during 2008-2009 have now started to lend again. However, there is still a large endogenous tightening on the credit market and banks’ interest rate margins are high. Good relationships with banks, combined with a good track record and high-quality investment portfolios are currently conditions for obtaining financing for real-estate investments. The financial market is expected to normalise gradually during 2010-2011. However, banks’ interest rate margins are forecast to stabilise at higher levels than before the financial crisis. 2 3 4 5 6 -1 0 1 -5 -4 -3 -2 2000 2001 GDP 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Private consumption Inflation Employment Source: Newsec Source: Newsec SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 SWEDEN 13 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=14">Newsec Property Outlook - Spring 2010 Sida 14 and </a> liquidity started to increase during the third and fourth quarters. The transaction volume ended up at SEK 30.2 billion for the full year 2009 - a fall of 77% compared to 2008. International investors have significantly reduced their activity in Sweden and their share of the 2009 transaction volume was only 11%, compared to 25% in 2008 and almost 60% in 2007. The main investors in 2009 were equity-financed property companies, low-leveraged funds, institutions, municipal housing companies and family-owned property companies. Residential properties increased their share of the total transaction volume from around 15% in 2008 to about 30% in 2009. Office properties, which normally account for the largest share, ended up with less than a third of the volume in 2009, compared with half the volume in 2007 and 2008. In November Skanska sold two ongoing projects in Sollentuna and Malmö to a group of pension funds. The projects include a detention centre and a police building with a combined area of 40,600 m2 . The pension funds belong to seven large Swedish companies: Atlas Copco, Apoteksbolaget, Ericsson, Sandvik, Stora Enso, Skanska and Volvo. The price for the two properties is not official but Skanska’s investment volume in the projects is SEK 1,250 million. The long-term interest rate is expected to rise during 2010-2011, due to expectations of a relatively strong recovery in the Swedish economy. The 5-year SWAP-rate is estimated to be around 4% by the end of 2011, compared with about 3% in late 2009. Investment Market During 2009 liquidity on the Swedish property market decreased sharply. During the first half of 2009 the transaction volume was historically low and totalled only SEK 9.2 billion. However, the volume bottomed out during the summer Kungsleden, one of Sweden’s most active property companies on the transaction market, was involved in two large transactions in the last quarter of 2009. In October Kungsleden acquired five warehouse and logistics properties from Northern Logistic Property (NLP). The price for the properties was SEK 525 million before a deduction for deferred tax. The properties comprise a leasable area of 109,500 m2 . The two largest properties are located in the municipality of Mjölby about 250 km south of Stockholm. Then in late December Kungsleden sold a portfolio of 22 commercial properties located in six Swedish cities. The buyer was the Swedish property company Corem Property Group. Transaction Volume | Sweden Billion SEK 20 40 60 80 100 120 140 160 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: Newsec The purchase price was SEK 460 million and the yield was approximately 7.0%. The properties comprise a leasable area of around 81,000 m2 approximately SEK 5,700. Percent A large property transaction outside the three major cities was Fastighets AB Lundberg’s purchase of the city shopping mall Galleria Leo in Linköping. The property, previously owned by Boultbee, comprises a leasable retail area of 10,000 m2 4,000 m2 2 3 4 5 6 initial yield is estimated at 7.0%. 2003 0 1 During the coming quarters Newsec forecasts an increasing transaction volume. However, as banks’ interest rate margins are expected to normalise at higher levels than before the credit turmoil, liquidity is not expected to reach the extremely high levels of previous years. 2004 2005 Central Bank Interest Rate 2006 2007 2008 3M Treasury Bill 2009 3M STIBOR 2010E 2011E 5Y SWAP CONTACT: ARVID LINDQVIST arvid.lindqvist@newsec.se Percent 2 3 4 5 6 14 SWEDEN -1 0 1 -2 CONTACT: JOHAN ANNELL johan.annell@newsec.se Source: Newsec office area. The price was SEK 371.5 million and the which gives a price per square metre of Source: Newsec and <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=15">Newsec Property Outlook - Spring 2010 Sida 15 1.1 </a> STOCKHOLM OFFICE MARKET Population The current population of the Greater Stockholm area is approximately 2.0 million, and over the last three decades it has increased faster than the total Swedish population, rising by 25%. The rate of increase slowed during the first years of the 2000s, but the trend turned in 2004 and the population has since been rising significantly again. During the coming decade birth rate is expected to be an increasingly important contributor to Stockholm’s population growth, together with migration within Sweden. The population of Greater Stockholm is expected to go on growing faster than the rest of Sweden, with a forecast increase of around 26,000 people a year for the next ten years. Economic Development The Greater Stockholm area has achieved stronger economic development than the rest of the country during the last decade. The service sector is dominant in the region and the large financial sector was directly affected by the financial turmoil during 2008. However, because of the service sector’s late position in the economic cycle the region entered the recession relatively late. All in all, Greater Stockholm is expected to be less affected by the global recession than the country average due to a smaller drop in demand in the service sector than in other industries. Employment During recent years a strong labour market generated bottlenecks in the economy and attracted migration from the rest of the country. The upswing in employment spilled over to the property market, creating an increased demand for office space together with lower vacancy levels and increased rent levels. The region’s industrial sector is relatively small compared with Stockholm | Population: 2.0 million | Office stock: 11.8 million m2 1 2 3 4 5 6 7 8 9 CBD Central Frösunda Solna Station Solna Strand Solna Business Park Kista Globen Marievik 7 3 4 6 5 2 1 9 8 SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 STOCKHOLM 15 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=16">Newsec Property Outlook - Spring 2010 Sida 16 10 1</a> 2 SEK/m2 2,000 2,500 3,000 3,500 4,000 4,500 5,000 1,000 1,500 CBD A CBD Vacancy Rate | Stockholm Percent 10 12 14 0 2 4 6 8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Central Prime Suburb Source: Newsec Office Rents Q1 2010 | Stockholm SEK/m2 2,000 2,500 3,000 3,500 4,000 4,500 5,000 1,000 1,500 CBD A CBD Central Prime Suburb Office Rent History | Stockholm Source: Newsec SEK/m2 Top High Low 2,000 3,000 4,000 5,000 6,000 1,000 2000 2001 CBD A 2002 CBD 2003 2004 Central 2005 2006 Prime Suburb 2007 2008 2009 2010E 2011E Source: Newsec Source: Newsec Top High Low 0 2 4 6 8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2,000 3,000 4,000 5,000 6,000 1,000 the financial and corporate services sector, which employs around 25% of the labour force, as against 15% for the country as a whole. Retail employs around 14% of the labour force, a little more than in the country as a whole, and the public service sector employs almost 30%. SEK/m2 Source: Newsec There have recently been layoffs in the region but the employment fall has so far been small, to a large extent due to the region’s large service sector. Manufacturing industry has seen the largest fall in labour demand during the past year, but demand in the construction sector has also been severely affected. Newsec expects some further falls in employment in the region during 2010, estimated at around 0.25%, followed by a recovery in early 2011. All in all, the region is expected to have a better development on the labour market than the country average. 2000 2001 CBD A 2002 CBD 2003 2004 Central 2005 2006 Prime Suburb Market Overview The commercial office market in Stockholm consists mainly of areas within the municipalities of Upplands Väsby, Järfälla, Sollentuna, Sundbyberg, Solna, Danderyd, Stockholm and Nacka. The most attractive office area is Stockholm CBD (Central Percent 16 STOCKHOLM 2000 4 5 6 7 8 2001 CBD A 2002 CBD Source: Newsec Vacancy Rate During the second half of 2009 tenants’ willingness to take decisions increased, which resulted in higher activity on the leasing market. There is an ongoing trend among tenants to demand efficient premises that generate lower total cost despite a relatively high rent per square metre. Other important factors when tenants are making decisions about their premises are good communications and an ability to profile the business through SEK/m2 2,000 3,000 4,000 5,000 6,000 2003 2004 Central 2005 2006 Prime Suburb 2007 2008 2009 2010E 2011E 1,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec 2007 2008 2009 2010E 2011E Business District), which has the highest market rent in both Stockholm and Sweden. The CBD is estimated to have an office stock of about 1.8 million m2 Percent areas around the Central Station, Norra Bantorget, Hötorget, Stureplan, Norrmalmstorg, Kungsträdgården and Sergels Torg. 10 12 14 Other office submarkets in the Stockholm inner city are Stadshagen, Norrtull/Norra Station and Gärdet, together with areas in Södermalm and Östermalm. Large office submarkets outside the inner city are Nacka Strand, Marievik, Globen, Alvik, Kista, Solna Business Park, Solna Strand, Solna Station and Frösunda. Newsec estimates the total office stock in Greater Stockholm at approximately 11.8 million m2 0 2 4 6 8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E . Source: Newsec , comprising office buildings in the the premises. Some tenants are also trying to take advantage of the weak rental market to lease attractive premises now as a way of enhancing their ability to attract employees when the general economy improves. Due to falling employment, Newsec expects increasing vacancies on the Stockholm office market during 2010-2011. Percent The vacancy rate was around 6.5% in the CBD in late 2009, which is an increase of 1.5 percentage points since late 2008. In the inner city outside the CBD the vacancy rate was around 10.5% in late 2009, compared to 9.5% one year earlier. The vacancy rates in the prime submarkets Kista, Solna Business Park and Frösunda were around 13.5% in late 2009, while vacancies in the other prime submarkets were above 16%. 4 5 6 7 8 2000 2001 CBD A 2002 CBD 2003 2004 Central 2005 2006 Prime Suburb 2007 2008 2009 2010E 2011E Rents Office rents started to decrease during the first half of 2009 and the largest drop occurred during the second quarter. During the second half of 2009, however, as tenants’ willingness to commit themselves increased, the fall in market rents started to level out. Over 2009 as a whole, rents fell by 5-10% in most submarkets outside the CBD and by 15% in the CBD, largely Source: Newsec <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=17">Newsec Property Outlook - Spring 2010 Sida 17 SEK/</a> m2 2,000 3,000 4,000 5,000 6,000 1,000 2000 2001 CBD A 2002 CBD 2003 2004 Central 2005 2006 Prime Suburb 2007 2008 2009 2010E 2011E Source: Newsec Office Yields | Stockholm Percent 4 5 6 7 8 Source: Newsec points since the bottom as a result of financing difficulties and expectations of increasing vacancies and decreasing rents. However, since the situation on the financial market improved during 2009 and the transaction volume has started to increase, Newsec expects yields for high-quality properties in good locations to be stable in 2010 and decrease in 2011. 2000 2001 CBD A 2002 CBD 2003 2004 Central 2005 2006 Prime Suburb due to a good bargaining position for tenants in combination with acceptance of lower rent levels by some property owners as a means to avoid vacancies. Due to the falling employment, market rents are expected to fall a little further - but as the largest fall has already occurred, rents are expected to stabilise during 2010 and remain stable in 2011. The market rent for prime office premises in the CBD is in the range SEK 3,200-3,800/m2 around SEK 4,000/m2 , with top rents up to SEK 3,400/m2 . . Top rent for these premises is in the CBD the market rent lies in the range SEK 2,600-3,300/ m2 . For less modern and efficient premises . In central locations outside the CBD the market rent is in the range SEK 1,7002,300/m2 2,000/m2 and in the prime suburbs in the range SEK 1,550- Yields The strong economic development in 2005-2007 resulted in decreasing yields, causing the yield gap between prime CBD properties in Stockholm and long-term government bonds to almost disappear in 2006-2007. In early 2010, yields for modern properties in the CBD had increased by around 125 basis In September Pembroke Real Estate acquired the 3,200 m2 office property Hästen 24 in Stockholm CBD. The seller was Vasakronan and the purchase price was SEK 160 million, corresponding to approximately SEK 50,000 per m2 . The property is fully let and the yield is estimated to be 5.0-5.5%. In 2008 Pembroke acquired a portfolio comprising properties in Stockholm, Oslo and Helsinki and some of the Stockholm properties were also located in the block Hästen. Transactions Newsec estimates the total Swedish transaction volume in 2009 at SEK 30.2 billion. Stockholm is Sweden’s most liquid and transparent property market and comprises approximately 55% of the total transaction volume, or around SEK 16.3 billion. In 2008, in contrast, the total Swedish transaction volume was SEK 132.8 billion and the Greater Stockholm volume was estimated at around SEK 69.3 billion. Some factors explaining the sharp decrease in transaction volume are the weak global economy, risk aversion, financing difficulties and falling rents, and the fact that the few active buyers during the year have been less leveraged. During 2009 the main property investors have been equity-financed property companies, low-leveraged funds, institutions, municipal housing companies and family-owned property companies. 2007 2008 2009 2010E 2011E In early 2010 CBD prime office yields in Stockholm were in the range 5.25-5.50%. In other central areas outside the CBD the yields were in the range 6.00-6.75% and in the prime suburbs yields were in the range 6.25-7.25%. However, there are large differences between properties in all submarkets. Major Office Development Projects | Stockholm Property Type Office Office Office Office Office Office Office Office Office Office Office Office Office Office Office Office Office Office Office Office Office Office Office Project, Location, Property Owner/Developer Vattenfall Norden, Solna, Fabege Gångaren 11, Western Kungsholmen, Skanska Waterfront Building, CBD, Munich Ergo Björnen och Loen 1 (part of), CBD, Statens Fastighetsverk Kungsbrohuset, CBD, Jernhusen Riga 2, Värtahamnen, Vasakronan Kista Terrass, Kista, Vasakronan Pelarbacken Mindre 23, Södermalm, AMF Fastigheter Borgarfjord 3, Kista, Areim Atlas Copco's head office, Nacka, Atrium Ljungberg Esplanaden 1, Sundbyberg, Diligentia Pennfäktaren 11, CBD, Vasakronan The View, CBD, Vasakronan Spektern 13 (part of), CBD, Vasakronan Sjöstadsporten, Hammarby Sjöstad, Areim Svea Artilleri (second stage), Östermalm, Vasakronan Torkhuset 1, Hammarby Sjöstad, Familjebostäder Styrpinnen 19, CBD, Humlegården Victoria Tower (office part), Kista, Klövern Krejaren 2 (office part), Östermalm, Fastpartner Knarrarnäs 10, Kista, Niam Vildmannen 10, CBD, AxFast Skjutsgossen 8 (part of), Södermalm, Vasakronan Size (m2 ) 44,000 30,000 23,300 22,500 21,000 21,000 20,000 16,600 13,000 12,000 12,000 11,000 10,500 8,500 7,700 6,800 6,000 5,500 5,000 4,600 4,000 3,000 3,000 Expected Completion 2012 2010 2010 2012 2010 2010 2010 2010 2010 2011 2010 2010 2010 2010 2010 2010 2010 2011 2011 2010 2010 2010 2010 SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 STOCKHOLM 17 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=18">Newsec Property Outlook - Spring 2010 Sida 18 Majo</a> r Property Owners | Stockholm Company Country AFA Fastigheter Alecta AMF Fastigheter Atrium Ljungberg Byggnadsfirma Olov Lindgren Diligentia Fabege Folksam Hufvudstaden Humlegården Klövern Niam SEB Vasakronan SWE SWE SWE SWE SWE SWE SWE SWE SWE SWE SWE SWE SWE SWE Company Aberdeen Property Investors Abu Dhabi Investment Authority Allianz Boultbee Carlyle Group CGI Deka DnB NOR GE Real Estate Oppenheim Country UK ARE GER UK USA GER GER NOR USA GER Pembroke Real Estate USA Unibail-Rodamco FRA Valad Property Group AUS Vital NOR Two of the largest office projects planned to be completed in Stockholm in 2010 are located in the western part of the CBD. They are called Waterfront Building and Kungsbrohuset and together comprise 44,000 m2 of office premises. By the end of In three different transactions Vasakronan sold three properties located in Stockholm City and Old Town. Altogether the properties comprise 7,150 m2 , of which 6,000 m2 is offices. The buyers were Havsstigen Investment AB, Fondex AB and Thulefastigheter AB. The total purchase price was SEK 237 million and Newsec estimates the average yield at 5.0-5.5%. In November Niam Fund IV purchased the property Blåfjäll 1 located in the office submarket Kista. The seller was Aviva Investors (formerly Morley Fund) and the price was SEK 485 million. The property comprises 18,700 m2 of office premises together with a garage, all fully let to Ericsson. Newsec estimates the 2009 almost 70% of the space had been pre-let. Another office project in the CBD is located in the property Jakob Större 18 on Regeringsgatan in the CBD. The project comprises 10,500 m2 of which 7,500 m2 is newly developed. In late 2009 the first lease agreements in the project were signed and by early January approximately 65% was pre-let. The project is planned to be completed later this year. In recent years the area with the largest volume of office projects in the inner city outside the CBD has been Stadshagen on western Kungsholmen. However, several projects are already CONTACT: ARVID LINDQVIST arvid.lindqvist@newsec.se CONTACT: JOHAN ANNELL johan.annell@newsec.se yield at approximately 8.0%. Morley acquired the property for SEK 750 million in 2007. Common types of transactions during 2009 have been construction companies selling residential projects originally planned as condominiums. Buyers of these projects have generally been municipal housing companies or property companies who intend to own the properties and lease the apartments. Building Activity In 2009 just over 70,000 m2 of newly developed office premises were completed in Greater Stockholm, of which slightly over 22,000 m2 let. The largest projects have been the property Mentorn 1 in the CBD, better known as Kungsbron, comprising 16,000 m2 are located in the CBD. The projects are almost fully of office premises; Rosenborg 2 in Frösunda, JM’s headquarters, comprising 10,000 m2 quarters, comprising 15,000 m2 . ; Bylingen 1 in Södermalm, MTG’s head; and Magasinet 1 in Sundbyberg, almost entirely let to the electricity and gas supply authority Svenska Kraftnät, comprising 11,000 m2 completed in the area and two more will be finished in 2010. Two coming projects in Stadshagen are NCC’s Kristinebergshöjden and Skanska’s Lustgården 14, which are planned to enter the market later. Outside the inner city the largest property development will take place in Solna Station. The area is called Arenastaden and will accommodate the new National Football Stadium, Swedbank Arena, planned to be completed in 2012. The largest developers in the area are Unibail-Rodamco, Peab, Jernhusen and Fabege. Unibail-Rodamco plans to build Scandinavia’s largest shopping mall, Mall of Scandinavia, containing 230 shops with a total retail area of 130,000 m2 tenfall signed a 12-year lease agreement for 43,000 m2 . In early 2009 the energy company Vatof office area, which will be constructed on the Fabege property Uarda 2. Altogether, there are plans for around 150,000-200,000 m2 office refurbishments and developments in Arenastaden. of The number of speculative projects has been low in recent years and Newsec expects these projects to be even more uncommon during the years to come. Approximately 161,000 m2 of new office premises, around 75% pre-let, are expected to be completed in Greater Stockholm during 2010. New construction of office premises is expected to decrease during coming years due to the economic downturn and the construction industry’s late position in the economic cycle. 18 STOCKHOLM <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=19">Newsec Property Outlook - Spring 2010 Sida 19 1.2 </a> GOTHENBURG OFFICE MARKET Population The population of Gothenburg municipality is currently around 505,000, making the city the second largest in Sweden. The population has grown by more than 10% over the last decade and is expected to grow by a further 1-1.5% a year in the future, reaching 550,000 in 2018. The Greater Gothenburg region consists of 13 municipalities and totals around 910,000 people. Economic Development Gothenburg is situated on the west coast of Sweden. A large proportion of Sweden’s exports and imports goes via the port of Gothenburg, the largest port in Scandinavia. Gothenburg has a strong industrial tradition but the service sector, where most new jobs have been created in recent years, is increasing in importance. Private industry is strongly represented by car manufacturing but also by biotechnology, car-related research, IT, logistics and the petrochemical industry. Manufacturing industry has been strongly affected by the fall in global demand and is also the sector that has been most affected by notices and layoffs. The region has had good economic development during recent years, a trend that peaked in 2006. Due to the recession’s negative impact on the car manufacturing industry, however, a more extensive economic downturn than the Swedish average is expected in Gothenburg during 2010-2011. Employment The region’s industrial sector is relatively large compared to other parts of Sweden, creating sensitivity to decreases in global demand. However, the public sector accounts for around 31% of employment, which is in line with the national average and generates some counterweight to the troubled car manufacturers. All business sectors are being hit by the global Gothenburg | Population: 910,000 | Office Stock: 4.6 million m2 1 2 3 4 5 6 7 CBD City Norra Älvstranden Gårda Ullevi, Heden Linnéstaden Avenyn 3 1 4 5 7 6 2 SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 GOTHENBURG 19 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=20">Newsec Property Outlook - Spring 2010 Sida 20 2000</a> SEK/m2 2,000 2,300 2,600 1,400 1,700 OK 1,100 800 CBD City Central Prime Suburb Source: Newsec Top High Low 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Percent 10 4 5 6 7 8 9 2000 CBD Vacancy Rate | Gothenburg CBD Percent 12 13 14 10 11 4 5 6 7 8 9 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E OK Source: Newsec Office Rents Q1 2010 | Gothenburg SEK/m2 2,000 2,300 2,600 1,400 1,700 1,100 800 CBD City Central Prime Suburb 2001 2002 City 2003 Central 2004 2005 Office Rent History | Gothenburg Source: Newsec Top High Low SEK/m2 1,200 1,400 1,600 1,800 2,000 2,200 2,400 1,000 800 2000 CBD 2001 2002 City 2003 Central 2004 2005 2006 Prime Suburb 2007 2008 2009 2010E 2011E Source: Newsec 2006 Prime Suburb 2007 2008 2009 2010E 2011E Source: Newsec downturn but the effects are most severe in manufacturing industry and especially the car manufacturing industry. At the same time, the Gothenburg office market is also expected to be affected by the downturn as many service-sector companies provide services to manufacturing industry. Employment in the region fell by about 5% during 2009 and is expected to fall by another 1% in 20101) Percent 10 Market Overview The total office stock in the Gothenburg region is approximately 4.6 million m2 1.0 million m2 4 5 6 7 8 9 2000 CBD 2001 2002 City 2003 Central 2004 2005 2006 Prime Suburb 2007 2008 2009 2010E 2011E and the retail stock totals approximately . The Central Business District of Gothenburg is 1,200 1,400 1,600 1,800 2,000 2,200 2,400 1,000 800 considered to comprise the areas Inom Vallgraven, Nordstaden, Avenyn, Lilla Bommen and a small part of Gullbergsvass. Another office area is Gårda, situated in the city centre and well located for communication, while the most modern office stock is in the Norra Älvstranden area on the island of Hisingen. An upcoming area is Heden/Ullevi, where 30,000 m2 of office space came onto the market during 2009 and almost 30,000 m2 SEK/m2 Source: Newsec more is expected up until 2013. 1) The Swedish Public Employment Service OK 2000 CBD 2001 2002 City 2003 Central 20 GOTHENBURG 2004 2005 2006 Prime Suburb 2007 2008 2009 2010E 2011E Source: Newsec OK . Vacancy Rate The vacancy rate in Gothenburg CBD is currently around 9%. Newsec expects some companies to move from premises in the suburbs to the central areas due to the decreasing rents. However, the recession and the increasing unemployment will affect office vacancies in the CBD as well as in the suburbs. The CBD vacancy rate is expected to increase to around 10% at the beginning of 2011 because of the falling employment, which is expected to continue throughout 2010 and not bottom out until 2011. Percent 12 13 14 10 11 Rents Rents have started to fall in all office submarkets due to the falling employment and reduced demand for office premises. However, demand for modern, efficient and flexible office space is still fairly high as companies increasingly focus on premises that can be adjusted to meet changing requirements. The market rent for office premises in the CBD is in the range SEK 1,650-1,950/m2 4 5 6 7 8 9 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Percent 10 In the other central areas the market rent is in the range SEK 1,300-1,600/m2 4 5 6 7 8 9 2000 CBD 2001 2002 City Source: Newsec . Top rent for these areas is SEK 2,300/m2 , with top rents of around SEK 1,950/m2 . . Source: Newsec Newsec expects the rents in all areas to keep on falling in 2010 as vacancies increase. However, a rental stabilisation is expected in 2011. Yields The rigid conditions on the financial markets have had a significant impact on the numbers of transactions carried out during 2009. The banks are unwilling to take risk and buyers and sellers have found it hard to meet up. The low interest rates are putting downward pressure on yields but tough financing terms, risk-aversion and expectations of decreasing rents are working in the opposite direction. The prime yield within the CBD in Gothenburg has risen from 5.25% in 2007 to 6.50% in late 2009. Yields have now started to stabilise and a recovery is expected in early 2011. Transactions The transaction volume remained low during 2009, but some large transactions were carried out during the last two quarters. In August, the German-owned fund Deka Immobilien acquired the hotel property Gullbergsvass 17:2 from the 2003 Central 2004 2005 2006 Prime Suburb 2007 2008 2009 2010E 2011E <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=21">Newsec Property Outlook - Spring 2010 Sida 21 Perc</a> ent 12 13 14 10 11 4 5 6 7 8 9 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec Office Yields | Gothenburg Percent 10 4 5 6 7 8 9 2000 CBD 2001 2002 City 2003 Central 2004 2005 2006 Prime Suburb 2007 2008 2009 2010E 2011E Source: Newsec Major Property Owners | Gothenburg Company Framtiden Vasakronan Wallenstam Platzer Country SWE SWE SWE SWE Castellumkoncernen SWE Diligentia GE Real Estate SWE USA Company Bygg-Göta Stena Fastigheter Alecta Higab NIAM NUAB Country SWE SWE SWE SWE SWE SWE Major Office Development Projects | Gothenburg Property Type SEK/m2 1,200 1,400 1,600 1,800 2,000 2,200 2,400 1,000 800 Source: Newsec Norwegian company Host Hoteleiendom AS at an estimated price of SEK 440 million. In October, the German-owned fund III sold the office property Gullbergsvass 17:4 to the Swedish property company Jernhusen at a price of SEK 411 million. In November, the centrally located hotel Grand Hotel Opera, comprising 9,000 m2 240 million. , was acquired by Rasta Group for SEK The Gothenburg-based company Wallenstam has been an active buyer during 2009. In October the company acquired three properties, mostly offices, from Vasakronan for SEK 350 million, and in November it acquired the Bergakungen cinema for SEK 235 million, with a 20-year lease agreement signed by the tenant SF Bio. 2000 CBD 2001 2002 City 2003 Central 2004 2005 2006 Prime Suburb 2007 2008 2009 2010E 2011E Office Building Activity Almost 100,000 m2 to the Gothenburg market up to 2013. Three large office projects will reach the market during 2010: a 15,000-m2 of new office area is expected to be added office area developed by Vasakronan will be completed in Heden/ Ullevi; Skanska’s office project in Gårda is entering the market with a first phase of 12,000 m2 ; and NUAB, a municipally Office Office Office Office Office Office Office Project, Location, Property Owner/Developer Navet II, Norra Älvstranden, NUAB Rättscentrum, Heden/Ullevi, Vasakronan Ullevi II, Heden/Ullevi, NCC Gårda, Gårda, Skanska Skanska Fastigheter, Gullbergsvass, Skanska Fastigheter Krokslätts Fabriker, Mölndal, Husvärden Kuggen, Norra Älvstranden, Chalmersfastigheter Sigillet, Centrum, Sigillet Size (m2 ) 18,000 15,000 14,000 12,000 8,000 4,200 4,200 1,200 Expected Completion 2010 2010 2013 2010 2012 2010 2011 2011 owned development company, is completing a new 18,000 m2 office building in Norra Älvstranden. Both Skanska´s and NUAB´s projects are troubled by high vacancies. A large upcoming project is the construction company NCC’s plans for a 14,000-m2 completion in 2013. CONTACT: CHRISTIAN LARSSON christian.larsson@newsec.se CONTACT: SIGVARD LUNDIN sigvard.lundin@newsec.se office building in Heden/Ullevi, with expected SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 GOTHENBURG 21 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=22">Newsec Property Outlook - Spring 2010 Sida 22 1.3 </a> MALMÖ OFFICE MARKET Malmö | Population: 290,000 | Office Stock: 1.5 million m2 1 2 3 4 5 CBD Central Western Harbour University Island Triangeln 3 Population The population of Malmö was around 290,000 in early 2010. The population has grown by 10% during the last decade and is expected to increase by a further 30,000 up to 2014. For the county of Skåne the population is more than 1.2 million and for the Öresund Region just below 3.7 million. The Öresund Region consists of the areas of Sjælland in Denmark and Skåne in Sweden. 4 Economic Development Malmö is the chief Swedish city of the Öresund Region, one of the most dynamic border regions in Europe, which generates about one quarter of the combined GDP of Denmark and Sweden. In recent years economic growth in the Öresund Region has been higher than in Sweden as whole, a trend that is expected to continue in future years due to the diversified business activity in combination with a relatively strong focus on the private service sector. 1 2 The region is benefiting from large ongoing infrastructure projects like the City Tunnel - a communication link that will tie together the railway north of Malmö with the rail lines serving Trelleborg, Ystad and Copenhagen. The City Tunnel consists of a 17-km-long rail link and the project is expected to be completed in December 2010, which is ahead of the original schedule. 5 In the near future the region will benefit from several large research investments. For example, MAX IV, a synchrotron light facility, and ESS, a multi-scientific research facility, will be developed in Lund. The cost of these two projects is expected to be more than SEK 15 billion. 22 MALMÖ <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=23">Newsec Property Outlook - Spring 2010 Sida 23 500 </a> 750 CBD Western Harbour Central Secondary Location Percent SEK/m2 2,000 2,250 2,500 1,000 1,250 1,500 1,750 500 750 CBD Western Harbour Vacancy Rate | Malmö CBD Percent 10 12 14 16 18 6 8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec Central Secondary Location Office Rents Q1 2010 | Malmö SEK/m2 OK 2,000 2,250 2,500 1,000 1,250 1,500 1,750 500 750 CBD Western Harbour Central Secondary Location Office Rent History | Malmö Source: Newsec Top High Low OK SEK/m2 1,000 1,200 1,400 1,600 1,800 2,000 2,200 600 800 2000 CBD 2001 2002 2003 Western Harbour 2004 2005 Central 2006 2007 2008 Prime Suburb 2009 2010E 2011E Source: Newsec Source: Newsec Top High Low OK 10 12 14 16 18 6 8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec Employment Over the past decades Malmö has undergone a transition from an industry-based to a corporate-service-based city. The current weak demand in both the Swedish and the global economy has had a significant effect on the labour market. The effects have been especially marked in the manufacturing and construction industries but white-collar jobs have also been affected. Because of the types of company that predominate in Malmö, however, the region has not been as hard-hit as other regions in Sweden. The negative trend on the Malmö labour market is expected to turn around in late 2010 and employment over the full year 2010 is expected to rise slightly. SEK/m2 1,000 1,200 1,400 1,600 1,800 2,000 2,200 600 800 2000 CBD 2001 2002 2003 Western Harbour 2004 2005 Central 2006 2007 2008 Prime Suburb 2009 2010E 2011E Source: Newsec OK Market Overview The total office stock in Malmö is approximately 1.5 million m2 10 Percent 4 5 6 7 8 9 Source: Newsec Percent 10 12 14 16 18 and the largest office market is Malmö CBD. However, the fastest-growing office market in Malmö during the last decade has been the University Island area and the Western Harbour, where almost all new office construction has taken place. The next important development area will be in Hyllie, the southern part of Malmö, where one of the City Tunnel stations will be located. 6 8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E SEK/m2 SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 1,400 1,600 1,800 2,000 2,200 OK Source: Newsec Because of the types of company that predo minate in Malmö the region has not been as hard-hit by the recession as other regions in Sweden. OK Source: Newsec Vacancy Rate Despite slightly increasing office vacancies the rental market was still strong during 2009. Continued conversions of older, inefficient office premises to other uses have reduced vacancies in the central parts of Malmö, and are moderating the increase in the overall vacancy rate. However, more and more tenants are shrinking their own office premises and are subletting the excess floor space on the secondary market. In Malmö CBD the vacancy rate was around 8.5% in 2009, but is expected to increase to 9.5% in 2010 and continue upwards in 2011 due to the office market’s late position in the economic cycle. Percent 10 4 5 6 7 8 9 2000 CBD 2001 2002 2003 Western Harbour 2004 2005 Central 2006 2007 2008 Prime Suburb 2009 2010E 2011E Rents The falling employment has now started to generate a lowering of office rents. Although rents are expected to decrease Source: Newsec MALMÖ 23 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=24">Newsec Property Outlook - Spring 2010 Sida 24 SEK/</a> m2 OK 1,000 1,200 1,400 1,600 1,800 2,000 2,200 600 800 2000 CBD Major Office Development Projects | Malmö Property Type Office/ Retail/ Residential Office/ Retail/ Residential Office Office/ Retail Office Office Office Office Office Office Multifunctional Project, Location, Property Owner/Developer Point Hyllie, Hyllie, Annehem Triangeln, Triangeln, NCC Hyllie, Skanska Öresund Region Skåne, Western Harbour, Wihlborgs Bilen, Western Harbour, Skanska Öresund Emporia, Hyllie, Steen & Ström Bassängkajen, stage 1, University Island, Skanska Öresund K2, Western Harbour, NCC Ramböll, Western Harbour, Midroc Property Dev. Honda, Svågertorp. Wihlborgs Tyfonen, University Island, Skanska Öresund Size (m2 45,000 30,000 20,000 11,000 10,000 10,000 8,500 8,000 4,800 4,600 n.a. Expected ) Completion 2010/2011- 2012- 20122010 2012 20122011 20112010 2010 2012- 2001 2002 2003 Western Harbour further, the decreases are forecast to be only marginal. The differential between ‘good’ and ‘less good’ premises and locations has increased, and is expected to increase further. The market rent is currently SEK 1,925/m2 Harbour and SEK 1,825/m2 hundred SEK/m2 in the Western in the CBD, with prime rents a few higher. Yields Office yields in Malmö started to increase during the second half of 2008 due to investors’ difficulties in obtaining financing and expectations of increasing vacancies. However, this trend stabilised in late 2009 due to gradual improvements on the financial market in combination with expectations of a relatively stable rental market. The differential between prime and less good properties and locations became more prominent during the past year - a trend that is expected to continue this year. In the first quarter of 2010, prime office yields for the CBD and Western Harbour are in the range 6-6.25%. In other central areas outside the CBD the yields are in the range 7-7.25%. OK Major Property Owners | Malmö Company Wihlborgs Vasakronan Stena Fastigheter Volito Fastigheter Fastighets AB Briggen Kungsleden Dagon Country SWE SWE SWE SWE SWE SWE SWE Company Heimstaden Profi I Fastigheter Akelius NIAM MKB Fastighets AB Valad Property Group SveaReal Country NOR SWE SWE SWE SWE AUS SWE Transactions As a result of the increasing global financial turmoil, transaction activity in Malmö, as in the rest of Sweden, was low during 2009. The largest transaction during the last quarter of 2009 was the purchase by Focus Nordic Cities (Catella) of the Baltzar City shopping mall, located in Malmö CBD, from Deutsche Bank. The purchase price was SEK 405 million and the yield is estimated at 6–6.25%. Another major transaction last year was Wihlborgs’ purchase of the new TV building in the Western Harbour for SEK 160 million, representing a yield of about 6%. The purchase also included a 7,000-m2 building right. Building Activity There has been a strong demand for modern and efficient office premises in recent years in Malmö, fuelling strong construction activity. Despite the demand there have been hardly any speculative construction projects, however. Office Yields | Malmö Percent 10 4 5 6 7 8 9 2000 CBD 2001 2002 2003 Western Harbour 2004 2005 Central 2006 2007 2008 Prime Suburb 2009 2010E 2011E 2004 2005 Central 2006 2007 2008 Prime Suburb 2009 2010E 2011E Source: Newsec Source: Newsec Around 20,000 m2 come onto the market in 2010, the largest project being the new 11,000-m2 of new office premises are expected to headquarters of Region Skåne located in the Western Harbour. Other major projects reaching the market during the year are Ramböll’s new headquarters and the first stage of Point Hyllie, which includes premises for the Swedish Customs and service facilities such as Swedbank, Pressbyrån and Subway. Point Hyllie will be located just a few metres from the entrance of the City Tunnel station, which is scheduled to open in 2010. There are currently several healthcare-oriented projects being planned in Malmö. Next to Kronprinsen there are plans for a ‘World Village of Women’s Sports’, a unique inspirational development and research centre for women’s sports in general and women’s soccer in particular. At Dalaplan there are plans for INSPI Health Campus, a facility focusing on preventive healthcare and incorporating a lifestyle hotel. CONTACT: NICHLAS SARLIN nichlas.sarlin@newsec.se 24 MALMÖ <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=25">Newsec Property Outlook - Spring 2010 Sida 25 Grea</a> ter Malmö 1000 housing 270 275 280 285 290 295 300 305 310 315 320 Percent 2000 2001 Calculated demand 2002 2003 2004 Housing Stock 2005 2006 Housing Price Index 2007 2008 100 120 140 160 180 200 220 240 260 280 300 Source: Newsec/SCB residential yields - Stockholm Percent 10 8 9 6 7 4 5 2 3 0 1 2000 2001 1000 housing 2002 Stockholm Prime 270 275 280 285 290 295 300 305 310 315 320 1000 housing Source: Newsec Source: Newsec/SCB 2003 2004 Stockholm Central/Prime suburbs CBD 2000 2001 2002 Western Harbour 1.4 RESIDENTIALS IN SWEDEN residential yields - Stockholm Residential Yields | Stockholm Market Overview According to the SFI/IPD property index, the residential sector has been the property segment with the highest average total return and the lowest volatility during the past decade. In Sweden there are approximately 4.5 million residential units, of which about 2 million are single-family houses and 2.5 million are apartments in multi-residential buildings. Sweden has a divided housing market. One part of the market, the commercial residential market, has regulated rents and consists of rented apartments; the other part, the owner-occupied market, is unregulated and consists of condominiums and single homes. The regulation of one part of the market generates a situation where residential yields in attractive locations with high housing prices are largely driven by the opportunity to convert rental-apartment properties into condominiums - producing extraordinarily low yields. In smaller cities and the suburbs of larger cities, the housing prices are lower and the market is instead driven by investor demand, which generates yield levels more in line with other commercial properties. The underlying housing demand in the major Swedish cities is stable, and Stockholm, Gothenburg and Malmö have had an increasing shortage of houses over the past decade – a trend that is expected to continue in coming years. New construction fell substantially in 2008-2009, but a recovery is expected in mid 2010 due to improvements in the financial market and the ongoing economic recovery. As the increase in housing demand in the major cities is expected to outpace new construction, the gap between supply and demand will continue to widen in future years. Percent 10 8 9 6 7 4 5 2 3 0 1 2000 2001 2002 Stockholm Prime 2003 2004 2005 2006 2007 Stockholm Central/Prime suburbs 2008 2009 2010E 2011E Greater Stockholm suburbs Source: Newsec residential yields - rest of sweden Residential Yields | Rest of Sweden Percent 8 6 7 4 5 2 3 0 1 2002 2003 1000 housing Gothenburg Prime In other Swedish cities the demand/supply balance varies. In regional and smaller growth-oriented cities demand is generally higher than, or in line with, supply, while in small cities and regions undergoing structural changes the housing markets may be over-supplied. All in all, compared to Stockholm, Gothenburg and Malmö, substantial demand surpluses are relatively uncommon and the regulated residential rents are generally in line with the theoretical market rent. However, vacancies are often close to zero in good locations in regional and smaller growth-oriented cities, which generates stable cash-flows and expectations of an early yield recovery. residential yields - rest of sweden Percent 8 6 7 The owner-occupied market Despite the deep global recession, house prices increased during 2009. This trend can be explained by temporary factors such as low interest rates, tax cuts and low inflation - all typical indicators of an inflating housing-price bubble. However, Newsec considers the risk of a house-price bubble to be 4 5 2 3 0 1 2002 2003 2004 Gothenburg Prime 2005 2006 Malmö Prime 2007 2008 Other major cities 2009 2010E 2011E Source: Newsec relatively low due to a combination of factors. First, short-term interest rates are expected to stay relatively low during coming years because of low inflationary pressure. Second, there is a high household saving ratio in the economy, indicating sufficient household margins and hence resistance to increasing unemployment. Third, there is an ongoing urbanisation process, which produces increasing population in the larger cities and thus an upward pressure on housing prices. Although there may be a temporary price drop in 2011, when a peak in unemployment coincides with the expected interest-rate increases, housing prices in the major cities are expected to keep on increasing in the long term. 850 875 900 925 950 975 1000 2000 2001 Calculated demand 2002 2003 2004 Housing Stock 2005 2006 Housing Price Index The commercial residential market In areas with high condominium prices, such as the central parts of Stockholm, Gothenburg and to some extent Malmö, the commercial residential property market is affected by the possibility of converting rental properties to condominiums. 2000 2001 2002 2003 2004 2005 2006 2007 2008 Percent 2004 2005 2006 Malmö Prime 2007 2008 Other major cities 2009 2010E 2011E 2007 2008 100 130 160 190 220 25 28 Source: Newsec/SCB Greater Stockholm Source: Newsec 2005 2006 2007 2008 2003 Central Greater Stockholm suburbs Prime Suburb 2004 2009 2010E 2011E 2005 2006 2007 2008 100 120 140 160 180 20 22 24 26 28 30 10 13 16 19 22 25 28 SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 SWEDEN 25 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=26">Newsec Property Outlook - Spring 2010 Sida 26 30 5</a> 0 0 0 0 B 1990 1991 199219931994199519961997199 1999200020012 2 2 2005004003002 8 20062 2008007 90 110 130 150 170 190 210 Greater Stockholm Housing market | Greater Stockholm Residences (000’s) 1,000 Greater Gothenburg 800 825 850 875 900 925 950 975 Greater Gothenburg Housing Market | Greater Gothenburg 420 430 440 450 460 Residences (000’s) 460 410 400 45390 440 380 43370 42360 360 370 380 390 400 410 1990 1992 1994 Calculated demand 1996 1998 Housing Stock 2000 2002 2004 Housing Price Index 2006 2008 Residences (000’s) 1990 1992 1994 Calculated demand 1996 1998 Housing Stock 2000 2002 2004 Housing Price Index 2006 Housing Price Index Source: Newsec/SCB 2008 Housing Price Index Source: Newsec/SCB 1990 1992 1994 Greater Malmö Calculated demand Greater Malmö 310 320 330 340 350 Residences (000’s) 35290 340 300 250 260 270 280 290 300 310 280 33270 32260 250 1996 1998 Housing Stock 8 Housing Market | Greater Malmö Residences (000’s) 2000 2002 2004 Housing Price Index 2006 1990 1991 199219931994199519961997199 1999200020012 2 2 2005004003002 2008 50 70 90 110 130 150 170 190 210 230 250 Source: Newsec/SCB 20062 2008007 50 70 90 110 130 150 170 190 210 230 250 Housing Price Index 70 95 120 145 170 195 220 245 270 Because the regulated rents are lower than the potential market rent in these locations, property prices are higher for condominium properties than for commercial residential properties. Rising condominium prices in these areas are pushing down the yield levels and generating high and stable commercial residential property prices. In central Stockholm yields are currently 2.0%, in Gothenburg 3.0% and in Malmö 3.4%. In 2010, prime yields are expected to recover and decrease somewhat in Stockholm and Malmö due to increasing housing prices, while the sluggish labour market in Gothenburg is expected to generate stable yields. 70 95 120 145 170 195 220 245 270 Residential properties located in small and medium-sized Swedish cities, as well as in suburbs of the major cities, are not affected by the possibility of conversion into condominiums. Stable rents and, in many cases, low vacancies are generating low volatility in the total return, so that this part of the residential market is driven by investor demand and largely affected by financial factors. Yields in Greater Stockholm suburbs are currently around 5.25%, while yields in other major Swedish cities are around 5.75%. Residential yields in these locations are expected to recover in 2010 as the financial market gradually improves and investor demand increases. 1990 1991 199219931994199519961997199 1999200020012 2 2 2005004003002 8 1990 1991 199219931994199519961997199 1999200020012 2 2 2005004003002 8 Housing Price Index Housing Price Index 1990 1992 1994 Calculated demand 1996 1998 Housing Stock 2000 2002 2004 Housing Price Index 2006 2008 Source: Newsec/SCB 1990 1992 26 SWEDEN 1994 Calculated demand 1996 1998 Housing Stock 2000 2002 residential yields - Stockholm 2004 Housing Price Index 2006 2008 90 110 130 150 170 190 210 230 250 270 290 Source: Newsec/SCB 1990 1991 199219931994199519961997199 1999200020012 2 2 2005004003002 8 20062 2008007 90 110 130 150 170 190 210 230 250 270 290 Although the private and commercial parts of the housing market are different, they are fundamentally driven by the same factor - people’s demand for quality housing – a demand that is expected to increase steadily in the major cities as well as other growth-oriented cities during coming years. There are good investment potentials in residential properties not only in the short term, but also in the medium and long term. In the short term, the stable cash-flows generate sufficient liquidity and early yield recovery in the segment, while in the medium term there is always a potential in the local housing market and the possibility of conversion into condominiums. In the long term there is a potential in the gap between market rent and the regulated rent. This gap will not persist for ever, and 1990 1991 199219931994199519961997199 1999200020012 2 2 2005004003002 8 there is a trend for regulated rents to move towards market rents in good locations in the larger cities. 20062 2008007 20062 2008007 50 70 90 110 130 150 170 190 210 230 250 50 70 90 110 130 150 170 190 210 230 250 The investment market Despite high bank margins and difficulties in obtaining financing for real-estate investments, there is a substantial investor demand for residential properties in Sweden. The share of residential real-estate transactions in the total transaction volume increased from 10-20% in recent years to over 30% during 2009. Newsec has been involved in several sales of residential properties during the year and is also involved in a number of ongoing processes. Two of the largest transactions during the autumn of 2009 were in Greater Stockholm. In November the municipal property company Svenska Bostäder sold three residential properties to a housing cooperative at a price of about SEK 500 million, representing a yield of 2.75-3%. In October, Akelius Fastigheter sold a 500-apartment residential property to a housing cooperative at a price of about SEK 400 million, representing an estimated yield of 4.25%. There have also been several large residential transactions outside the three major cities during the year. In December, Svenska Bostadsfonden purchased around 410 apartments in Kalmar from the property company Heimstaden at a price of around SEK 300 million. During the same month the local property company Gustafssons Bostäder purchased seven residential properties in Norrköping from Arlert Fastigheter at a price of around SEK 131 million. As the credit market gradually normalises during 2010-2011, liquidity is expected to increase, and the inherent stability of residential properties makes it one of the segments that are expected to recover first. 20062 2008007 90 110 130 150 170 190 210 230 250 270 290 90 110 130 150 170 190 210 230 250 270 290 CONTACT: ARVID LINDQVIST arvid.lindqvist@newsec.se <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=27">Newsec Property Outlook - Spring 2010 Sida 27 1.5 </a> RETAIL IN SWEDEN Private Consumption and Retail Turnover After twelve years of growth, retail turnover in Sweden started to fall during the second half of 2008. The negative trend ended in the second half of 2009, however, and turnover figures became positive again. Private consumption has been relatively stable during the recession and is now an important engine in the Swedish economic recovery. The real disposable incomes of Swedish households increased during 20082009 and are expected to keep on rising during 2010-2011 due to a combination of higher transfer payments, low interest rates and low inflation. Consumer confidence has increased since mid 2009 and despite a dip in December 2009 is expected to improve further in 2010. The bottoming out of the recession will have a positive effect on consumer confidence, working as a counterweight to the negative effects of increasing unemployment and higher interest rates. The start of the economic recovery in mid 2009, in combination with a lower saving ratio and increasing disposable household incomes in 2010-2011, is expected to generate an increase in retail turnover of around 3% in 2010 and 3.5% in 2011. Supply The total retail stock in Sweden is approximately 18 million m2 and comprises shopping centres, retail parks, city gallerias and street premises. The lion’s share (70%) consists of street premises, followed by retail parks (12%), shopping centres (10%) and city gallerias (6%). Stockholm is home to around a quarter of all retail space in Sweden. Private consumption has been relatively stable during the recession and is now an important engine in the Swedish economic recovery. and 130,000 m2 The consumption boom preceding the recession resulted in fierce competition in Stockholm, Gothenburg and Malmö, fuelling refurbishments and extensions in order to keep up with the market. However, the economic downturn has now put a hold on several development plans and put the focus on the current stock, making revitalisation and active management more important in the struggle to take market share and increase revenue. Several retail construction projects have been postponed due to falling consumption growth and financial difficulties among developers. Nevertheless, some 500,000 m2 new retail space is predicted to be of completed in the Greater Stockholm region by 2015. The corresponding figures for Gothenburg and Malmö are 300,000 m2 respectively. According to the Nordic Council of Shopping Centers some 270,000 m2 opened in Sweden during 2009. of retail area In the wake of the financial turmoil multi-use developments are experiencing a new spring: both real estate owners and municipalities are focusing increasingly on risk management, increasing footfall and alternative uses. Several conversion projects have also been carried out already and we believe that there will be more to come. Another type of conversion Investment Market The Swedish retail market gained an increasing number of international investors and retailers during the mid 2000s. However, this trend slowed markedly in late 2008 as the global economy deteriorated and many investments and expansion plans were cancelled or delayed. The standstill on the retail transaction market seen in the second half of 2008 and early 2009 was broken by a few major seen all over Sweden is the integration of old American-style shopping malls into urban development projects. Major Retail Development Projects | Sweden Property Type Retail Retail Retail Retail Retail Retail Retail Retail Retail Project, Location, Property Owner/Developer Mall of Scandinavia, Solna, Stockholm, Unibail-Rodamco Bromma Center, extension, Western Stockholm, KF Fastigheter Emporia, Hyllie, Steen & Ström Mölndal Centrum, Gothenburg, Steen & Ström IKEA, Svågertorp, IKEA Täby Centrum, extension, Täby, Stockholm, Unibail-Rodamco Mobilia, Malmö, Atrium Ljungberg Triangeln, Malmö, NCC Property Development Frölunda Torg, Western Gothenburg, Diligentia Size (m2 Expected ) 100,000 100,000 70,000 50,000 48,000 26,000 20,000 15,000 14,000 Completion 2012 2012 2012 2013 2009 2012-2014 2012 2012- 2011 SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 SWEDEN 27 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=28">Newsec Property Outlook - Spring 2010 Sida 28 10,5</a> 00 12,000 3,000 4,500 6,000 7,500 9,000 2000 2001 Prime Stockholm Percent Retail Q1 2010 | Sweden 5.0 5.5 6.0 6.5 7.0 Stockholm Gothenburg Malmö 4.0 4.5 2004 2005 Prime Stockholm Population (million) 2.0 0.9 0.3 Prime Yield (%) 5.25 6.00 2006 Prime Gothenburg 2007 6.00 Economic Indicators | Sweden Percent 2 3 4 5 6 7 8 0 1 -5 -4 -3 -2 -1 2000 2001 Turnover Retail Trade* 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E GDP Private Consumption *Not incl. petrol stations Source: SCB/HUI/Newsec Central Vacancy (%) 2.0 2.0 2008 Prime Malmö 2009 2.0 2010E Prime Rent (SEK/m2/year) 12,500 8,500 5,750 2011E 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Prime Gothenburg Prime Malmö Source: Newsec SEK/m2 10,500 12,000 13,500 15,000 9,000 3,000 4,500 6,000 7,500 2000 Prime Retail Rents | Sweden SEK/m2 10,500 12,000 13,500 15,000 3,000 4,500 6,000 7,500 9,000 2000 2001 Prime Stockholm Percent transactions during the second half of 2009. Niam acquired a portfolio of seven properties, mostly city gallerias in smaller towns, from Atrium Ljungberg at a price of SEK 1,030 million and an estimated yield of 8%, and Fastighets AB Lundbergs acquired the city galleria ‘Leo’ in Linköping from Boultbee at a price of SEK 371.5 million and a yield of around 7%. The universal ‘flight to quality’ trend has become even more evident, with investors and banks not only demanding a secure cash flow but also placing additional focus on residual value and alternative usage. The sectors most affected by this trend are big boxes, and retail in secondary locations; both have faced larger yield increases than other sectors, resulting in a wider yield-spread between prime and secondary products. In early 2010 the lowest prime yield is found in central Stockholm at around 5.25%, with Malmö and Gothenburg both at about 6%. During the coming years Gothenburg is expected to be affected by rising unemployment because of the large car manufacturer located in the region, while Malmö will be affected by substantial new construction. However, as the situation on the financial market has improved during 2009 and the transaction volume has started to increase, Newsec expects stabilising yields for high-quality retail properties in good locations in all the major cities during 2010. 5.0 5.5 6.0 6.5 7.0 4.0 4.5 2004 2005 Prime Stockholm 2006 2007 Prime Gothenburg 2008 2009 Prime Malmö 2010E 2011E Rental Market The Swedish retail market has been characterised by a low vacancy rate, ranging between 1% and 2% in the three major cities. In recent years, however, the levels have risen to around 2% and are expected to rise further in 2010 and stabilise in 2011. Vacant premises can currently be found in all types of locations apart from the absolute prime locations. Percent 2 3 4 5 6 7 8 0 1 As normally in recessions, chain-retailers are gaining ground. Some shopping centres are currently expected to experience difficulties in letting retail premises, both old and new, a trend -5 -4 -3 -2 -1 2000 2001 Turnover Retail Trade* 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E GDP Private Consumption CONTACT: SANDRA GREISMAN sandra.greisman@newsec.se Source: SCB/HUI/Newsec Prime retail rents in Stockholm currently range from SEK 6,000/m2 to SEK 12,500/m2 . The corresponding range in Gothenburg is SEK 3,000-7,000/m2 m2, and Malmö follows at SEK 3,000-6,000/m2 with top rents of 8,500/ . 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Prime Gothenburg Prime Malmö Source: Newsec 2001 Source: Newsec Prime Retail Yields | SwedenPrime Gothenburg Percent Prime Stockholm 5.0 5.5 6.0 6.5 7.0 4.0 4.5 2004 2005 Prime Stockholm 2006 2007 Prime Gothenburg 2008 2009 Prime Malmö 2010E 2011E 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Prime Malmö Source: Newsec Source: Newsec that is expected to continue in 2010. Despite the fact that retail sales are predicted to grow in 2010 the rent levels are not expected to increase at the same rate. Percent Retail rents have shown a significant growth in recent years due to the stable growth in retail turnover, with city shopping centres and out-of-town retail parks on the outskirts of the major cities seeing the largest rent increases. However these increases have now flattened out, with renegotiations in several locations, and it will be difficult to maintain the previous high rental levels in 2010-2011 in locations outside the most attractive centres. 2 3 4 5 6 7 8 0 1 -5 -4 -3 -2 -1 2000 2001 Turnover Retail Trade* 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E GDP Private Consumption Source: SCB/HUI/Newsec F F 28 SWEDEN <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=29">Newsec Property Outlook - Spring 2010 Sida 29 FINL</a> AND 4 6 8 0 2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E EUR/m2 Percent 2. FINLAND Source: Newsec 4.5 5.0 2.0 2.5 3.0 3.5 4.0 Macroeconomic Forecast The global economy stabilised during the second half of 2009 and several countries’ economies have shown positive GDP figures for the third quarter. Stock markets worldwide have rallied in 2009, indicating a growing belief in the recovery. However, despite these positive signs the world economy is expected to grow slowly in 2010-2011, to a large extent driven by high-performing emerging economies. 0.0 0.5 1.0 1.5 2006 2007 Central Bank Interest Rate 2008 3M Euribor 2009 2010E 5Y SWAP 2011E Economic Indicators | Finland Percent -8 -6 -4 -2 0 2 4 6 8 Source: Newsec 50 100 150 200 250 300 350 2000 CBD 2001 2002 Central 2003 2004 Percent 10 11 FINLAND 2001 GDP 2002 2003 2004 2005 Private consumption 2006 Inflation 2007 2008 2009 2010E Employment 2011E The domestic business environment remains challenging, and corporate confidence is low, resulting in low investment activity and a focus on cost reductions and rationalisations. Lenders are cautious, in particular to small and middle-sized businesses, leaving them in a difficult situation. The unemployment rate has increased by two percentage points to 9% since 2008 and is expected to rise further in 2010-2011. The government of Finland has supported the national economy by increasing public expenditure to a remarkable extent during 2009, a policy made possible by robust public finances prior to the onset of the crisis. Although consumer confidence has 4 5 6 7 8 9 2000 CBD 2001 2002 Central 2003 2004 2005 Prime submarkets 2006 2007 Percent 11 12 10 5 6 7 8 9 2002 Prime 2003 Other # Population: 5.3 million SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 FINLAND 29 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec 50 75 2002 Prime 2003 Other 2004 2005 2006 2007 2008 2009 2010E 2011E 2005 Prime submarkets 2006 2007 2008 2009 2010E 2011E Secondary office areas The Finnish GDP fell by around 7% in 2009, dropping back to the levels of 2006. Finland is heavily affected by the global economic development since around half its GDP consists of exports, of which around 70% goes outside the euro area. However, despite clear signs of recovery in the world economy, the Finnish recovery will be slow. Finnish exports consist largely of investment goods, and the world demand has fallen sharply since 2008 due to the low global investment activity. Since investment activities normally recover late in the economic cycle, the recovery of Finnish exports is expected to be slow. 2008 Secondary office areas TURKU HELSINKI Source: Newsec Source: Newsec 2009 2010E 2011E TAMPERE <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=30">Newsec Property Outlook - Spring 2010 Sida 30 HMA </a> | Population: 1.2 million | Office Stock: 8 million m2 1 2 3 4 5 6 7 CBD Central Ruoholahti Keilaniemi Leppävaara Pasila Aviapolis improved substantially since early 2009 due to signs of recovery in the world economy and low interest rates, the overall economy is still affected by decreasing private consumption, which is not expected to recover until late 2010. 7 Prices of commodities, most notably the price of oil, faced a steep decline after the start of the global economic crisis in summer 2008. After reaching a bottom, prices rebounded swiftly during 2009 but are still far below the peak levels of 2008. Commodity prices are expected to recover further during 2010-2011 but at a relatively slow pace. Inflationary pressures slackened when the economic downturn started in 2008, generating falling consumer prices. Inflation ended up at 1.7% in 2009, which is below the European Central Bank target level. Inflationary pressures are likely to remain low during coming years due to the low global capacity utilisation. 5 6 Overall, the Finnish economy has slowed down rapidly in response to the deep global economic downturn. The outlook for the national economy is closely tied to the recovery of the global economy, and Finland is expected to experience a slow growth in 2010-2011. 4 3 2 1 Interest Rate Forecast The situation on the financial markets improved during the second half of 2009. Fears of collapse in the world’s financial system have vanished and generated increased appetite for risk. The situation on the financial markets is expected to improve further in 2010-2011, although the uncertainties of the near-term macroeconomic situation and credit losses leave banks still cautious. In the absence of inflationary pressure, the European Central Bank (ECB) is expected to hold the key interest rates unchanged in 2010 and start to increase them in 2011. Although liquidity in the financial markets has improved, growth in credit supply is still moderate and the ECB has announced 30 FINLAND <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=31">Newsec Property Outlook - Spring 2010 Sida 31 10 1</a> 2 4 6 8 0 2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E EUR/m2 Interest Rates | Finland Percent 4.5 5.0 2.0 2.5 3.0 3.5 4.0 0.0 0.5 1.0 1.5 2006 2007 Central Bank Interest Rate 2008 3M Euribor 2009 2010E 5Y SWAP 2011E Source: Newsec Transaction Volume | Finland Billion EUR 2 3 4 5 6 7 0 1 2001 2002 2003 Percent2004 10 11 further longer-term refinancing operations for the first quarter of 2010. However, in the longer term the ECB is expected to reduce quantitative easing gradually, generating slightly increasing short-term market interest rates in 2010. Investment Market The transaction market improved during 2009 but is still in a ‘wait and see’ mood. The total volume of major transactions in 2009 was only EUR 1.7 billion, which is around 60% down from 2008. The spread between the sellers’ asking prices and potential buyers´ bidding prices is narrowing and is currently about 5-15%. Prices declined by approximately 7% in 2009, generating a total drop of 20-45% since 2007. Percent Some new international financiers entered the market during 2009, while existing ones became more active. Equity investors such as Finnish pension funds and local investors have been active, as have some international investors searching for core targets. Due to the low interest rates, property yields are starting to be quite lucrative, which indicates an increasing transaction volume in 2010. Part of the volume in 2010 is expected to come from distressed sales processes. -8 -6 -4 -2 0 2 4 6 8 2001 GDP 2002 2003 2004 2005 Private consumption 2006 Inflation 2007 2008 2009 2010E Employment 2011E Source: Newsec Banks are still cautious in giving long-term financing; loan-to-value ratio is normally below 50% and interest rate margins are high. It seems that the financial market will not fully recover during 2010 and that a lot of property-related loans will need to be renegotiated during the next few years. Clearing this problem will absorb a major part of the property finance’s capacity and result in significant restructuring, including re-evaluation of property values. Percent 10 12 14 4 6 8 0 2 4 5 6 7 8 9 2000 CBD 2001 2002 Central 2003 2004 2005 Prime submarkets Source: Newsec 2006 2007 2005 2006 2007 2008 2009 Source: Newsec 50 100 150 200 250 300 350 Source: Newsec 50 75 100 2002 Prime 2003 Other 2004 2005 2006 2007 2008 2009 2010E 2011E EUR/m2 Source: Newsec 200 250 300 350 400 2000 CBD 2001 2002 Central 2003 2004 2005 Prime submarkets 2006 2007 2008 2009 2010E 2011E Secondary office areas 50 100 150 Source: Newsec Top High Low CBD Central Prime submarkets Secondary office areas EUR/m2 2008 2009 2010E 2011E Secondary office areas There were few major transactions during 2009. The largest was in January when Lemminkäinen Group sold a retail and office portfolio of 21 properties spread around Finland to a group of Finnish investors for EUR 200 million. The second-largest transaction took place in December when Kesko Group sold 13 retail properties (around 111,000 m2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Percent 11 12 10 Another transaction in December was NV Property Fund I Ky’s acquisition of a production and R&D property with long-term lease agreements in Oulu from Nokia Siemens Networks Oy. The purchase price was not announced, but the property Percent 4.5 5.0 2.0 2.5 3.0 3.5 4.0 SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 2006 0.0 0.5 1.0 1.5 2007 Central Bank Interest Rate 2008 3M Euribor 2009 2010E 5Y SWAP 2011E 5 6 7 8 9 Source: Newsec 2002 Prime 2003 Other 2004 2005 2006 2007 2008 ) located all over Finland to Varma Mutual Pension Insurance Company. The purchase price was EUR 156 million. 50 75 100 125 150 Source: Newsec 2002 Prime 2003 Other 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec EUR/m2 2009 2010E 2011E 50 100 150 200 250 300 350 Source: Newsec 2000 CBD 2001 2002 Central 2003 2004 2005 Prime submarkets 2006 2007 2008 2009 2010E 2011E Secondary office areas FINLAND 31 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=32">Newsec Property Outlook - Spring 2010 Sida 32 Bill</a> ion EUR Percent 10 12 14 4 6 8 0 2 Office Rents Q1 2010 | HMA EUR/m2 50 100 150 200 250 300 350 400 Source: Newsec Top High Low Percent 4.5 5.0 CBD Central Prime submarkets Secondary office areas 2.0 2.5 3.0 3.5 4.0 comprises about 70,000 m2 Helsinki Metropolitan Area Office Market The total current office stock in Finnish university cities is 11 million m2 50 75 100 125 150 Percent 2002 Prime 2003 Other 2004 2005 2006 2007 2008 2009 2010E , with the largest volumes in Helsinki, Espoo, Tam- pere, Vantaa and Turku. More than 70% of the total stock is in the Helsinki Metropolitan Area (HMA), which is the commercial centre of Finland. Its population is currently 1.2 million and the total office stock in HMA comprises 8 million m2 is located in Helsinki and the remainder in Espoo and Vantaa. 2001 EUR/m2 Helsinki CBD is the most attractive office submarket in HMA, offering the best accessibility, and is the preferred location for many head offices. New office buildings are planned along the 32 FINLAND 2003 Central 50 100 150 200 250 300 350 2000 CBD 2001 2002 2001 GDP GDP , 70% of which Source: Newsec -8 -6 -4 -2 0 2 4 6 8 -8 -6 -4 -2 0 2 4 6 8 2002 2002 Percent 2011E the Swing Life Science Center, to a German real estate fund managed by Commerz Real AG. The purchase price was EUR 120 million. In August Finnair Facilities Management Oy sold four strategic properties with long-term lease agreements in the Helsinki-Vantaa airport area to NV Property Fund I Ky. The total area of the properties is about 60,000 m2 price was EUR 77 million. Insurance Company sold a 32,000-m2 EUR/m2 Source: Newsec . In June Etera Mutual Pension 2006 office property in Espoo, 0.0 0.5 1.0 1.5 0.0 0.5 1.0 1.5 2006 4.5 5.0 2.0 2.5 3.0 3.5 4.0 Percent 4 6 8 0 2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec Source: Newsec 10 12 14 4 6 8 0 2 2000 20002001 20012002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Vacancy Rate | HMA Percent 10 12 14 Source: Newsec Office Rent History | HMA EUR/m2 EUR/m2 50 100 150 200 250 300 350 50 100 150 200 250 300 350 EUR/m2 50 75 100 125 150 Source: Newsec S Source: Newsec Percent 2 3 4 5 6 7 0 1 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: Newsec Source: Newsec Source: Newsec EUR/m2 50 75 100 125 150 50 75 100 125 150 EUR/m2 200 250 300 350 400 50 100 150 2002 2002 Prime Prime 2003 2003 Other Other 2004 Source: Newsec Source: Newsec Top High Low CBD 2004 2005 2005 Central 2006 2006 2007 2007 Prime submarkets 2008 2008 2009 2009 Secondary office areas 2010E 2010E 2011E 2011E 2002 Prime 2000 2000 CBD 2001 CBD 2001 2002 Central 2002 Central EUR/m2 2007 Central Bank Interest Rate 4.5 5.0 and the selling 2003 2003 Private consumption Private consumption In Espoo, Leppävaara is a residential, commercial and office Percent 2004 2005 Prime submarkets 2006 2007 2008 2009 2010E 2011E Secondary office areas -6 -4 -2 0 2 4 6 8 Source: Newsec Old Pasila was mainly developed in the 1970s and 1980s and is quite dense in terms of buildings. It is a large centre of employment, currently providing jobs for 25,000 people, and the plans to develop Center Pasila will further increase its attraction and bring the number of jobs up to 100,000. Kalasatama is a developing office area which is not yet complete; the old port area is being redeveloped following the opening of Vuosaari harbour. The area will be built up between 2009 and 2035. Kalasatama has a central location north-east of the CBD and has its own metro station. Ruoholahti currently has nearly 10,000 jobs and this will rise to around 13,000 jobs once the area is completed. The metro, tramway and buses all serve this seaside office area. 2.0 2.5 3.0 3.5 4.0 0.0 0.5 1.0 1.5 2006 2007 Central Bank Interest Rate 2008 3M Euribor Source: Newsec 2009 Source: Newsec 2010E 5Y SWAP 2011E 2004 2004 2005 2005 2006 2006 Inflation 2007 Inflation 2007 2008 2008 2009 2010E 2009 2010E Employment Employment 2011E 2011E Central Bank Interest Rate Percent Töölö bay area. The prime submarkets, often newly developed areas around HMA, are important assets to the HMA office market and include Ruoholahti, Center Pasila and Kalasatama in Helsinki, Keilaniemi and Leppävaara in Espoo and Aviapolis in Vantaa. Rents in these office areas are notably higher than in other central areas. 2007 2008 2008 3M Euribor 3M Euribor 2009 2009 2010E 5Y SWAP5Y SWAP Source: Newsec 2010E 2011E 2011E Office Yields | HMA Percent Percent 10 11 4 5 6 7 8 9 10 11 4 5 6 7 8 9 2000 2000 CBD CBD 50 100 150 200 250 300 350 2003 2003 2003 Other 2004 2004 2005 2005 Prime submarketsPrime submarkets 2006 2006 2007 2007 2008 2008 2009 2009 Secondary office areas Secondary office areas Source: Newsec 2010E 2011E 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec Source: Newsec 2000 CBD 2001 2002 Central 2003 2004 2005 Prime submarkets 2006 2007 2008 2009 2010E 2011E Secondary office areas 2001 2001 2002 Central centre with a lot of new office development, mainly business parks. Keilaniemi will be the location of the first metro station in Espoo once the metro line opens. Several global and Finnish companies have chosen Keilaniemi for their headquarters. Aviapolis near Helsinki-Vantaa international airport is a new centre in HMA which covers 42 km2 10 11 Percent Percent 11 12 10 logistics and IT companies. The upcoming Kehärata, expected 2000 11 12 10 5 6 7 8 9 5 6 7 8 9 2002 2002 Prime Prime 4 5 6 7 8 9 2001 CBD 2003 2003 Other Other 12 Percent Source: Newsec 2004 2004 2002 Central 2005 2005 2006 2006 2003 2004 2005 and houses mostly 2006 2007 Prime submarkets 2007 2007 2008 2008 2008 2009 2009 2010E 2010E 2011E 2011E Secondary office areas Source: Newsec Source: Newsec 2009 2010E 2011E 2002 Central Percent 2003 2003 2004 2004 2005 2005 Prime submarketsPrime submarkets 2006 2006 2007 2007 2008 2008 2009 2010E 2011E Secondary office areas Secondary office areas Source: Newsec 2009 2010E 2011E <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=33">Newsec Property Outlook - Spring 2010 Sida 33 to b</a> e finished around 2014, will connect Aviapolis to the two railways leading to Helsinki CBD and the airport. Vacancy Rate The supply of office premises now exceeds demand as new developments are finalised. In combination with falling employment this is generating an increasing vacancy rate. New and flexible premises are also preferred over older stock as companies prepare for, or accommodate to, changes in staff numbers. The vacancy rate in HMA is currently slightly above 10%, but is expected to increase possibly even to 13% in 2010-2011 as the economic downturn continues to influence the property market. Office Rents Competition for tenants for new and old premises alike is currently hard, and rents are falling as vacancy rate increases. But contrary to this trend, the latest KTI rent statistics show that the market rent level in Helsinki CBD was stable until early summer 2009 and after that started to decrease only slightly. Even in the present economic climate there is good demand for CBD offices. In other areas, where rents have fallen more, the smallest falls are in prime submarkets, where the premises are often flexible and offer good connections. However, cost savings are driving companies to less expensive premises, and rents in all submarkets are expected to decrease in 2010 and 2011. The market rent for prime office premises in Helsinki CBD is in the range EUR 252-300/m2 is EUR 342/m2 . Top rent for these premises . In other central areas the market rent lies in the range EUR 132-168/m2, with top rents up to EUR 204/m2 with top rents of EUR 264/m2 . . In the prime submarkets the market rent is in the range EUR 180-210/m2 Office Yields Yields are now stabilising in most sectors after peaking in late 2009. Interest rates are forecast to stay low and the financial Major Office Development Projects | HMA Property Type Office Office Office Office/Education Project, Location, Property Owner/Developer Tapiola Group headquarters, Espoo, Tapiola Group Voimatalo, Helsinki, AXA Real Estate IM Koy Tikkurilantie 123 / Audi-Center, Vantaa, Veritas Viikin A-rakennus, Helsinki, Senate Properties Size (m2 33,000 15,000 15,000 6,500 Expected ) Completion 2010 2010 2010 2010 Major Property Owners | Finland Company Varma Mutual Pension Insurance Company Sponda Plc Ilmarinen Mutual Pension Insurance Company VVO Tapiola Group Local Government Pensions Institution market is expected to recover gradually during 2010-2011, which will support stabilising yields. In the CBD a stabilisation is expected in 2010 followed by a recovery in 2011, while office yields in the other submarkets are expected to increase somewhat further in 2010 before stabilising. The yield level is currently 6% in Helsinki CBD and 6.75% in prime submarkets. Building Activity Building activity is concentrated in new office areas such as Leppävaara, Keilaniemi and Aviapolis and in the former port areas, which are currently being converted into residential and office areas. Office construction consists mostly of business parks and entirely new office areas. During 2009 building activity decreased drastically and construction of only 22,000 m2 of office premises was initiated, 95,000 m2 and permits for 20,000 m2 . Several projects have been cancelled or postponed due to the economic downturn. In total, around 70,000 m2 of office area is expected to come onto the market in 2010. figures for 2008 were 144,000 m2 m2 CONTACT: KAJ SÖDERMAN kaj.soderman@newsec.fi CONTACT: SAMI KIEHELA sami.kiehela@newsec.fi were granted. The corresponding , 330,000 m2 Citycon Oyj Aberdeen's investment funds Sato Oyj CapMan Real Estate RBS Nordisk Renting Etera Mutual Pension Insurance Company Country FIN FIN FIN FIN FIN FIN FIN FIN FIN FIN UK FIN Company NIAM Pension Fennia Avara Suomi Ltd Technopolis Oyj Wereldhave Finland Oy OP Group Nordea Life Holding Finland Group Protego Real Estate Investors Suomi Group Genesta Property Nordic Norgani Hotels Veritas Pension Insurance Company Ltd Country SWE FIN FIN FIN BEL FIN FIN UK FIN SWE NOR FIN were completed and 120,000 SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 FINLAND 33 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=34">Newsec Property Outlook - Spring 2010 Sida 34 4 6 </a> 0 2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E EUR/m2 EUR/m2 Billion EUR Percent 4.5 5.0 2.1 LOGISTICS MARKET 2.0 2.5 3.0 3.5 4.0 Logistics Market The logistics sector has evolved into an important Finnish industry in recent years. Most of the growth is attributable to overseas markets since around half the Finnish GDP consists of exports. Finland is a transit point for Russia and the Baltic countries and this is one cause of the logistics industry’s rapid growth. Other factors are the high standard of know-how and the skilled Finnish work force. As the logistics industry relies heavily on trade and traffic between east and west, most investments have naturally been made along this axis. Investments into the Finnish logistics network and infrastructure have attracted new investors from outside the property sector, and logistics solutions now form a new submarket in the property industry. 0.0 0.5 1.0 1.5 2006 Percent 10 12 14 Percent Finland has a stock of around 15 million m2 of logistics property. More than half of the current stock is in HMA, but large construction projects in other areas may reduce HMA’s dominance in the future. Tampere, Turku and Oulu also have large logistics property stocks. There has been an increasing interest in the logistics property segment in recent time, which has resulted in a larger demand from investors than the existing supply can meet. Due to this, new construction is ongoing in several cities, with logistics and cargo centres rising at important logistic locations. -8 -6 -4 -2 0 2 4 6 8 2001 GDP Percent 4.5 5.0 With the opening of Helsinki’s Vuosaari harbour in 2008, the HMA logistics market faces great changes. The focus of the logistics market will shift eastwards and several developments are expected to profit from this move. In HMA, some major logistics projects are under way along the Lahti highway, but this is not diminishing the attractiveness of logistics areas 2.0 2.5 3.0 3.5 4.0 0.0 0.5 1.0 1.5 2006 2002 4 6 8 0 2 2000 2001 2 3 4 5 6 7 0 1 2001 2002 2007 2003 2004 2008 2005 2009 2006 2007 Central Bank Interest Rate Property Data Q1 2010 | HMA 3M Euribor Logistics Logistics Logistics Rent (EUR/m2 Yield (%) Vacancy (%) 5Y SWAP ) 2010E 2008 2011E Prime 126 Source: Newsec 7.50 5.0 10.00 8.0 along Ring Road III near the airport. A good example of current development is S Group’s new logistics centre. The construction site is located in Sipoo on the northeast side of HMA. The total investment is about EUR 150 million and the floor space is around 75,000 m2 in 2012. Source: Newsec . The building is expected to be completed 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2003 Private consumption The market for logistics properties has grown rapidly but investors are more selective than before. However, for good logistics properties a suitable investor can still be found. Until recently, most investors were domestic but in the last few years foreign investors have expressed a growing interest in the market. The rent level for prime logistics properties is currently around EUR 126/m2 2004 2005 2006 Inflation 2007 2008 2009 2010E recession leads to decreased trade volumes. Tenant demand for good logistics premises with good connections has been stable for years and despite the economic downturn the supply of such premises is still limited. Many new developments are planned, but construction usually does not start until the premises are let. Prime logistics locations currently have yield levels of 7.5%. However, yields are expected to increase close to 8% during 2010 as increased vacancy risk and expectations of lower rents increase the risk in future property cash-flows and investors’ risk premium. but is expected to fall somewhat as the global Source: Newsec Employment 2007 Central Bank Interest Rate 2008 3M Euribor 2009 2010E 5Y SWAP 2011E 11 Percent 10 34 FINLAND 7 8 9 2011E Other 86 Percent 10 11 4 5 6 7 8 9 50 75 100 125 150 EUR/m2 Source: Newsec Source: Newsec 2009 Logistics Rent History | HMA Source: Newsec Source: Newsec 50 100 150 200 250 300 350 50 100 150 200 250 300 350 400 Source: Newsec Source: Newsec Top High Low 50 2002 Prime 2003 Other 2004 2005 2006 2007 2008 2009 2010E 2011E 2000 CBD CBD 2001 2002 Central 2003 Central2004 2005Prime Prime submarkets 2006 submarkets 2007 Secondary office areas Secondary office areas 2008 2009 2010E 2011E 2000 2002 CBD 2001 Prime 2003 2002 Other Central Prime submarkets Logistics Yields History | HMA 50 100 150 200 250 300 350 11 12 10 5 6 7 8 9 2002 2000 Prime CBD 2001 2003 2002 Other Central CONTACT: KAJ SÖDERMAN kaj.soderman@newsec.fi 2004 2003 2005 2004 2006 2005 Prime submarkets 2007 2006 2007 2008 2008 2009 2009 2010E 2011E 2010E Secondary office areas CONTACT: SAMI KIEHELA sami.kiehela@newsec.fi Source: Newsec 2011E Percent EUR/m2 Source: Newsec Source: Newsec Secondary office areas 2004 2003 2005 2004 2006 2005 2006 2007 2007 2008 2008 2009 2009 2010E 2011E 2010E 2011E <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=35">Newsec Property Outlook - Spring 2010 Sida 35 EUR/</a> m2 2.2 RETAIL IN FINLAND 1,000 1,100 1,200 1,300 1,400 1,500 1,600 2004 2005 2006 2007 2008 2009 2010E 2011E Percent 7.0 Private Consumption and Retail Turnover Finland has been significantly affected by the global downturn. The unemployment rate has increased and is expected to increase further in 2010-2011. The household saving ratio has increased substantially and private consumption has dropped. However, consumer confidence has improved substantially since early 2009 due to signs of recovery in the world economy and low interest rates, even though the overall economy is still affected by falling consumption. Private consumption is expected to recover during 2010 due to the low interest rates and the global economic recovery, but the year-on-year increase is expected to be small. In November 2009 the Parliament of Finland adopted a government bill that allows shops to be open on Sundays year-round. The effects on competition will be seen in the near future, but no significant changes are expected. Supply The retail stock in the major Finnish cities totals approximately 6.4 million m2 , of which around 3.3 million m2 Retail Q1 2010 | Finland 6.0 6.5 5.5 HMA 5.0 Tampere 4.5 Turku 4.0 Oulu 2004 2005 Population (million) 1.0 0.2 0.2 0.1 Prime Yield (%) 6.00 7.00 7.25 2006 20077.35 Central 2008 Vacancy (%) 3.0 2.0 4.0 1.5 2009 Prime Rent 2010E (EUR/m2/year) 1,470 550 495 490 2011E Source: Newsec Economic Indicators | Finland Percent 0 2 4 6 8 is located in Helsinki Metropolitan Area (HMA). Of the retail stock in HMA, about half is located in Helsinki and around one quarter each in Espoo and Vantaa. Finland’s strong consumption growth in recent years has increased demand for retail premises, which has been exceeding the supply. There have been some unrealistic speculative projects, some of which have had trouble acquiring financing and are currently being postponed or cancelled. The volume of completed retail construction projects fell by around 40% in 2009 compared to 2008. -8 -6 -4 -2 2000 2001 Turnover Retail Trade* 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E GDP Private Consumption *Not incl. motor vehicles and motorcycles Source: Newsec Source: Eurostat/Newsec Shopping centres and retail parks have started to take a bigger share of the market compared to high-street retailing and this trend is likely to continue. Other dominant trends over the last couple of years are the expansion of store size and the development of superstore-driven shopping centres and even SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 FINLAND 35 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=36">Newsec Property Outlook - Spring 2010 Sida 36 EUR/</a> m2 1,100 1,200 1,300 1,400 1,500 1,600 superstores with an integrated galleria. However, out-of-town shopping centres are facing more difficulties because of a changed political climate that requires existing regulations to be followed more strictly. The focus now seems to be on the refurbishment and extension of existing centres and new mixed-use concepts combining retail, residential and service areas. Investment Market By the end of 2009 the prime retail yield in HMA had increased to around 6%, from 5.5% one year earlier. Prime yields are expected to be stable during 2010 and start to recover in 2011. Despite low liquidity, some retail transactions still took place during late 2009. One important transaction was in December when Kesko Group sold 13 retail properties (comprising around 111,000 m2 ) located all over Finland to Varma Mutual Pension Insurance Company. The purchase price was EUR 156 million. Rental Market The vacancy level in HMA is currently just above 3%. Finland’s other major cities also have a generally low retail vacancy, but the level is slightly higher in Turku than the other cities. There are likely to be some shop closures and increased relocation by hard-pressed retailers, which will further affect the vacancy levels. High rent levels in central locations have already resulted in retailers relocating to out-of-town shopping centres with lower rents than prime city locations. However, even though the demand for shopping centre premises with good location still exceeds the supply, prime rents are expected to decrease during 2010. High-street retail rents are expected to be stable in 2010-2011 but property owners are flexible with good tenants, and temporary rent discounts or rent-free periods are occurring. Current rents for prime retail space in HMA range Prime Retail Yields | HMA 1,000 2004 2005 2006 Percent 7.0 6.5 6.0 5.5 5.0 4.5 4.0 2004 2005 2006 2007 2008 2009 2010E 2011E Retail Prime Retail Rents | HMA EUR/m2 Percent 0 2 4 6 8 -8 -6 -4 -2 1,000 1,100 1,200 1,300 1,400 1,500 1,600 2004 2000 Percent 7.0 6.5 2001 2005 2006 2007 2008 2009 Liiketalo Tammiston Tähti, Vantaa, Palmberg 4,900 2010 2007 2008 2009 2010E 2011E Major Retail Development Projects | Finland Source: Newsec Property Type Project, Location, Property Owner/Developer Retail/Office City Center (Makkaratalo), Helsinki, Sponda Retail Retail Stockmann, Helsinki, Oy Stockmann Ab Liiketalo Koy Espoon Ruukintie 20 B, Espoo, JHM-Invest Oy Retail/Office Koy Aleksanterinkatu 48, Helsinki, Sigrid Juselius Stiftelse Retail Koy Koivuhaan Liikekeskus, Vantaa, YIT Rakennus Oy Size (m2 55,000 10,000 8,600 5,000 5,000 Expected ) Completion 2011 2010 2010 2010 2010 Source: Newsec N Source: Newsec Source: Eurostat/Newsec 2010E 2011E Turnover Retail Trade* 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec GDP Private Consumption from EUR 850/m2 to EUR 1,250/m2 over EUR 1,470/m2 6.0 5.5 5.0 4.5 4.0 2004 2005 2006 2007 2008 2009 2010E 2011E CONTACT: TUULA SAURAMA tuula.saurama@newsec.fi . , with top rents slightly 36 FINLAND Percent <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=37">Newsec Property Outlook - Spring 2010 Sida 37 NORW</a> AY NORWAY 1,500 8 1,000 2 4 6 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E NOK/m2 3. NORWAY Percent Macroeconomic Forecast The recession in Norway has come to an end as the economy started to recover in mid 2009 – primarily due to expansive fiscal and monetary policy and the global economic recovery. The Norwegian GDP is expected to grow by 2% in 2010 and 3% in 2011. 2 3 4 5 6 7 1 2003 2004 2005 Central Bank Interest Rate 2006 2007 2008 3M Treasury Bill 2009 3M NIBOR 2010E 2011E 5Y SWAP The global slowdown had a substantial effect on Norwegian exports: in 2009, exports of traditional goods decreased by 8.4%1) Economic Indicators | Norway Percent 6 7 2 3 4 5 0 1 -2 -1 2000 2001 GDP 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Private consumption Inflation Employment Source: Newsec , while exports of crude oil and natural gas decreased Source: Newsec 1,000 1,500 2,000 2,500 3,000 3,500 4,000 500 CBD by 2.7%2) Central +4.0% and -1.9%. Gross fixed investment is expected to decrease by almost 2.6%3) Inner City . The expected figures for 2010 are respectively in 2010, mostly due to a drop in mainland industry investments. However, general government investments and investments in the petroleum industry are moderating the total decline in investment. The twelve-month rise in the Consumer Prices Index was 1.5%4) most important factors behind the increase. Newsec expects inflation to decrease during the first half of 2010 due to the low capacity utilisation in combination with moderate wage increases. The unemployment rate increased during 2009 and is currently 3.2%5) NOK/m2 is expected to fall slightly more in 2010 and then recover in 2011. Households’ disposable incomes increased during 2009, mostly due to lower interest expenses, and private consumption is expected to increase during 2010-2011. 2000 2001 CBD 1,000 1,500 2,000 2,500 3,000 3,500 4,000 500 All in all, the Norwegian economy has come through the recession fairly well compared to other countries in Europe. The worst of the recession has passed and Newsec expects a return to more normal levels of GDP growth in 2010-2011. Central Inner City 1-4) Statistics Norway 5) Labour Force Survey Percent 10 NOK/m2 2,000 1,000 1,250 1,500 1,750 500 750 Source: Newsec 4 5 6 7 8 9 2000 2001 CBD Stavanger 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Bergen Central SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 2000 2001 NORWAY 37 # Population: 4.7 million 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E STAVANGER in November 2009, and prices of energy goods were the Source: Newsec TRONDHEIM Bergen Stavanger Source: Newsec Top High Low . Employment fell by 0.5% in 2009 and BERGEN OSLO Source: Newsec <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=38">Newsec Property Outlook - Spring 2010 Sida 38 10 8</a> 2 4 6 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Oslo | Population: 1.0 million | Office stock: 8.8 million m2 12 Interest Rates | Norway Percent 2 3 4 5 6 7 9 5 4 6 3 7 1 2 8 10 11 1 2003 2004 2005 Central Bank Interest Rate 2006 2007 2008 3M Treasury Bill 2009 3M NIBOR 2010E 2011E 5Y SWAP Source: Newsec Interest Rate Forecast During 2008-2009 the Norwegian central bank reduced its key policy rate to an all-time low of 1.25%. However, since then the interest rate has increased and is currently 1.75%, and the central bank is expected to keep on raising the steering interest rate during 2010-2011 in line with the general economic recovery. The credit market has improved during the last six months and banks’ interest-rate margins have been reduced considerably. The credit market is expected to continue its recovery gradually; however, it is hard to predict when it will return to normal. Percent 6 7 1 2 3 CBD Central Fornebu 4 5 6 Lysaker Skøyen Aker Brygge 7 8 9 Vika Bjørvika Økern 10 11 12 Helsfyr Bryn Nydalen The Norwegian interbank interest rate, NIBOR, has decreased substantially since the peak but is expected to follow the steering rate upwards in coming years. Newsec expects inflation to remain low during 2010-2011, thus moderating the increases in short-term interest rate. Long-term interest rates are expected to increase during 2010-2011 due to expectations of future GDP growth. 2 3 4 5 0 1 -2 -1 2000 2001 GDP 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Private consumption Inflation Employment 2,000 1,000 1,250 1,500 1,750 38 NORWAY Investment Market The sluggish investment market came to an end during the summer of 2009. During the autumn, Newsec has seen bidding competition on prime yield properties, a scenario which was NOK/m2 Source: Newsec Source: Newsec 500 750 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=39">Newsec Property Outlook - Spring 2010 Sida 39 NOK/</a> m2 Percent Percent 10 12 8 2 4 6 2000 2001 Source: Newsec 2 3 4 5 6 7 1 2003 3,000 Source: Newsec Source: Newsec 2,500 Low 2,000 500 CBD 1,500 Central Inner City Top High 1,000 1,500 2,000 2,500 3,000 Low 20041,000 2005 Central Bank Interest Rate 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Transaction Volume | Norway Billion NOK Percent 2 3 4 5 6 7 1 2003 2004 20 30 40 50 60 70 80 10 0 2002 2003 2004 2005 2006 2007 2008 2009 2006 Bergen 3M Treasury Bill Source: Newsec Office Rents Q1 2010 | Oslo NOK/m2 Percent Percent Source: Newsec 6 7 2 3 4 5 0 1 Central Bank Interest Rate Percent The total transaction volume in 2009 was approximately NOK 14 billion, a considerable decrease compared with NOK 28 billion in 2008. The reasons for the low transaction volume were a combination of the hard financing conditions and an expectation among potential investors of a further decline in property prices. Newsec expects the transaction volume for 2010 to be in the area of NOK 23-26 billion. 10 12 8 Percent 6 7 2 3 4 5 0 1 -2 -1 2000 2001 GDP 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Private consumption NOK/m2 00 50 00 50 00 Recent transactions clearly demonstrate that the investment market is experiencing increased activity. In November, for Source: Newsec 2 3 4 5 6 7 1 2003 2004 2005 Central Bank Interest Rate 2006 2007 2008 2009 3M NIBOR 2010E 2011E 5Y SWAP Inflation Employment There were few distressed sellers on the market during the course of the financial crisis and it appears that the banks were not interested in arranging forced sales processes. As long as property cash flows covered interest payments and amortisation, banks seemed to be satisfied. According to Newsec’s statistics, property prices have in general increased about 5% since the summer of 2009 and it is expected that they will continue to increase over the next couple of years due to lower required returns and eventually increasing market rents. 2 4 6 2000 2001 500 750 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Percent Source: Newsec 2,000 1,000 1,250 1,500 1,750 Source: Newsec unthinkable 6 months earlier. We also see new property funds being established and equity issues taking place – signs that the property market is experiencing renewed optimism. -2 -1 2005 2006 2007 2008 3M Treasury Bill 2009 3M NIBOR 2010E 2011E 5Y SWAP Source: Newsec NOK/m2 1,000 1,500 2,000 2,500 3,000 3,500 4,000 500 CBD NOK/m2 3,000 2000 2001 GDP example, Entra Eiendom sold a property in Grini Næringspark, outside Oslo, to Havila Ariel for NOK 105.5 million. The property is leased to the Government for 20 years and the yield was close to 6%. In the same month, Storebrand Property Fund sold the office/retail property Grensen 5-7 in Oslo to the Swedish investor Genesta for NOK 445 million. The average lease-period (to various tenants) was approximately 10 years. 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Private consumption Inflation 2,500 Low 2,000 Source: Newsec 8 1,500 NOK/m2 2000 2001 Stavanger 1,000 1,500 2,000 2,500 3,000 3,500 4,000 1,000 Bergen Source: Newsec Newsec expects the credit market to improve gradually during the coming years, with decreasing bank interest-rate margins. The expectation of coming rental increases and falling yields creates excellent investment opportunities in Norway this year. Stavanger Oslo Office Market Oslo is the largest city in Norway with 575,000 inhabitants in the city itself and a million in the Greater Oslo area. The total office stock is approximately 8.8 million m2 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E NOK/m2 Bergen 500 2000 2001 CBD and storage areas included. The best and highest-priced office locations are in the Vika and Aker Brygge area, which is considered to be the Oslo CBD. Bjørvika and the area around the Oslo Central Station are transforming into a second CBD area and are receiving good rents for their new-build offices. The area around the govern ment offices is another traditional 10 Percent SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 3M Treasury Bill 5 6 7 8 9 Central Bank Interest Rate 1,000 1,500 2,000 2,500 3,000 3,500 4,000 500 CBD Central Inner City Source: Newsec Central 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Inner City Source: Newsec Top High , basement Low and popular office area. The other major submarkets are Skøyen, Lysaker, Fornebu, Nydalen, Helsfyr and Bryn, all located outside the city centre. Office Vacancy Rate The strong employment growth of past years resulted in falling vacancies on the Oslo office market. However, during the past year employment has been falling and office vacancies have increased quite substantially. The financial crisis and uncertain times have forced many companies to be more Percent 2 3 4 5 6 7 1 2003 2004 2005 2006 2007 2008 3M Treasury Bill 2009 3M NIBOR 2010E 2011E NORWAY 39 5Y SWAP Source: Newsec 2 4 6 Employment Central Inner City Source: Newsec Top High Vacancy Rate | Oslo Percent 10 12 Percent 10 4 5 6 7 8 9 2000 2000 2001 CBD 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Central 8.0 8.5 9.0 5.0 5.5 6.0 6.5 7.0 7.5 2006 Stavanger 2007 Bergen Source: Newsec Top High Low Source: Newsec 2007 2008 2009 3M NIBOR 2010E Stavanger 5Y SWAP Source: Newsec Office Rent History | Oslo Billion NOK 2008 2009 2010E 2011E 1,000 1,500 2,000 2,500 3,000 3,500 4,000 20 30 40 50 60 70 80 10 0 500 2002 2003 2000 2001 CBD Central 2004 2005 2006 2007 2008 2009 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Inner City NOK/m2 Source: Newsec Source: Newsec 2011E Source: Newsec Source: Newsec <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=40">Newsec Property Outlook - Spring 2010 Sida 40 NOK/</a> m2 Percent 6 7 2 3 4 5 0 1 -2 -1 cost-conscious and reconsider the size and location of their office premises. This resulted in an increase in the number of sublet premises on the rental market in 2009, which in turn put severe pressure on rents. 2000 2001 GDP NOK/m2 At the end of 2009 vacancies reached 7% in Oslo CBD, and they are expected to stay at this level throughout 2010. In the Greater Oslo area, vacancies are currently at 7.5% and are expected to hit 8% at the end of the year. Despite the rise in vacancies, the Greater Oslo area has lower vacancies than the other Nordic capitals, and well below the 11% reached in 2003. Newsec expects vacancies to recover and decrease to 7.0% in 2011. 2,000 1,000 1,250 1,500 1,750 Office Rents Last year’s increase in the supply of office premises has resulted in falling market rents in all Oslo office segments. However, rents have now stabilised and are expected to remain fairly stable throughout 2010. A turnaround is expected in 2011, when rents are forecast to start increasing again. 500 750 2000 2001 Stavanger The market rent for prime office premises in Oslo CBD is currently in the range NOK 1,800-2,800/m2 around NOK 3,100/m2 is in the range NOK 1,400-2,200/m2 NOK 2,400/m2 . Office Yields General interest from investors has increased considerably during the past half year, largely due to the improved credit market and a stabilising rental market. The trend of increasing yields seen in recent years is now broken and yields have stabilised or started to decrease in all submarkets. Prime yield in Oslo is currently 6.00-6.25%, a substantial decrease from 6.5% in mid 2009. Newsec expects yields to continue to decrease during 2010-2011 in all office submarkets. Building Activity A new district of Oslo, Bjørvika, is under construction and will offer approximately 410,000 m2 of new office space in the next , with top rents of . In other central areas the market rent , with top rents of around 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Private consumption Inflation Employment ten years. New apartments, several museums and the Opera, which is already completed, will also go to shape an exciting and mixed part of the city in the near future. In Norway as a whole, start-ups of commercial projects in 2009 fell by 20% compared to 2008. In the Oslo area, commercial project start-ups fell by 40% over the same period. In 2010, start-ups are expected to fall by 15% in Norway as a whole but to increase slightly in Oslo. Source: Newsec 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Bergen Construction prices in Norway fell by 5-10% during the first half of 2009 and several contractors were forced to reduce their workforces because of the shortage of orders. In the second half of 2009 prices increased slightly but remain well below the peak of July 2008. The public projects initiated by the government have still to achieve their full effect. Turnover in the construction industry in Oslo fell substantially more than for the country as a whole. Stavanger Office Market Stavanger is situated on the southwest coast of Norway, and the region is one of the fastest-growing in Norway. The Stavanger region is the centre for the Norwegian oil and natural gas industry, and most of the Norwegian oil companies have their head offices here. Other large employers in the region are the public, printing/publishing, finance and agricultural/food sectors. The district is known for innovative and value-generating business activities. The infrastructure is well developed, with railways, airport and harbour. In the ‘oil capital’ of Norway, office vacancy and market rents are naturally dependent on activity in the North Sea. The high activity of recent years has created a greatly expanded demand for office premises, which resulted in low vacancy and increased market rents. Office vacancies have risen during the past year, primarily due to completion of new office premises. As a large share of the new office area was pre-let, most of the current vacancy is found in older office premises. The vacancy rate is currently 7% and is expected to increase to 8% by the Source: Newsec 1,000 1,500 2,000 2,500 3,000 3,500 4,000 500 2000 2001 CBD Central 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Inner City Source: Newsec Office Yields | Oslo Percent 10 4 5 6 7 8 9 2000 2001 CBD 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Central Major Property Owners | Norway Company Country Aberdeen Property Investors Aspelin Ramm Avantor Berthel O Steen Eiendom Bryn Eiendom Braathen Eiendom DnB NOR Eiendomsfond Eiendomsspar Entra Eiendom Ferd Eiendom Höeg Invest Eiendom KLP Eiendom Linstow Mustad Eiendom NIAM UK NOR NOR NOR NOR NOR NOR NOR NOR NOR NOR NOR NOR NOR SWE Source: Newsec Company Nordea Liv Norwegian Property Country NOR NOR OBOS Forretningsbygg NOR Olav Thon Gruppen Oslo Areal ROM Eiendom Sektor Selvaag Eiendom Steen & Strøm Storebrand Eiendom Storebrand Property Fund Søylen Eiendom Telenor Eiendom Utstillingsplassen Eiendom Vital Eiendom NOR NOR NOR NOR NOR FRA NOR NOR NOR NOR NOR NOR 40 NORWAY <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=41">Newsec Property Outlook - Spring 2010 Sida 41 Perc</a> ent 6 7 2 3 4 5 0 1 -2 -1 2000 2001 GDP end of 2010. Newsec expects vacancies to peak at 8.5% in late 2011. The rental level in Stavanger is higher than cities like Bergen and Trondheim, and the prime rent was NOK 1,800/m2 at the beginning of 2010 for modern office premises in the city centre. Newsec believes that market rents will be fairly stable throughout 2010 and start to increase in 2011. Activity on the investment market has increased and we have seen a few transactions suggesting that yields have decreased during the recent 6-12 months. The prime yield in Stavanger is currently expected to be around 7.00-7.25%. Billion NOK 10 20 30 40 50 60 70 80 0 2002 2003 12 Percent 10 8 1,000 4 6 Bergen Stavanger SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 NORWAY 41 Due to the combination of workforce reductions and an increased focus on space-efficient office premises, the vacancy rate has increased. The office vacancy in Bergen is currently 6% and is expected to remain relatively stable during 2010. Rising vacancy rate and an increased number of sublet premises resulted in falling market rents in 2009. Newsec expects market rents to be fairly stable throughout 2010 and then increase somewhat in 2011. The market rent for office premises in Bergen centre is currently about NOK 1500/m2 2004 2005 2006 2007 2008 2009 Source: Newsec 2,000 . 1,500 Few transactions have taken place during the last year, but we estimate general yield levels to be approximately on a level with Stavanger, with prime yields around 7.00-7.25%. NOK/m2 3,000 Top High 2,500 CONTACT: GRO ANETTE BYBERG gro.anette.byberg@newsec.no CONTACT: Low NILS ARNE GUNDERSEN nils-arne.gundersen@newsec.no Source: Newsec Bergen Office Market Bergen, situated on the west coast, is the second-largest city in Norway. The Greater Bergen region has more than 375,000 inhabitants, and population growth is above the national average. Important employers in Bergen are the public, manufacturing, retail, construction, oil/offshore and finance sectors. Source: Newsec Bergen is surrounded by sea and mountains, resulting in a limited amount of land available in the central area. To expand the city, a new light railway is under construction heading south from central Bergen. The area around the railway has become an attractive location for commercial real estate. The expected completion date is summer 2010, and there are about 40 building projects associated with the railway. 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Private consumption Inflation Employment Office Rent History | Bergen, Stavanger NOK/m2 2,000 1,000 1,250 1,500 1,750 500 750 2000 2001 Stavanger 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Bergen Office Office Office Office Office Office Office Office Yields | Bergen, Stavanger Percent 8.0 8.5 9.0 5.0 5.5 6.0 6.5 7.0 7.5 2006 Stavanger 2007 Bergen 2008 2009 2010E 2011E Source: Newsec Office Office Office Office Office Office Office/ Logistics Office/ Logistics Office Office/ Hotel Source: Newsec Major Office Development Projects | Oslo 10 Percent Property Type Project, Location, Property Owner/Developer Head Office DnB NOR, Bjørvika, OSU Head Office Statoil, Fornebu, IT Fornebyu Eiendom Oslo Tower, Økern, Oxer Fornebu Technoport, Fornebu, KLP Eiendom 4 5 6 7 8 9 Helsfyr Atrium, Helsefyr, Sektor 2000 2001 CBD Central Veritas, Høvik, Det Norske Veritas Eiendom Bakelitt-tomten, Sandvika, Sjølyst utvikling K2, Fornebu, Scandinavian Property Development Head Office KLP, Bjørvika, OSU Visma bygget, Bjørvika, Braathen Eiendom R6, Regjeringsbygg 6, Centre, Statsbygg Kristoffer Aamots gate 5, Nydalen, Avantor Tjernsmyr Næringspark, Lysaker, Fram Management Brobekkveien 80, Økern, Storebrand Eiendomsfond Alf Bjerckes vei, Økern, Fabritius Eiendom Hoffsveien 4, Skøyen, Eiendomsspar Scandic Vulkan, Centre, Vulkan Eiendom Size (m2 ) 80,000 65,500 60,000 43,000 Expected Completion 2012 2012 2012 2012 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 38,000 35,000 30,000 28,000 25,000 25,000 21,000 20,000 20,000 19,000 15,000 14,000 13,500 2010 2012 2012 2012 2010 2011 2012 2010 2011 2011 2011 2010 2011 Source: Newsec Source: Newsec 1,000 1,500 2,000 2,500 3,000 3,500 4,000 500 2000 CBD 2001 Central 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Inner City <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=42">Newsec Property Outlook - Spring 2010 Sida 42 NOK/</a> m2 10,000 10,500 11,000 11,500 12,000 12,500 13,000 13,500 14,000 9,000 9,500 2006 3.1 RETAIL IN NORWAY Private Consumption and Retail Turnover Consumer confidence in Norway was high during the early 2000s, but the economic slowdown and subsequent rise in unemployment created pessimism in the market in 2008 and early 2009. However, consumer confidence improved again during the second half of 2009 as a result of the economic recovery. The disposable income of Norwegian households increased during 2009 due to wage increases and low interest rates – monetary policy has a large impact on households since around 75% of Norwegians own their homes. Newsec expects private consumption to increase by 3.5% in 2010 and 4% in 2011. This increasing private consumption is having a positive effect on retail turnover, which is expected to increase during 2010-2011. Supply Norway has one of the largest per capita levels of retail space in the world; in twenty years, the floor space in Norwegian shopping centres has quadrupled, and today more than one third of all Norwegian retail trade takes place in shopping centres. It is expected that the level of new developments will fall back in coming years as a consequence of both the economic downturn and the relatively saturated market. A new regulation concerning shopping centres came into effect in July 2008. It decrees that new shopping centres larger than 3,000 m2 (4,000 m2 in Oslo) must be located near public transport hubs or in city centres unless regional zoning plans have already approved larger floor space. The intention is, among other things, to strengthen existing city centres and reduce pollution by limiting traffic. The new legislation puts additional downward pressure on the development pipeline, but it may also stimulate further development of high-street Investment Market There have been some retail transactions in Norway recently, but no major shopping centres have been sold since Steen & Strøm was sold in 2008. The shopping centre property company Sektor is currently up for sale and will provide new market information when the deal is closed. In November, the 2007 2008 2009 2010E 2011E Source: Newsec Percent Retail Q1 2010 | Norway Oslo Stavanger Bergen 4.0 4.5 5.0 5.5 6.0 6.5 7.0 2006 Population (million) 1.1 0.3 2007 0.4 Prime Yield (%) 6.00 6.25 6.25 2008 Central 2009 Vacancy (%) n.a. n.a. n.a. Prime Rent 2010E (NOK/m2/year) 12,000 5,000 6,000 2011E Source: Newsec Economic Indicators | Norway Percent 2 3 4 5 6 7 8 9 -2 -1 0 1 2000 2001 Turnover Retail Trade* 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E GDP Private Consumption *Not incl. motor vehicles and motorcycles Source: Eurostat/Newsec retailing in city centres, which happened when a similar law was imposed in Denmark. 42 NORWAY <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=43">Newsec Property Outlook - Spring 2010 Sida 43 NOK/</a> m2 10,000 10,500 11,000 11,500 12,000 12,500 13,000 13,500 14,000 9,000 9,500 2006 German property investor Catella acquired a high-street retail property in Oslo from Selvaag at a net initial yield of 6.25%, which seems to be the new reference for prime retail yield. Other recent retail transactions indicate that non-prime retail properties are selling at yields between 7.5% and 8%. Based on the transactions that took place during the second half of 2009, yields for prime retail properties are currently slightly over 6%. Rental Market Rent levels for retail premises have followed the pattern of private consumption, falling slightly in 2008 and stabilising in 2009. We expect small increases in market rents in late 2010 as private consumption is expected to grow by 3.5% in 2010. Current high-street retail rents lie in the range NOK 6,00015,000/m2 . Shopping centres have historically had the most stable rent levels, and Newsec expects this to continue. However, the more central the shopping centre, the more attractive the premises and the lower the vacancy rates. Newsec has noted that there are longer void periods in less centrally located shopping centres. Prime shopping-centre rents are in the range NOK 4,000-10,000/m2 . A large proportion of retail lease contracts cover a period of five years. Many of the contracts that will be renegotiated in 2010 were signed in 2005. Since 2005, consumption has increased, thereby increasing the retailer’s turnover. Despite the fact that market rents have fallen since the top, Newsec expects that commercial owners of retail real estate can still expect a small rent increase on many of the contracts that will be renegotiated in 2010. 2007 Prime Retail Yields | Oslo Percent 4.0 4.5 5.0 5.5 6.0 6.5 7.0 2006 2007 2008 2009 2010E 2011E Retail Prime Retail Rents | Oslo NOK/m2 Percent 2 3 4 5 6 7 8 9 10,000 10,500 11,000 11,500 12,000 12,500 13,000 13,500 14,000 -2 -1 0 1 9,000 9,500 2006 2000 SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 4.0 4.5 5.0 5.5 6.0 6.5 7.0 2006 2007 2008 2009 2010E 2011E 2001 Turnover Retail Trade* Percent CONTACT: GRO ANETTE BYBERG gro.anette.byberg@newsec.no 2007 2008 2009 2010E 2011E 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E GDP Private Consumption Source: Newsec Retail Retail Retail Retail Bauhaus, Vestby, Bauhaus Norge Åsane senter, Bergen, Steen & Strom Outlet, Vestby, Outlet Invest AS Gulskogen, Drammen, Steen & Strom 22,000 20,000 12,500 8,000 2010 2014 2010 2010 Retail Source: Newsec Source: Eurostat/Newsec Retail Retail Retail Retail Retail Retail IKEA Åsane, Bergen, IKEA Handel og Eiendom IKEA Larvik, Larvik, IKEA Handel og Eiendom IKEA Trondheim, Trondheim, IKEA Handel og Eiendom IKEA Sørlandet, Kristiansand, IKEA Handel og Eiendom Strømmen Storsenter, Skedsmo, Vats AS Håkon VII gate 8-10, Trondheim, Nordiske Handelsparker Sjøfront utvikling, Kristiansand, Sektor Eiendomspartner Fornebu Senter, Fornebu, Scandinavian Property Development 36,000 36,000 34,500 34,500 30,000 28,000 26,000 24,000 2011 2014 2010 2010 2012 2011 2014 n.a. 2008 2009 2010E 2011E Major Retail Development Projects | Norway Source: Newsec Property Type Retail Retail Retail Retail Retail Project, Location, Property Owner/Developer Sørlandssenteret, Kristiansand, Thon/ Vital IKEA Forus, Stavanger, IKEA Handel og Eiendom Lamertseter Senter Nord, Oslo, OBOS Foretningsbygg IKEA Oslo east, Oslo, IKEA Handel og Eiendom Vestby Senter, Vestby, Nordiske Handelsparker Size (m2 Expected ) 73,000 55,000 42,000 40,000 40,000 Completion 2013 2011 2010 2012 2012 Source: Newsec NORWAY 43 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=44">Newsec Property Outlook - Spring 2010 Sida 44 ENMA</a> R DENMAR 6 7 8 4 5 2 3 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 1,600 High Low 1,300 1,000 700 CBD Prime CBD Secondary Greater Copenhagen Prime Greater Copenhagen Secondary 4. DENMARK Percent Macroeconomic Forecast Denmark was the first Nordic country to face recession, with a GDP decline of 1% in 2008 and 4.5% in 2009. The main factors causing the economy to slow down were the financial crisis and dropping global demand in combination with the sluggish housing market, which substantially affected private consumption. Like other central banks worldwide, the Danish National Bank has injected new capital into the financial system to support the property market and prevent corporate 2 3 4 5 6 1 2004 2005 2006 Central Bank Interest Rate 2007 3M CIBOR 2008 2009 5Y SWAP 2010E 2011E Economic Indicators | Denmark Percent 3 4 5 6 2 0 1 -5 -4 -3 -2 -1 2000 2001 GDP 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Private consumption Inflation Employment Source: Newsec DKK/m2 2,000 investments from coming to a standstill. The Danish economy recovered somewhat during the second half of 2009 and is expected to show positive GDP growth in 2010. 1,500 1,000 Inflation has fallen back from the peak levels of mid 2008 and is forecast to remain low in 2010-2011 due to moderate wage increases and decreasing housing prices. Inflation is expected to end up at 1.5% this year and increase to around 2% in 2011. 500 2000 2001 CBD Prime 2002 2003 Greater Copenhagen Prime 2004 CBD Secondary Greater Copenhagen Secondary Source: Newsec Up to 2008 falling house prices put a downward pressure on Danish private consumption, while low unemployment and large wage increases worked in the opposite direction – keeping growth in consumption above the zero-mark. During late 2008 this trend changed and private consumption fell by 4% in 2009. However, low interest rates, increasing disposable incomes and improving consumer confidence are now ending the negative trend and private consumption is expected to grow by 1.5% in 2010 and 2% in 2011. Percent 10 Large wage increases and the currency peg to the euro have resulted in the Danish economy becoming less competitive in recent years. However, exports have been relatively gently affected by the falling global demand because of the dominance of agricultural, chemical and energy-technological 4 5 6 7 8 9 2000 2001 CBD Prime 2002 2003 Greater Copenhagen Prime 2004 CBD Secondary Greater Copenhagen Secondary COPENHAGEN 2005 2006 2007 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec Source: Newsec 2008 2009 2010E 2011E # Population: 5.5 million 44 DENMARK 44 DENMARK <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=45">Newsec Property Outlook - Spring 2010 Sida 45 RK p</a> roducts – all goods with a stable demand over the economic cycle. Global demand has now bottomed out and exports are expected to recover during 2010. In the summer of 2008 the unemployment rate reached 3.3%, its lowest level for several decades. However, the recession then created increasing unemployment during 2009 and unemployment is expected to keep on increasing in 2010. The flexible Danish labour market is moderating the time lag between real economic development and the labour market and employment is expected to level out and recover in 2010-2011. Interest Rate Forecast Because the Danish currency is pegged to the euro, the yield levels of both three-month interest rates and Danish 10-year government bonds tend to follow those of the euro interest rates quite closely. During the period 2003 to mid-2006, the three-month interbank interest rates for Denmark and the euro zone remained in the 2-3% bracket with only a modest interest-rate spread. However, due to changes in financial conditions, stronger risk aversion and pressure on the Danish currency, the short-term interest rates increased and the spread widened substantially at the end of 2008. During 2009 the spread has again decreased due to the gradual improvements on the financial market. In January 2010 the Danish National Bank reduced its steering interest rate to 1.05% due to an easing of pressure on the Danish krone. This rate represents a spread to the ECB interest rate of only 5 basis points. Since the Bank is expected to have a long-term interest rate spread to the ECB of around 25 basis points, and the ECB is expected to keep its interest rate stable in 2010 and increase it in 2011, this will lead to increasing interest rates in 2010-2011. However, both the steering interest rate and the short-term market interest rate – the 3-month CIBOR – are expected to remain at relatively low levels in coming years due to the low inflation pressure. In 2010-2011 10 6 7 8 9 4 5 2 3 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E DKK/m2 1,900 Top High 1,600 Low 1,300 Source: Newsec 1,000 700 CBD Prime CBD Secondary Greater Copenhagen Prime Greater Copenhagen Secondary Interest Rates | Denmark Percent 2 3 4 5 6 1 2004 2005 2006 Central Bank Interest Rate 2007 3M CIBOR 2008 2009 5Y SWAP 2010E 2011E 10 2000 2001 2002 1,000 2003 2004 2005 2006 2007 2008 2009 Source: Newsec Transaction Volume | Denmark Billion DKK 20 30 40 50 60 70 80 Source: Newsec DKK/m2 2,000 Source: Newsec 1,500 500 long-term interest rates are expected to increase slightly due to the bottoming out of the economic cycle and expectations of increasing future growth rates. Investment Market Denmark’s economic growth and low interest rates have been the main drivers in the Copenhagen office investment market during recent years. However, like all other countries Denmark was affected by the financial crisis, which stripped the market of liquidity due to high interest-rate margins and strict equity requirements. Although there is still a mismatch between buyers’ yield requirements and sellers’ yields, the gap has decreased and there is hope that 2010 will see a renewed rise in property investment turnover. Percent 3 4 5 6 2 0 1 -5 -4 -3 -2 -1 Investment demand is led by financially strong investors such as institutional investors and well-consolidated property companies, able to match the equity ratios required by banks. Lower property prices in combination with difficulties for Danish investors to get loan-financing have opened up the Danish property market to international real estate funds, which are gradually becoming interested in the market. 2000 2001 GDP 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Private consumption Inflation Employment Source: Newsec Major Property Owners | Denmark Company 2000 Aberdeen Property Fund NED ATP Percent 10 DADES Danica Insurance Essex Invest Jeudan 6 7 8 9 4 5 JØP Pension KP Pension 2 3 2000 2001 DEN DEN Percent DEN 10 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 4 5 6 7 8 9 DEN DEN DEN DEN Country 2001 CBD Prime 2002 2003 Greater Copenhagen Prime Company MP Pension Nordea Estates Nordicom PensionDanmark PFA Pension PKA Pension Rolf Barfoed Topdanmark Insurance 2004 CBD Secondary Greater Copenhagen Secondary Source: Newsec Country DEN DEN DEN DEN DEN DEN DEN DEN 1,9 2005 2006 2007 2008 2009 2010E 2011E 1,6 Source: Newsec 1,3 1,0 7 2000 2001 CBD Prime 2002 2003 Greater Copenhagen Prime 2004 CBD Secondary 2005 2006 2007 Copenhagen Office Market Copenhagen CBD commands the highest office rents, with waterfront locations in particular seeing top rent levels. The total office stock in the Copenhagen area offers around 11 million m2 Percent located in the CBD. Among important sub-areas are Østerbro, 2 3 4 5 6 1 2 of office space, of which some 5 million m2 are 2008 2009 2010E 2011E Greater Copenhagen Secondary Source: Newsec SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 2004 2005 2006 Central Bank Interest Rate 2007 3M CIBOR 2008 2009 5Y SWAP 2010E DENMARK 45 2011E <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=46">Newsec Property Outlook - Spring 2010 Sida 46 Bill</a> ion DKK 20 30 40 50 60 70 80 10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: Newsec Copenhagen | Population: 1.8 million | Office stock: 11.0 million m2 1 2 3 4 5 6 7 8 9 CBD / Central Nørrebro Frederiksberg Hellerup Ballerup / Herlev The west corridor Sydhavnen Amager / Ørestad Østerbro Vacancy Rate | Copenhagen Percent 10 6 7 8 9 4 5 2 3 4 5 2 3 6 7 9 1 Nørrebro, Frederiksberg, Hellerup, Herlev/Ballerup, the west corridor, Sydhavnen and Amager/Ørestad. Percent Vacancy Rate At the end of 2008, the office vacancy rate in the Copenhagen was around 5.5% – a higher level than in 2007, but nevertheless a relatively low level in both a historical and international perspective. However, the economic downturn has resulted in further office vacancies, reaching a rate of 8.6% in early 2010. Vacancies are expected to increase further due to the economic downturn and falling employment and to peak at 9.5% in 2010. 2 3 4 5 6 1 2004 2005 2006 Central Bank Interest Rate 8 2007 3M CIBOR 2008 2009 5Y SWAP Rents The Danish labour market was relatively late to be affected by the recession. Employment fell substantially in 2009, however, which has affected office vacancies and the rental market. Although the effects are moderated by the drastic slowdown in new construction, rents decreased in 2009 and are expected to keep on falling in 2010, not stabilising until 2011. Percent Prime office rents in the CBD are currently DKK 1,4001,600/m2 3 4 5 6 2 0 1 46 DENMARK -5 -4 -3 -2 -1 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E , with top rents of DKK 1,750/m2 Source: Newsec , while office rents 2010E 2011E Source: Newsec 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=47">Newsec Property Outlook - Spring 2010 Sida 47 1,60</a> 0 Billion DKK 2,000 20 30 40 50 60 70 80 10 2000 DKK/m2 Source: Newsec Source: Newsec 6 7 1,500 4 5 2 3 1,000 2000 2001 1,300 Low 1,000 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 500 2000 2001 2001 CBD Prime 2002 2002 2003 2003 Greater Copenhagen Prime 2004 CBD Secondary2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2010E 2011E 2009 Greater Copenhagen Secondary Percent Percent 10 6 7 8 9 4 5 2 3 Office Yields | Copenhagen Percent 10 4 5 6 7 8 9 2000 Source: Newsec Source: Newsec 2 3 4 5 6 1 2004 Office Rents Q1 2010 | Copenhagen DKK/m2 1,900 Top High 1,600 Low 2005 1,300 Central Bank Interest Rate 1,000 500 2000 2001 2001 CBD Prime 2002 2003 Greater Copenhagen Prime 2004 CBD Secondary 2005 2006 2007 2008 2009 2010E 2011E 700 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Greater Copenhagen Secondary Major Development Projects | Copenhagen Percent Percent 2 3 4 5 6 1 Property Type Project, Location, Property Owner/Developer Office Rambøll, Ørestad, SEB Pension Office KPMG, Frederiksberg, KPMG Office 2004 Office Office Office SEB, CBD, SEB Pension 2005 Mikado House, Ørestad, C.W. Obel 2006 Central Bank Interest Rate Berlingske-karreen, CBD, Jeudan 3M CIBOR 2007 2008 2009 5Y SWAP Office Winghouse, Ørestad, KPC Byg, DADES 2010E Source: Newsec Size (m2 ) SKT Petri Passage, CBD, The Carlyle Group 40,000 33,400 30,000 2011E 27,000 18,000 11,500 11,450 Expected Completion 2010 3 4 5 6 0 1 -5 -4 -3 -2 -1 2 2011 2010 2010 2010 n.a. CBD Prime CBD Secondary Greater Copenhagen Prime Greater Copenhagen Secondary 2000 2001 CBD Prime 2002 2003 Greater Copenhagen Prime 2004 CBD Secondary Greater Copenhagen Secondary 2005 2006 2007 2008 2009 2010E 2011E 3M CIBOR 5Y SWAP 2006 2007 2008 2009 2010E 2011E 1,000 1,500 Source: Newsec Source: Newsec 1850 1450 1800 1300 700 CBD Prime CBD Secondary Greater Copenhagen Prime Greater Copenhagen Secondary Office Rent History | Copenhagen DKK/m2 2,000 Source: Newsec yield spread, with CBD secondary office yields standing at 6.0% in late 2009, 100 basis points over prime CBD office yields. During the coming year prime yields are expected to remain stable while the yields for secondary office properties are forecast to increase further due to the risk aversion still present in the property investment market as well as the relatively slow recovery of the Danish economy. Source: Newsec Percent 10 DKK/m2 2,000 2000 2001 GDP 2010 in more secondary CBD locations are in the range DKK 1,150-1,350/m2 . Percent 3 4 5 6 2 0 1 -5 -4 -3 -2 -1 Yields Prime office yields have been fairly stable during the past year and currently stand at 5.0% in the CBD. During recent years a spill-over effect from the low prime office yields has driven secondary office yields to a historically low level. However, the changing market conditions have resulted in a widening Source: Newsec Percent 10 CONTACT: 2000 2001 GDP SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 4 5 6 7 8 9 Private consumption Inflation Employment 2000 2001 CBD Prime 2002 2003 2004 CBD Secondary 2005 2006 2007 2008 2009 2010E 2011E NICHLAS SARLIN nichlas.sarlin@newsec.se Source: Newsec Private consumption 500 Building Activity Building activity has slowed down significantly, mainly because financial institutions have increased the equity requirement, forcing developers to look for alternative financing possibilities and thereby postpone the initiation of construction. The office project Winghouse, developed by KPCByg and DADES, is one project currently under construction. There are several other projects in the pipeline but most of these will not be initiated before a significant proportion of the leases are pre-let. 1,500 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 1,000 Inflation Employment 2000 2001 CBD Prime 2002 2003 Greater Copenhagen Prime 2004 CBD Secondary Greater Copenhagen Secondary 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec 4 5 6 7 8 9 Source: Newsec 2000 2001 CBD Prime 2002 2003 Greater Copenhagen Prime 2004 CBD Secondary Greater Copenhagen Secondary 2005 2006 2007 2008 2009 2010E 2011E DENMARK 47 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=48">Newsec Property Outlook - Spring 2010 Sida 48 DKK/</a> m2 13,000 14,000 15,000 10,000 11,000 12,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec 4.1 RETAIL IN DENMARK Private Consumption and Retail Turnover Danish private consumption grew for more than a decade and rose by almost a fifth between 2002 and 2008. In recent years falling house prices have put downward pressure on Danish private consumption but low unemployment and large wage increases have worked in the opposite direction – keeping consumption growth above the zero-mark. During late 2008 this trend finally changed and private consumption dropped by 4% in 2009. However, low interest rates, increasing disposable incomes and improving consumer confidence are now ending the negative trend and private consumption is expected to grow by 1.5% in 2010 and 2% in 2011. Denmark has seen the weakest retail sales development of all the Scandinavian countries, up by about a quarter since 2000. In 2008, retail turnover shrank by around 4.5%, mainly as a result of sinking consumer confidence and a tumbling housing market. Despite an expansive fiscal policy, the weak retail turnover recorded in 2008 continued in 2009 due to an increased saving ratio. Retail turnover is expected to recover and show positive figures for the full year 2010. Supply The Danish retail market is greatly influenced by tight legislation which regulates both the size and location of retail areas. As a result, Denmark has a high degree of street shopping and fewer out-of-town shopping centres and retail parks. The total retail stock in Denmark is around 11.5 million m2 which some 2.2 million m2 of is found in Copenhagen. More than half of Denmark’s 100 largest shopping centres are located in Copenhagen. Historically yields on prime high-street retail properties have been low, bottoming at 4% in 2007. However, the turbulent ket is greatly influenced by tight legislation which regulates both the size and location of retail areas. Difficulties for investors in obtaining financing in combination with falling household consumption have contributed to a halt in new developments. However, one ongoing retail development project is the expanding and upgrading of Glostrup Shopping Centre by Danica Ejendomme, a project that is expected to be finished in 2010. The Danish retail mar- Investment Market In recent years the retail property investment market was dominated by private investors through tax- driven limited partnerships. However, the financial turbulence has paralysed these investors, whereas the domestic pension funds, closely followed by the insurance companies, continue to be the largest property owners in Denmark. International investors have traditionally been important players in the Copenhagen retail investment market, but they pulled out in the wake of the financial turmoil in early 2008. Now lower property prices in combination with difficulties for Danish investors to get loan-financing have opened up the Danish property market to international investors, who are gradually becoming interested in the market once again. Percent Retail Q1 2010 | Denmark 2 3 4 5 6 7 8 2000 2001 Copenhagen Population (million) Prime 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 1.8 Yield (%) 5.25 Economic Indicators | Denmark Percent 10 -6 -4 -2 0 2 4 6 8 2000 2001 Turnover Retail Trade* 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E GDP Private Consumption *Not incl. motor vehicles and motorcycles Vacancy (%) 2.7 Central Prime Rent (DKK/m2/year) 13,000 Source: Newsec Source: Eurostat/Newsec Major Retail Development Projects | Denmark Property Type Retail Project, Location, Property Owner/Developer Glostrup Shopping Centre, Glostrup, Danica Ejendomme Size (m2 Expected ) 5,600 Completion 2010 48 DENMARK <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=49">Newsec Property Outlook - Spring 2010 Sida 49 DKK/</a> m2 13,000 14,000 15,000 11,000 12,000 Prime Retail Yields | Copenhagen 10,000 2000 2001 Percent 2 3 4 5 6 7 8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Prime Retail Rents | Copenhagen Source: Newsec DKK/m2 13,000 14,000 15,000 10,000 11,000 12,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec financial markets in combination with the global recession put upward pressure on the yields, which reached 5.25% in late 2009. Yields are expected to be stable in 2010-2011 due to the gradually easing credit market in combination with the recovery of the real economy. Percent 10 Rental Market Because of the fairly scarce supply of retail premises, Denmark has had a relatively low vacancy rate, hovering around 2% in recent years. However, as the economic situation has deteriorated so has demand for retail space, and as a consequence retail vacancies have gone up – especially in secondary locations such as out-of-town centres and street premises away from the high street. Many local shopping centres have witnessed an increasing vacancy rate whereas the larger regional shopping centres have been able to maintain relatively low vacancy rates mainly because most -6 -4 -2 0 2 4 6 8 2000 2001 Turnover Retail Trade* 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E GDP Private Consumption Source: Eurostat/Newsec of the leases are held by retail chains. Retail vacancies in the Copenhagen CBD have remained fairly stable because financially strong retail chains have used the current market conditions to get access to high-profile locations at fairly low prices. Percent Rent renegotiations have been a recent feature of the market, causing retail rent levels to fall slightly. Prime retail rents in Copenhagen range from DKK 7,000/m2 13,000/m2 2 3 4 5 6 7 8 to DKK stable owing to the lack of new development possibilities and expectations of an increasing future demand in combination with decreasing sums demanded as key-money payments. 2000 . High-street rents are forecast to remain fairly 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E CONTACT: 10 Percent SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 -2 0 2 4 6 8 NICHLAS SARLIN nichlas.sarlin@newsec.se Source: Eurostat/Newsec Source: Newsec DENMARK 49 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=50">Newsec Property Outlook - Spring 2010 Sida 50 ESTO</a> NIA 10 12 14 0 2 4 6 8 Top High 200 Low 150 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 50 CBD Central Prime Suburb 5. ESTONIA Percent Macroeconomic Forecast Along with the other Baltic countries, Estonia is continuing to struggle with the rapid economic downturn. However, Estonia is considered to be the most successful country in the Baltic region in terms of fighting the recession, and it is the only country with a chance to enter the euro zone as early as 2011. But the country still has serious challenges ahead before the situation starts to improve. In 2009 Estonia experienced a GDP decline of around 15%; unemployment increased from 5.5% in 2008 to almost 15%; private consumption fell by over 15%; and investments, exports and imports fell by 15-35%. 2 3 4 5 6 7 8 9 1 2000 2001 3M TALIBOR 2002 2003 2004 6M TALIBOR 2005 2006 2007 2008 2009 2010E 2011E Economic Indicators | Estonia Percent 12 15 6 9 0 3 -6 -3 -15 -12 -9 Source: Newsec Source: Newsec EUR/m2 250 Consequently, economic confidence among households remains low due to reductions in the labour force, salary reductions and relative wealth erosion due to decreasing asset values. However, consumer confidence indicators have increased slightly during recent months, albeit from a very low level. Newsec expects a stabilisation of the current situation in 2010 despite a slight increase in unemployment: exports and imports are expected to improve and inflation is expected to fall. 2011 is expected to be the first year with noticeable growth in GDP, private consumption and investment and a slight reduction in unemployment back to the level of 2009. 200 150 100 2000 CBD 2001 2002 2003 2004 2005 2006 2007 2005 2006 2007 ESTONIA 2008 GDP Private Consumption Inflation 2009 Employment 2010E 2011E Interest Rate Forecast The system that pegs the Estonian currency tightly to the euro was introduced in 1992 and leaves the Estonian Central Bank with limited options to affect money-market interest rates or liquidity. Like the other Baltic countries, Estonia is dependent on the European Central Bank’s decisions on refinancing and deposit rates. Most private-sector loans are tied to the euro, and fluctuations in market interest rates for the euro have the major impact on lending costs. However, the low euro market interest rates have not fully eased the total cost of lending for new customers due to high bank interest-rate margins. Bank interest-rate margins are expected to decrease gradually during 2010-2011. Percent 10 12 14 16 6 8 2000 CBD 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 50 ESTONIA 50 ESTONIA 2008 2009 Source: Newsec 2010E 2011E Source: Newsec TALLINN # Population: 1.3 million <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=51">Newsec Property Outlook - Spring 2010 Sida 51 A 50</a> 100 0 2006 2007 2008 2009 Percent 10 12 14 16 0 2 4 6 8 Despite a slight market stabilisation, investment activity 2000 is expected to remain low in 2010 due to lack of financing and general market instability. 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E Interest Rate | Estonia Percent 2 3 4 5 6 7 8 9 1 2000 2001 3M TALIBOR 2002 2003 2004 6M TALIBOR Transaction Volume | Estonia Million EUR 200 250 300 Percent 12 15 6 9 0 3 50 100 150 0 -6 -3 -15 -12 -9 2006 2007 2008 2009 Source: Newsec 2005 2006 2007 2008 2009 2010E 2011E 2011E Source: Newsec 250 Top High 200 Low The three-month Estonian interbank interest rate TALIBOR was high during the first half of 2009, but decreased substantially during late 2009 and early 2010. The interest-rate spread towards the European market interest rate, EURIBOR, is expected to decrease during coming years as the general credit market gradually improves. However, despite a decreasing spread, interest rates are expected to increase in 2011 due to the forecast tightening of the ECB’s monetary policy. 150 100 50 CBD Central Prime Suburb Source: Newsec Source: Newsec Investment Market The economic crisis became evident to most market players in 2008, and real-estate financing in the Baltic region practically dried up, leaving leveraged buyers out of the market. International cash buyers who were expected to dominate the market during 2009 closed no transactions at all and demonstrated a pessimistic attitude towards the market. In fact, only a very few transactions were closed in Estonia in 2009 (the overall volume below EUR 15 million), and all involved local or locally established buyers. Despite a slight market stabilisation, investment activity is expected to remain low in 2010 due to lack of financing and general market instability. The major players are expected to be cashrich distressed-asset hunters. The Estonian government has reaffirmed joining the euro zone as one of its prime targets, which may happen as early as 2011. This could be a factor in drawing back substantial investor interest, as investment risk decreases if Estonia joins the common currency zone. Given the current economic environment, however, meeting the Maastricht criteria may be challenging. EUR/m2 250 200 150 100 2000 CBD 2001 2002 2003 2004 2005 2006 2007 2008 2009 Tallinn Office Market As a ‘young’ EU capital, Tallinn is an attractive location for corporate headquarters and regional offices of international companies. The office market has shown rich development activity in recent years, and the office stock increased rapidly from approximately 300,000 m2 Percent a couple of years. There is currently about 1.2 m2 premises per capita in Tallinn. 10 12 14 16 6 8 2005 16 Percent 14 2006 2007 GDP Private Consumption 2008 Inflation 2009 Employment Source: Newsec 250 Top 2010E 2011E 2000 CBD SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 EUR/m2 Source: Newsec ESTONIA 51 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E to over 500,000 m2 in just of office EUR/m2 Source: Newsec Source: Newsec 2010E 2011E Source: Newsec <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=52">Newsec Property Outlook - Spring 2010 Sida 52 Mill</a> ion EUR 200 250 300 50 100 150 0 2006 2007 2008 2009 Source: Newsec Tallinn | Population: 0.4 million | Office stock: 0.5 million m2 1 4 3 2 5 CBD Mustamae Road Parnu Road Ulemiste City Peterburi Road Vacancy Rate | Tallinn CBD Percent 10 12 14 16 0 2 4 6 8 Source: Newsec 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Vacancy Rate During 2009, when the recession had become evident to all market players, not a single project was started in Tallinn and only few ongoing projects were finalised. At the same time most financial and service companies reviewed their headcount and froze their expansion plans, which greatly diminished demand for office space in the market. As a result, the market ended up with a huge imbalance between supply and demand. There were not enough tenants for all the space, and vacancy rates soared from below 5% to double-digit levels, reaching 40-60% in some cases. The average vacancy level is currently estimated at around 15%. However, the CBD is enjoying a relatively strong occupancy as there has been limited new supply in the centre of the city in recent years, and demand for such premises is still relatively strong. Percent 2 3 4 5 6 7 8 9 1 2000 2001 3M TALIBOR 2002 2003 2004 6M TALIBOR 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec Unemployment is expected to increase in 2010, with a further impact on occupancy rates in office buildings; however, this pressure is expected to slacken in 2011 as employment starts to improve. It will take several years before the newly built office supply is absorbed in full. Percent 12 15 6 9 52 ESTONIA 0 3 -6 -3 Source: Newsec <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=53">Newsec Property Outlook - Spring 2010 Sida 53 10 1</a> 2 14 0 2 4 6 8 2 3 4 5 6 7 8 9 1 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 3M TALIBOR 2000 2001 2002 Top High 200 Low EUR/m2 150 250 100 2003 50 2004 6M TALIBOR 2005 CBD 2006 2007 2008 Central 2009 2010E 2011E Prime Suburb 150 Source: Newsec 200 100 2000 CBD Percent 2 3 4 5 6 7 8 9 1 2000 2001 3M TALIBOR 100 Office Rents Q1 2010 | Tallinn EUR/m2 250 Source: Newsec Office Rent History | Tallinn CBD Source: Newsec Percent 12 15 200 6 9 2002 150 2003 2004 6M TALIBOR 2005 2006 2007 2008 2009 2010E 2011E 0 3 -6 -3 -15 -12 -9 50 CBD Central Prime Suburb GDP Private Consumption Percent 12 15 6 9 0 3 -6 -3 -15 -12 -9 Rents Take-up of supply by the market slowed in the second half of 2009 and a recovery is not expected for several years. Many companies used the weak market to relocate to a more efficient space or to negotiate a rent reduction. Tenants continue to enjoy a strong bargaining position and to make efforts to reduce their rents. Rental discounts of over 10-20% when renewing leases are common and even property owners covered by long-term rental agreements do not always use their indexation cushion in full. Source: Newsec EUR/m2 250 Source: Newsec 2005 GDP Private Consumption 150 The situation had stabilised somewhat by the end of 2009, when most of the tenants had already relocated or negotiated lower rent levels. There may be a further decline in rent levels in 2010 but it is not expected to be significant. 200 2006 2007 2008 Inflation 2009 Employment 2010E 2011E The market rent for prime office premises in Tallinn CBD is in the range EUR 120-175/m2 EUR 190/m2 100 2000 CBD the range EUR 90-115/m2 . 16 Percent 10 12 14 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E . Top rent for such premises is . In other central areas the market rent lies in , with top rents up to EUR 140/m2 In the prime suburbs the market rent is in the range EUR 75-100/m2 Source: Newsec . Top High Low EUR/m2 250 Source: Newsec Source: Newsec Office Yield | Tallinn CBD Percent 200 10 12 14 16 150 100 2005 2006 6 8 20072000 CBD Inflation Employment Yields The high cost of capital, equity tie-up and risk premiums related to emerging markets have driven yields rapidly upwards during 2008-2009. The office vacancies related to the new supply in combination with unstable rent levels put pressure on projected cash-flows and are factored into the yields. Askingyields for offices start at 9-10% for prime CBD assets and a few percentage points higher for non-prime assets. Yields are expected to stabilise in coming years due to stabilisation of the market, lower interest rates and less restrictive lending; however, this will depend greatly on future economic development. Percent 10 12 14 16 6 8 Building Activity There is virtually no planned new development for 2010. Local banks are not supporting new office building projects because of the existing vacant space. Nevertheless, there remains a great development potential in the office segment as there is a gradual shift from lower-cost industrial suppliers to highervalue-added suppliers in the Estonian economy. An indicator of longer-term potential is the total modern office space per capita in Tallinn, which is well below that of neighbouring developed countries. 2000 CBD 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec Focus Nordic Cities / Catella Baltic Property Trust Citycon SRV GER DEN FIN FIN Business House ELL Real Estate Ülemiste City Estconde EST EST EST EST 2001 2008 2002 200320092004 2005 2010E 2006 2011E 2007 2008 2009 2010E 2011E 2000 CBD Major Property Owners | Estonia Company Country 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Company Country CONTACT: VITALI KÕLLOMETS v.kollomets@resolution.ee SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 ESTONIA 53 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=54">Newsec Property Outlook - Spring 2010 Sida 54 LATV</a> IA LATVIA 10 20 30 40 50 60 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 170 190 130 150 50 70 90 110 High Low CBD Central 6. LATVIA Percent 12 15 Macroeconomic Forecast Between 2000 and 2007 Latvia had one of the highest GDP growth rates in Europe. The tremendous growth was primarily driven by increased domestic demand generated by cheap consumption and housing loans. Naturally the continuous rapid growth created imbalances in the economy and led to the highest inflation in the EU and a substantial current-account deficit. The subsequent credit crunch and unavailability of finance considerably reduced local demand for most products, and GDP growth has been negative since mid 2008. In late 2008, the government was forced to ask for financial support 0 3 6 9 2000 2001 Central Bank Interest Rate 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 3M RIGIBOR 6M RIGIBOR Economic Indicators | Latvia Percent 10 15 20 25 0 5 -25 -20 -15 -10 -5 Source: Newsec EUR/m2 from the International Monetary Fund and the EU, aimed at refinancing the budget deficit and supporting liquidity in the banking sector. The loan is conditional on significant fiscal spending cuts and there has been political tension in the country during the past year caused in part by the substantial cuts in wages and pensions. 200 250 300 350 Inflation reached a peak of 17.9% in the second quarter of 2008. As economic activity diminished, however, the inflation rate started to decline and turned to deflation in October 2009. In 2010 inflation is expected to end up at -4%. GDP also continued to fall in 2009 and decreased by around 18% during the year. The economic slowdown forced companies to reduce their workforce, which resulted in higher unemployment and lower wages. Hit by the suddenness of the economic downturn, the unemployment rate reached 16% in late 2009 and is expected to rise further in 2010. 100 150 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Percent 13 15 2005 GDP 2006 2007 Private Consumption 2008 Inflation 2009 Employment 2010E 2011E The Latvian economy is currently facing one of the deepest recessions in the EU; however, the available statistical information now indicates some stabilisation in the economy. Considering that improvements in the Latvian economic situation are closely tied to global, and especially European, recovery, the economic environment can be viewed as cautiously optimistic. 9 11 5 7 2002 CBD 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec Source: Newsec Source: Newsec 54 LATVIA RIGA # Population: 2.3 million <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=55">Newsec Property Outlook - Spring 2010 Sida 55 10 2</a> 0 30 40 50 60 70 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 170 190 210 130 150 50 70 90 110 Top High Low CBD Central Interest Rates | Latvia Percent 12 15 0 3 6 9 2000 2001 Central Bank Interest Rate 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 3M RIGIBOR 6M RIGIBOR Source: Newsec Transaction Volume | Latvia Million EUR 200 250 300 350 400 50 100 150 0 2006 Source: Newsec EUR/m2 200 250 300 350 Interest Rate Forecast The banks’ liquidity positions tightened towards the end of 2008, pushing financial institutions into resorting more actively to the Central Bank’s main refinancing operations and marginal lending facilities. The Central Bank eased the reserve ratios for banks’ liabilities and thereby increased liquidity in the bank sector. Financial market tensions and speculation about devaluation of the lat have affected the interbank market, which significantly increased the three-month Latvian interbank interest rate RIGIBOR and pushed up interest rates on commercial and private loans. However, the market interest rate has declined since rates peaked in summer 2009, and from October 2009 to January 2010 the 3-month RIGIBOR fell from over 13% to below 4%. GDP Percent 10 15 20 25 0 5 -25 -20 -15 -10 -5 Source: Newsec 2005 2006 2007 Private Consumption 2008 Inflation 2009 Employment The interest-rate spread towards the European market interest rate, EURIBOR, is expected to remain at a significantly lower level than during 2008-2009 due to the recovering credit market, but is likely to be rather high due to the country’s unstable economic situation. Despite a forecast tightening of the ECB’s monetary policy, the RIGIBOR is expected to decrease slightly during 2010-2011. 2010E 2011E Investment Market The peak in real-estate institutional investment volumes was achieved in 2007. The volume then decreased during 2008 and real-estate financing has been frozen, leaving room for cash buyers only. There were virtually no notable transactions during 2009. 100 150 Percent Riga Office Market Modern office stock per capita in Riga stands at around 0.7 m2 20 30 40 50 60 70 10 0 , indicating a long-term potential. Offices in Riga are 9 11 concentrated in the city centre and the Old Town, but with a growing tendency to move away from the centre to new office-building areas. The prime development areas for the future are the river bank of Daugava, the Kipsala area and the main road leading to the Airport. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 5 7 2002 CBD 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Vacancy Rate The general office vacancy rate reached 18% in 2009, and is expected to rise to 20-22% in 2010. New projects are struggling with vacancy rates of 50% or higher. The costcutting mood in Latvian businesses is creating demand for relocation to new and efficient office space, but because of Percent 12 15 0 3 6 9 2000 2001 SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 3M RIGIBOR Central Bank Interest Rate 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 6M RIGIBOR 200 250 300 350 EUR/m2 Source: Newsec Source: Newsec 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec EUR/m2 Percent 13 15 Source: Newsec 170 190 210 130 150 50 70 90 110 Source: Newsec Top High Low Source: Newsec 2007 2008 2009 CBD Central LATVIA 55 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=56">Newsec Property Outlook - Spring 2010 Sida 56 Mill</a> ion EUR 200 250 300 350 400 50 100 150 0 2006 2007 2008 2009 Source: Newsec Riga | Population: 0.8 million | Office stock: 0.4 million m2 1 2 3 4 5 CBD Old Town Skanstes & Duntes Streets Enbankment Lielirbes & Karla Ulmana Streets Vacancy Rate | Riga CBD Percent 20 30 40 50 60 70 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec the headcount cuts in both the private and state sectors, it is likely to take several years to absorb all the new space available. Vacancies in the CBD increased to 15% in 2009 and are expected to grow slightly to around 18-20% in 2010 due to oversupply and weak demand. Percent 12 15 Rents The rental decline started during the second half of 2008 and peaked in mid 2009. During this period B-class office rents fell around 25% and rents for A-class offices around 15%. Some landlords, mostly local developers, are facing financial challenges and have been forced to renew leases at lower rents since they cannot sustain higher vacancies. Rents continued to decline in 2009 and are expected to continue decreasing in 2010 due to increasing vacancies. 0 3 6 9 2000 2001 Central Bank Interest Rate 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 3M RIGIBOR 6M RIGIBOR Average rents for A-class premises were at EUR 120-204/m2 in late 2009. Some developers are still keeping rents at high levels, but such office premises generally have high vacancy. B-class premises can currently be rented for EUR 60-120/m2 Yields Foreign investors have tended to overlook the Riga market Percent 20 25 10 15 0 5 56 LATVIA -25 -20 -15 -10 -5 Source: Newsec Source: Newsec . <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=57">Newsec Property Outlook - Spring 2010 Sida 57 0 3 </a> 6 9 2 2000 2001 Central Bank Interest Rate 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 3M RIGIBOR 6M RIGIBOR EUR/m2 200 250 300 350 EUR/m2 Office Rents Q1 2010 CBD | Riga EUR/m2 170 190 210 Percent 10 15 20 25 0 5 25 20 15 10 -5 130 150 170 190 210 130 150 2005 GDP 2006 50 70 90 110 50 70 90 110 Source: Newsec Source: Newsec Top High Low CBD Central 9 11 5 7 2007 Private Consumption Inflation 2008 CBD 2009 Employment Office Rent History | Riga CBD EUR/m2 200 250 300 350 200 250 300 350 2010E 2011E Central 2002 CBD 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Percent 13 15 Source: Newsec Source: Newsec Top High Low 100 150 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Office Yield | Riga CBD Major Office Development Projects | Riga Property Type Office Office Project, Location, Property Owner/Developer DnB Nord office building, Central, DnB Nord Zala iela, Central, Larix Property Major Property Owners | Latvia Company Country Baltic Property Trust Focus Nordic Cities Acta Source: Newsec EUR/m2 100 150 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Percent 100 150 13 15 9 11 13 15 Percent 5 7 2002 CBD SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 9 11 7 2003 2004 2005 2006 2007 2008 2009 2010E Source: Newsec Riga remains an attractive investment destination due to its outstanding geographical location and its relatively low saturation of long-term developments. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec 2011E Building Activity The market for modern offices in Riga has been undersupplied for years, which led to numerous new developments in 2008 and an increase of almost 50% in the total office stock to just above 400,000 m2 . An additional 91,000 m2 of office area came onto the market in 2009 from projects that were started during the boom period and a further 21,000 m2 be completed in 2010. is expected to CONTACT: Meanwhile, the demand for office space has fallen significantly as companies have revised their expansion and relocation ILZE LONTONA i.lontona@resolution.lv Source: Newsec since mid 2008 because of the macroeconomic and realestate sector problems. However, the best bargains are made in times when investors are leaving; troubled projects create opportunities for buyers of distressed assets, and yields in the range 10-15% should attract investors’ interest. Financing difficulties make it hard to strike deals below yields of 10% and continuing falls in office rents are putting an upward pressure on yields. Although yields are expected to stabilise due to lower interest rates and a slightly improving credit situation, any long-term yield recovery is not expected until the real economy recovers. Homburg Invest Catella Real Estate AG KanAm Gruninvest DEN GER NOR CAD GER GER Size (m2 16,500 4,750 Expected ) Completion 2010 2010 Source: Newsec Company AVEC Baltic Property Fund VP Market Country EST LTU Parex Asset Management LVA SMI Latvia LVA plans. Many development projects have therefore been postponed and others halted midway, and some projects are facing liquidity problems as sales are far below business plans. Although Latvia’s downward economic cycle and the global financial turbulence do not currently support investments, Riga remains an attractive investment destination due to its outstanding geographical location, its relatively low saturation of long-term developments and the considerable size of the city. LATVIA 57 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=58">Newsec Property Outlook - Spring 2010 Sida 58 LITH</a> UAN LITHUAN 20 25 30 10 15 0 5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 200 50 75 100 125 150 175 CBD Central Prime suburb Top High Low 7. LITHUANIA Percent 10 12 6 8 Macroeconomic Forecast The Lithuanian economy improved slightly towards the end of 2009, following the drastic downturn of 2008-2009. Most of the recent optimism comes from exports, while the domestic market continues to struggle. 0 2 4 2000 2001 Central Bank Interest Rate 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 3M VILIBOR 6M VILIBOR In 2009, GDP decreased by around 18% and private consumption dropped by almost 20% as a result of falling wages and increasing unemployment. The current economic situation remains challenging due to an uncertain recovery of the domestic market and the impact of the closedown of Economic Indicators | Lithuania Percent 10 15 -25 -20 -15 -10 -5 0 5 Source: Newsec EUR/m2 the Ignalina nuclear power plant. However, there are positive signs in the export sector, which is expected to grow in 20102011 due to the ongoing recovery of major trading partners and improved domestic competitiveness. Lithuania’s GDP is expected to decline by 2% in 2010 and then recover to 2% growth in 2011. 200 225 250 150 175 There is a strong disinflationary pressure in Lithuania and most retailers are currently forced to compete on price due to weak local demand and caution among consumers. Inflation dropped significantly during 2009, but in 2010 the closure of the Ignalina nuclear power plant will be an important factor counteracting lower prices and will add 0.7–0.8 percentage points to the annual inflation rate through higher electricity prices. Inflation ended up at 5% in 2009 and is expected to be 2% in 2010 and 2.5% in 2011. 100 125 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Percent 2005 GDP 2006 2007 Private consumption 2008 Inflation 2009 2010E Employment 2011E A large amount of downsizing and many bankruptcies, especially among small and medium-sized enterprises, resulted in a rise in unemployment to around 14% in 2009. The ongoing recovery in Western Europe and some CEE countries, in combination with local economies which are still too weak to create enough new working places, may attract workers away from the Baltic region during coming years. Employment is expected to fall in 2010 and stabilise in 2011, while unemployment is forecast to rise to 15.5% in 2010 and 16% in 2011. 10 12 14 16 18 4 6 8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E # Population: 3.4 million 58 LATVIA 58 LITHUANIA Source: Newsec Source: Newsec Source: Newsec VILNIUS <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=59">Newsec Property Outlook - Spring 2010 Sida 59 NIA </a> N 20 25 10 15 0 5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Interest Rates | Lithuania Percent 10 12 6 8 0 2 4 2000 2001 Central Bank Interest Rate 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 3M VILIBOR 6M VILIBOR Percent 10 15 Interest Rate Forecast Like the other Baltic countries, Lithuania is dependent on the European Central Bank’s decisions, and fluctuations in market interest rates for the euro have the major impact on lending costs. The credit turmoil generated increasing risk premiums all over the world and soaring interest rates in the Baltic region. In the last months of 2009, however, interbank interest rates followed a clear downward trend, for two reasons. First, money supply increased after the government started to spend borrowed resources; second, confidence in national currencies strengthened in all three Baltic countries. From October 2009 to January 2010, the 3-month Lithuanian interbank interest rate VILIBOR fell from over 7% to below 3%. -25 -20 -15 -10 -5 0 5 2005 GDP 2006 2007 Private consumption 2008 Inflation 2009 2010E Employment 2011E 200 50 75 100 125 150 175 CBD Central Prime suburb 200 250 300 350 50 100 150 0 2004 2005 2006 2007 2008 2009 Top High Low Source: Newsec Transaction Volume | Lithuania Million EUR 200 250 300 350 50 100 150 0 2004 Source: Newsec Vacancy Rate | Vilnius CBD Percent EUR/m2 200 225 250 2005 150 175 The first significant acquisitions of over EUR 10-15 million are expected to be made during the second half of 2010 and in 2011. Source: Newsec The interest-rate spread towards the European market interest rate, EURIBOR, is expected to remain at a significantly lower level than during 2008-2009 due to the recovering credit market. However, interest rates are expected to increase slightly in 2011 due to the forecast tightening of the ECB’s monetary policy. Percent 100 125 Percent Investment Market Liquidity on the Baltic property markets practically dried up in 2009. The year began with low confidence among the market players due to negative economic information. However, more positive signs appeared in late 2009 and some potential investors have started to monitor the market again in order to evaluate opportunities. The announcement of the possible sale and leaseback of the Vilnius Municipality building has captured the attention of several institutional investors. Nonetheless, buyers of distressed properties have been the most active players on the market during the year. 20 25 30 10 15 0 5 2000 2001 10 12 14 16 18 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 4 6 8 2000 Percent 10 12 6 8 0 2 4 SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 3M VILIBOR 2000 2001 Central Bank Interest Rate 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 6M VILIBOR -20 -15 -10 -5 0 5 150 175 2001 It is likely that the earliest acquisitions will be made by local investors mainly within the sector of small, cashflowgenerating properties (up to EUR 5 million). The first significant acquisitions of over EUR 10-15 million are expected to be made during the second half of 2010 and in 2011. 2000 2001 2006 2007 2008 2009 20 25 30 10 15 0 5 2000 2001 Source: Newsec Source: Newsec 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 170 160 150 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec Percent VP Group Deka Immobilien Source: Newsec 10 12 6 8 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec Asking-yields are expected to sustain a significant premium of 300-400 basis points above the levels in Western Europe until the first large transactions are executed. A trend of compressing yields is expected after the first large ‘ice-breaker’ transactions, and the long-term difference between Lithuanian and Western European yield levels should not exceed 200 basis points. ELL Real Estate Verdispar 0 2 4 2000 2001 Central Bank Interest Rate 50 75 100 125 150 175 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 3M VILIBOR CBD Central 6M VILIBOR Prime suburb Vilnius Office Market Vilnius remains an attractive location for company headquarters and regional offices of international companies. The CBD is centred on Konstitucijos Avenue and busy streets leading Percent 10 15 EUR/m2 200 225 250 LITHUANIA 59 Source: Newsec Source: Newsec Major Property Owners | Lithuania Company Country EUR/m2 200 LTU GER EST NOR Baltic Property Trust Orkla Finans Ogmios Group Company Source: Newsec Source: Newsec Country DEN NOR LTU Top High Low <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=60">Newsec Property Outlook - Spring 2010 Sida 60 20 1</a> 0 15 0 5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 50 75 100 125 150 175 CBD Central Prime suburb High Low Percent Vilnius | Population: 0.5 million | Office stock: 0.3 million m2 1 10 12 6 8 CBD-1 (Business triangle) 2 3 4 5 6 CBD-2 (New City centre) Central Areas Zirmunani and North Town Ukmerges Street Ozo park Percent 10 15 -25 -20 -15 -10 -5 0 5 Source: Newsec 0 2 4 2000 2001 Central Bank Interest Rate 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 3M VILIBOR 6M VILIBOR Source: Newsec Office Rent History | Vilnius CBD EUR/m2 200 225 250 150 175 100 125 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec to the north and west. The modern office stock in the city is around 320,000 m2 Percent Vacancy Rate Although the number of lease transactions has decreased dramatically, the office market take-up of new supply reached 45,000 m2 Swedbank’s headquarter property on Konstitucijos Avenue. 10 12 14 16 18 2005 GDP 2006 2007 Private consumption 2008 Inflation 2009 2010E Employment 2011E The vacancy rate in Vilnius is currently about 20%, with the major share in the subprime office sector. A-class offices located in the CBD and other prime locations have a vacancy rate in the range 12.5–15%, while office vacancies in suburban areas, with poor management or low technical quality, are in the range 25-30% and in some cases up to 50-75%. In contrast, the A-class office projects that are planned to enter the market in 2010 are more than 85% pre-let. Due to the limited supply of new offices, vacancy levels are expected to stabilise in 2010 and start falling in 2011. 4 6 8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Rents The overall rent level has decreased by 30-35% compared to the peak in 2007-2008 and the major drop occurred in in 2009, with half the space represented by or about 0.55 m2 per capita. Source: Newsec 60 LITHUANIA <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=61">Newsec Property Outlook - Spring 2010 Sida 61 50 7</a> 5 100 125 150 175 CBD Top High Low 170 160 150 Central Prime suburb Office Rents Q1 2010 | Vilnius CBD EUR/m2EUR/m2 200 225 250 150 175 200 100 125 50 75 100 125 150 175 2000 2001 CBD 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Central Office Yield | Vilnius CBD Percent 10 12 14 16 18 4 6 8 Prime suburb Top High Low Source: Newsec Source: Newsec late 2008 and early 2009. The market rent for prime office premises in Vilnius CBD is now in the range EUR 120-160/m2 Top rent for such premises is EUR 170/m2 the market rent lies in the range EUR 100-120/m2 rents up to EUR 150/m2 . . In the prime suburbs , with top . Rents are expected to remain stable in 2010 and increase somewhat in 2011. Instead of lower rents, occupiers are expected to be attracted by rent-free periods and a flexible service-charge payment structure. Yields The high cost of capital resulting from large equity contributions and high bank interest-risk margins has driven up yields during 2008-2009. But it is currently difficult to quote a specific yield level because of the low liquidity on the transaction market. Yields are largely based on seller expectations. Source: Newsec Asking-yields for prime CBD office assets start at 8.5-10% and run up to 12% and more for non-prime assets. EUR/m2 200 225 250 2000 150 175 Major Office Development Projects | Vilnius 100 125 Property Type Office Office 2000 Project, Location, Property Owner/Developer 2001 Green Hall, Upes st., SBA Percent SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 10 12 14 16 18 8 Size (m2 ) 20,000 10,800 Expected 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Beta, Kalvariju st., Realco Completion 2010 2010 CONTACT: Source: Newsec NERINGA RASTENYTE nr@resolution.lt 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Source: Newsec Building Activity No new office projects were started in 2009 and no new developments are expected to be started during 2010. Office-building projects totalling about 250,000 m2 have been cancelled or remain unfinished due to financing difficulties or developer bankruptcies. Most unfinished projects are in the process of being taken over by specialised property management companies established by local banks. Around 80,000 m2 office market during 2009 and another 33,000 m2 to be completed in 2010. of new office space came onto the Vilnius is expected LITHUANIA 61 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=62">Newsec Property Outlook - Spring 2010 Sida 62 Tall</a> inn 150 100 2008 Tallinn Riga 2009 Vilnius 2010E 2011E Percent Percent 10.0 10.5 11.0 11.5 12.0 12.5 RETAIL IN THE BALTIC REGION 8.0 8.5 9.0 9.5 2008 Tallinn Private Consumption and Retail Turnover The recession has hit disposable incomes and private consumption hard in the Baltic region due to increasing unemployment and falling wages in combination with high interest rates resulting from interest-rate risk premiums towards the euro area. Retail turnover decreased significantly in the Baltic region during 2009. The smallest drop applied to food products, while luxury goods, entertainment and services suffered the most. The largest Baltic retail chains report that their turnover decreased by around 30-35% during 2009. The same tendency is reflected by shopping-centre turnover throughout the region. Supply The Baltic countries have now reached and exceeded the average shopping centre space per capita for the 27 EU countries (EU-27). With slightly over 200 m2 1,000 inhabitants, Lithuania and Latvia exceed the EU-27 level by about 5%. Estonia, with almost 300 m2 Riga 2009 Vilnius Turnover Retail Trade* | Baltic Region Percent 25 35 15 -35 -25 -15 -5 5 2000 2001 Estonia of shopping centre space per per 1,000 inhabitants, is nearly 40% above the average European level and in line with the Scandinavian countries, the UK and France. Around 400,000 m2 of new shopping centre and retail park projects have been cancelled in the region, of which approximately 300,000 m2 62,000-m2 Siauliai, Lithuania and the 50,000-m2 is in Lithuania. Three new shopping centres (the Ozas in Vilnius, Lithuania, the 35,000-m2 Riga Plaza in Riga, Latvia) as well as one expansion of an existing shopping centre (Rocca Al Mare in Tallinn, Estonia) have been opened during 2009. The realistic pipeline for 2010-2011 is low. The Finnish company Vicus with its Lithuanian partner plans to open the 30,000-m2 Olinda shopping centre on the outskirts of Vilnius, and the Latvian company Patollo plans to open the 36,000-m2 Akropolis in Percent 10 15 in Riga. The other projects planned earlier (around 400,000 m2 are not expected to enter the market until 2015-2016. -20 -15 -10 -5 0 5 Galleria Riga The major retail chains have suspended expansion and are currently closing their least efficient stores. Large international brands are expected to remain the major demand-drivers for development of retail space, mainly because of their deeper experience of getting through business cycles. Most of the local retail chains expect the retail market to recover in early 2011 in major cities and in mid 2011 in smaller towns. 2000 Estonia 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Latvia Lithuania 2001 2002 Latvia 2003 2004 Lithuania 2005 2006 2007 2008 2009 2010E *Not incl. motor vehicles and motorcycles Source: Newsec Large internatio nal brands are expected to remain the major demand-drivers for development of retail space. ) 2010E 2011E Percent 25 35 Retail Q1 2010 | Baltic Region 15 Source: Eurostat/Newsec Tallinn Riga Vilnius -35 -25 -15 -5 5 2000 2001 GDP | Baltic Region Percent Estonia 2002 Latvia 10 15 -20 -15 -10 -5 0 5 2000 Estonia 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Latvia Lithuania There are no plans to accelerate retail expansion before 2011. Investment Market No retail property investment transactions were made in the Baltic countries during 2009, except one small supermarket acquisition in Estonia. The effects of the recession and especially its impact on retail trade and private consumption have created an uncertain environment for international investors; international players are currently very cautious about entering the Baltic property market. Population (million) 0.4 0.8 0.5 2003 Prime Yield (%) 9.50 9.75 9.50 2004 Lithuania Source: Newsec 2005 Prime Shopping Centre Vacancies (%) 5.0 10.0 5.0 2006 2007 2008 2009 Prime Rent (EUR/m2/year) 250 250 250 2010E Source: Newsec 10.0 10.5 11.0 11.5 12.0 12.5 8.0 8.5 9.0 9.5 2008 Tallinn Riga 2009 Vilnius 2010E 2011E Source: Newsec Riga Vilnius Source: Eurostat/Newsec 62 BALTIC REGION <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=63">Newsec Property Outlook - Spring 2010 Sida 63 EUR/</a> m2 300 Source: Newsec 250 200 150 Nordic investors were the first to enter the Baltic retail property market, but the largest single investments have been made by German funds. Investors like Deka Immobilien, KanAm, Verdispar and Citycon have been active in the last few years. The largest-ever retail transaction in the Baltics was the acquisition of Akropolis Kaunas in Lithuania by Deka Immobilien in August 2008 for around EUR 200 million. Because of the absence of retail transactions in the Baltic countries during 2009, retail yield figures reflect sellers’ expectations rather than investors’ willingness to pay. Prime asking-yields start at 9%, but retail in non-prime locations is priced at well above 10%. Financing remains one of the largest obstacles to conducting transactions in today’s market. Rental Market The most successful shopping centre schemes such as Akropolis in Lithuania currently have quite low vacancy levels, not exceeding 5%. Lower-quality centres, which had problems even during the boom, are now experiencing a real challenge with vacancies over 30-40%. Massive rent-price renegotiations have led to temporary rent discounts of around 30-35% and have changed rent payment structures. Turnover rent structures are now gaining ground in the Baltic region. Prime premises can generally be let for EUR 200-250/m2 in all the Baltic countries. Further rent reductions are not anticipated in the most attractive shopping centres, but less attractive high-street premises may experience a further rental decline of up to 10-15% in 2010. It is also likely that in the next 1-2 years various concessions will be applied in new lease agreements, e.g. shorter leases, terms including early termination, and smaller supplementary charges. Prime Retail Rents | Baltic Region EUR/m2 300 Prime Retail Yields | Baltic Region 100 2008 Tallinn Riga 2009 Vilnius Source: Newsec Percent 250 200 150 100 2008 Tallinn Riga 2009 Vilnius 2010E 2011E 10.0 10.5 11.0 11.5 12.0 12.5 8.0 8.5 9.0 9.5 2008 Tallinn Riga 2009 Vilnius 2010E 2011E 2010E 2011E Source: Newsec Percent 10.0 10.5 11.0 11.5 12.0 12.5 8.0 8.5 9.0 9.5 2008 Tallinn Riga 2009 Vilnius 2010E 2011E Source: Newsec Major Retail Development Projects | Baltic Region Country Percent 25 35 15 Estonia Latvia Lithuania Retail Estonia -35 -25 -15 -5 5 Lithuania Retail Estonia 2000 2001 Estonia Percent Percent 25 35 15 SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 2001 NERINGA RASTENYTE nr@resolution.lt -35 -25 -15 -5 5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E -20 -15 -10 -5 0 5 2000 Estonia Lithuania CONTACT: Source: Eurostat/Newsec * Hard to predict today whether the project will really go ahead or not. 10 15 Retail Retail Retail Smuuli, Tallinn Suburb, ELL Real Estate Galeria Patollo, Riga Central, Carpathian PLC Olinda, Vilnius Suburb, Vicus Retail 2002 Latvia Bauhaus, Tallinn Suburb, Häuser-Oberschneider 2003 Vilnius Suburb, TK Development 2004 Lithuania Kristiine extension, Tallinn Suburb, Pro Kapital 10,000 Source: Newsec n.a.* 2005 2006 2007 2008 50,000 36,000 30,000 20,000 2009 18,500 2010E n.a.* n.a. n.a. 2010 n.a. Property Type Project, Location, Property Owner/Developer Source: Eurostat/Newsec Size (m2 Expected ) Completion BALTIC REGION 63 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E Latvia <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=64">Newsec Property Outlook - Spring 2010 Sida 64 Tran</a> sactions | The Nordic and Baltic Area Property location Denmark Denmark Denmark Denmark Denmark Denmark Denmark Denmark Denmark Denmark Denmark Denmark Denmark Denmark Estonia Estonia Estonia Estonia Estonia Estonia Estonia Estonia Estonia Finland Finland Finland Finland Finland Finland Finland Finland Finland Finland Finland Finland Finland Finland Finland Latvia Latvia Lithuania Lithuania Lithuania Lithuania Lithuania Norway Norway Norway Norway Norway Norway Norway Norway Norway Local Seller Landic Property Denmark Schaumann Properties DIP Oscar Jensen Gruppen Private investor Oscar Jensen Gruppen Lønmodtagernes Dyrtidsfond Private investor Lønmodtagernes Dyrtidsfond GN Store Nord Dansk Erhverv Main Road Invest Lægernes Pensionskasse K/S Finsensvej OU Raldon Prisma Prindi Kinnisvara AS Estonian Government E.L.L. Estonian Government Metro Capital Magnum Logistics OU Premia Tallinna Külmhoone AS Semuehitus AS Kesko Group NCC Property Development Oy Landic Property YIT Rakennus Oy YIT Sponda Plc YIT Rakennus Oy NCC Property Development Oy YIT Rakennus Oy Sjaelso Finland Oy Sponda Plc Tibnor AB Oy Konte Ab Trackside Holding CapMan Real Estate I Ky E.L.L. Avers Centrs Akropolis MAXIMA LT MG Baltic/ Ogmios Invalda Invalda Arcus Birger N Haug Storebrand Property Fund Scandinavian Property Development BW gas ØIE Eiendomsutvikling Hansa Property Scandinavian Property Development Reitan-gruppen Country DEN DEN DEN DEN DEN DEN DEN DEN DEN DEN DEN DEN DEN DEN EST EST EST EST EST EST EST EST EST FIN FIN ICE FIN FIN FIN FIN FIN FIN DEN FIN SWE FIN ISR FIN LVA n.a. LTU LTU LTU LTU LTU NOR NOR NOR NOR NOR NOR NOR NOR NOR Buyer Jeudan Jeudan Aberdeen Property Investors C.W. Obel/Lundbeck Jeudan Sjælsø Gruppen Københavns Tekniske Skole Jeudan Ejendomsselskabet Norden C.W. Obel PFA Essex Invest A/S Aberdeen Property Investors CPM Invest A/S Catella Real Estate AG BPT Altenberg Reval Kawe Group Eften Capital n.a. Catella Real Estate AG Eften Capital Eften Capital Varma Mutual Pension Insurance Company ICECAPITAL Housing Fund II Ky Trackside Holding Varma Mutual Pension Insurance Company ICECAPITAL Housing Fund II Ky Mandatum Life Insurance Company Limited and Kaleva Mutual Insurance Company VR Pension fund Keskinäinen Työeläkevakuutusyhtiö Varma Varma Mutual Pension Insurance Company Danish Investors Capman Hotels RE Ky Sagax Etera Mutual Pension Insurance Company ANL Kiinteistöt I Ky EM Group Catella Real Estate AG Orkla Finans Deka Verdispar NOR Development/ Inova Triangle Group Private investors (Banys, Miseikis) Pareto Orkla Genesta Oslo Areal Bergesen/ Ringnes Fabritius n.a. Aker Solutions n.a. Country DEN DEN DEN DEN DEN DEN DEN DEN DEN DEN DEN DEN DEN DEN GER DEN SWE EST EST n.a. GER EST EST FIN FIN ISR FIN FIN FIN FIN FIN FIN DEN FIN SWE FIN FIN FIN GER NOR GER NOR NOR UK LTU NOR NOR SWE NOR NOR NOR NOR NOR NOR Type of Object Office Office Office Office Office Office Office Office Office Office Office Office Office Office Office, Estonian Police headquarters Office, Marat Headquarters of Estonian Mail, needs redevelopment Hilding Production complex Office building, state anchor tenant Rimi supermarket Industrial, Magnum logistics property Industrial, Premia warehouse Retail, K-Rauta DIY Retail Residential Office/Retail Other Residential Logistics Office/Retail Retail Logistics Retail Office Warehouse Office Office/Retail Office/Retail Office, Duntes Biroji Warehouse, Avers Centrs Retail, Akropolis Retail, Maxima Portfolio Warehouse, Megarenta Hotel, Holiday Inn Vilnius, Ecotel Vilnius Office, TEO LT Logistic Office Retail/Office Office Office Logistic Residential development Office development Retail Currency (million) 2,000 600 488 420 280 265 223 180 162 153 110 98 83 75 30 16 8 ~7.5 2.5 ~2 n.a. n.a. n.a. 156 60 ~50 37 37 20 17 16 12 10 10 ~9 n.a. n.a. n.a. 33 ~15 220 47 23 20 10 942 512 445 410 400 395 389 366 233 EUR (million) 269 81 66 56 38 36 30 24 22 21 15 13 11 10 30 16 8 ~7.5 2.5 ~2 n.a. n.a. n.a. 156 60 ~50 37 37 20 17 16 12 10 10 ~9 n.a. n.a. n.a. 33 ~15 220 47 23 20 10 115 63 54 50 49 48 47 45 28 Area (m2 ) 150,000 27,000 40,000 14,362 10,700 17,500 19,500 9,500 25,000 11,000 5,698 7,033 5,000 5,609 19,300 21,000 10,916 14,697 4,801 1,920 11,800 7,000 6,000 111,000 n.a. n.a. 20,000 n.a. 20,500 5,950 n.a. 14,500 6,000 5,185 11,000 6,413 50,000 4,000 16,500 20,000 80,400 26,500 29,900 n.a. n.a. n.a. 37,000 14,461 16,000 20,000 27,000 n.a. 71,000 17,800 64 TRANSACTIONS <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=65">Newsec Property Outlook - Spring 2010 Sida 65 Prop</a> erty location Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Local Seller Nortura Mack Holding Vestby Kommune Selvaag Sealbay (Selvaag) Storebrand Property Fund Scandinavian Property Development n.a. Oslo Areal Hansa Property Palleum/Uppstrøm RBS Entra Eiendom Fornebu Hageby 1 AS Eiffel Eiendom. A-pressen Balticgruppen and VK-kuriren Skanska RBS Nordisk Renting Atrium Ljungberg Deutsche Bank Fabege/Peab NLP (Northern Logistic Property ASA) Folksam Svenska Bostäder Swedish Football Association Aviva Investors Fastighets AB Förvaltaren Kungsleden Host Hoteleiendom AS Erik Selin Fastigheter, Möller & Partners and Adolfson Industribyggen Deutsche Bank Skanska iii (Internationales Immobilien-Institut GmbH) Skanska Diligentia Boultbee Fabege Vasakronan Sveafastigheter Försäkringsbranschens Pensionskassa Fabege Acta Heimstaden TK Development Vasakronan JM NCC SF Bio AB Kockums (Thyssen Krupp) JM Vasakronan Peab Country NOR NOR NOR NOR NOR NOR NOR NOR NOR NOR NOR NOR NOR NOR NOR NOR SWE SWE UK SWE GER SWE NOR SWE SWE SWE UK SWE SWE NOR SWE GER SWE GER SWE SWE UK SWE SWE SWE SWE SWE NOR NOR DEN SWE SWE SWE SWE SWE SWE SWE SWE Buyer Ikano Eiendomsspar Ferd Eiendom Catella Real Estate ag Wahl Eiendom Mallin Eiendom Inceptum 86 AS Aberdeen Property Investors Astron AS R.S Platou Northbridge & Fazenda Waagan Asker Havila Ariel OBOS nye hjem AS Ragde Eiendom n.a. Balticgruppen and VK-kuriren Seven pension funds KLP Niam Fund IV AMF Fastigheter Invesco Real Estate Kungsleden Jernhusen 1 tenant owner association Fabege and Peab Niam Fund IV 3 tenant owner associations Corem Property Group Deka Immobilien GmbH Alecta Focus Nordic Cities IVG Funds Jernhusen Aberdeen Property Investors 1 tenant owner association Fastighets AB Lundberg Dina Försäkring AB Wallenstam AXA REIM Byggnadsfirma Olov Lindgren AFA Fastigheter Ikano Bostad Svenska Bostadsfonden Commerz Real Havsstigen Investment AB, Thulefastigheter and Fondex AB Stockholmshem Sollentunahem Wallenstam Wihlborgs Stockholmshem Pembroke Real Estate Wihlborgs Country SWE NOR NOR NOR NOR NOR NOR NOR NOR NOR NOR NOR NOR NOR NOR NOR SWE SWE NOR SWE SWE USA SWE SWE SWE SWE SWE SWE SWE GER SWE GER GER SWE UK SWE SWE SWE SWE GER SWE SWE SWE SWE GER SWE SWE SWE SWE SWE SWE USA SWE Type of Object Industrial Hotel Logistic Retail Retail Office Retail/Office Office Office Office Office Industrial/Office Office Residential development Retail Office/residential Joint venture of the companies 2 properties (detention centre and police building) 1 hotel property in Stockholm CBD 7 retail properties 1 CBD property in Stockholm 1 retail and office property 5 warehouse and logstics properties 1 hotel property in Stockholm CBD 3 residential properties in Stockholm Football Stadium and office in Stockholm 1 office property in Kista in Stockholm 4 residential properties outside Stockholm 22 commercial properties 1 hotel property in Gothenburg CBD 2 retail, industrial, storage and office properties Baltzar City in Malmö 1 office project in Stockholm Centralhuset in Gothenburg 1 office project in Malmö 3 residential properties in Solna 1 retail and office property in Linköping 1 office property in Stockholm Old Town 3 properties in Gothenburg city 2 properties in Kalmar and Västervik (police buildings) 2 CBD properties in Stockholm 1 CBD property in Stockholm 10 residential properties in Malmö 12 residential properties 1 retail project outside Stockholm 3 office properties in Stockholm city and Old Town 1 residential project in Stockholm 1 residential project in Stockholm 1 property in Gothenburg (cinema) 1 office property in Malmö 1 residential project in Stockholm 1 office CBD property in Stockholm Swedish Television building in Malmö Currency (million) 200 155 150 145 140 135 131 130 130 120 115 112 106 100 82 79 ~1,700 n.a. ~1,200 1 030 ~900 842 ~525 505 504 ~490 485 482 460 440 430 405 400 ~400 n.a. 382 372 360 350 348 ~300 300 ~300 ~300 280 267 261 257 235 230 225 160 160 EUR (million) 24 19 18 18 17 16 16 16 16 15 14 14 13 12 10 10 ~167 n.a. ~118 101 88 83 ~52 50 49 ~48 48 47 45 43 42 40 39 ~39 n.a. 37 36 35 34 34 ~29 29 ~29 ~29 27 26 26 25 23 23 22 16 16 Area (m2 ) 34,000 n.a. 100,000 2,000 n.a. 8,829 n.a. 6,500 7,208 5,500 13,000 n.a. 4,406 10,071 4,444 n.a. 130,000 40,600 26,400 80,000 25,600 23,300 109,500 13,500 22,100 n.a. 18,700 14,000 81,300 13,600 41,700 11,300 12,000 10,600 14,200 23,000 14,000 6,760 10,000 15,200 8,000 4,800 28,500 31,000 14,300 7,150 n.a. n.a. 10,600 15,000 6,380 3,200 5,300 TRANSACTIONS 65 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=66">Newsec Property Outlook - Spring 2010 Sida 66 Econ</a> omic Data – Q1 2010 Sweden Area (000's , km2 Population (million) ) Density (inhabitants / km2 Capital ) Inhabitants in the capital region (million) Expected GDP growth 2010 (%) Expected GDP per capita 2009 (Source: IMF) Labour force (million) Expected employment growth 2010 (%) Expected inflation rate 2010 (%) Currency Currency code Exchange rate (1 EUR = local currency) 9.3 450 20 Stockholm 2.0 1.5 43,147 USD 4.90 -2.0 1.0 Krona SEK 10.19 Finland 5.3 338 16 Helsinki 1.2 0.5 45,876 USD 2.53 -3.6 1.3 Euro Euro 1 Denmark 5.5 43 128 Copenhagen 1.8 1.0 55,942 USD 2.86 -2.0 1.5 Krone DKK 7.44 Norway 4.7 324 15 Oslo 1.0 2.0 76,692 USD 2.59 -0.5 1.5 Krone NOK 8.19 Estonia 1.3 45 29 Tallinn 0.4 0.0 13,509 USD 0.69 -3.0 1.0 Kroon EEK 15.65 Latvia 2.3 65 36 Riga 0.8 -3.5 10,701 USD 1.17 -5.5 -4.0 Lat LVL 0.71 Lithuania 3.4 65 52 Vilnius 0.5 -2.0 10,775 USD 1.60 -3.0 2.0 Litas LTL 3.45 Euro-area 327 -----------1.0 --------1.0 Euro EUR 1 USA 305 9,373 33 Washington 0.6 2.2 46,443 USD 155.2 ------ Dollar USD 1.44 Property Data – Q1 2010 Office stock (million m2 ) Standard length of leases (yrs) Office CBD Prime rent (EUR/m2 Prime yield (%) Vacancy (%) Retail CBD Prime rent (EUR/m2 Prime yield (%) Vacancy (%) Stockholm 11.8 3-5 Helsinki 8.0 3-5 Copenhagen 11.0 5-10 Oslo 8.8 5-10 Tallinn 0.5 3-5 Riga 0.5 3-5 Vilnius 0.3 3-5 ) 375 5.25 6.5 300 6.00 5.5 215 5.00 9.6 340 6.00 7.0 175 9.50 10.0 156 9.0-12.0 12.0 160 9.0-10.5 12.0 ) 1,225 5.25 2.0 Taxation Total tax rate (% of GDP) Corporate tax (%) Property tax (%) Property transfer tax (%) Capital gains tax (%) VAT (%) 1,470 6.00 2.0 1,745 5.25 2.7 1,465 6.00 n.a. 250 9.50 5.0 250 9.75 10.0 250 9.50 5.0 48 26 0.5/1.0 (1.5) - 3.0 30 25 43 26 0.5-1.0 1.5/4.0 28 22 49 25 1-2.5 0.6 28 25 44 28 0.2-0.7 2.5 28 25 37 21 0.1-2.5 --0 20 31 15 1.0 2.0 15 21 30 20 1.0 0.45 15 19 66 COUNTRY DATA <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=67">Newsec Property Outlook - Spring 2010 Sida 67 DEFI</a> NITIONS – GRAPHS AND DATA Offices • New or newly refurbished modern and flexible office premises with normal area efficiency. • Finland: office premises with normal area efficiency in office buildings in office areas. • The size of the premises is assumed to be around 1,000 m2 . • The market rent includes heating and excludes property tax. • Finland: KTI definition of gross market rent - net rent plus all costs. • Norway and Denmark: The market rent excludes heating and property tax. Retail • Attractive, modern high-street or central-shopping-centre retail premises with a prime location on the high street or in the shopping centre. • The rents do not refer to premises used for groceries and day-today items. • Finland: all retail premises in central Helsinki, retail parks and shopping centres. • The size of the premises is assumed to be around 250 m2 . for premises in Sweden, Norway, Denmark and the Baltics. In Finland the size is in the range 150-400 m2 • The rent excludes heating and property tax in all countries except Finland where the rent is gross rent - net rent plus all costs. Logistics • The size of the premises is assumed to be more than 5,000 m2 • Gross rent - net rent plus all costs. . SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 DEFINITIONS 67 <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=68">Newsec Property Outlook - Spring 2010 Sida 68 THE </a> FULL SERVICE PROPERTY HOUSE Annually we value properties for more than 65 billion euro and we manage over 1,000 properties with a total value of 10 billion euro. Newsec is The Full Service Property House in Northern Europe with over 20 offices in 8 countries. Newsec offers services to property investors as well as corporate clients who lease or own premises for their own use. The company has over 600 professionals and has recently been advisors in transaction deals with a value of over 9 billion euro. Annually we value properties for more than 65 billion euro and we manage over 1,000 properties with a total value of 10 billion euro. In addition to that we have an international network of about 6,000 consultants all over the world. This makes us the only Full Service Property House and gives us a unique capability to predict the future. Newsec AB was formed in Sweden in 1994 as a real estate consultancy company. The first issue of the com- prehensive market analysis Newsec Property Outlook was published in 2001. The company expanded internationally into Finland in 2001 and Norway in 2005. Newsec then acquired the Finnish real estate and asset management company Tallberg Toimitilajohto Oy in June 2005. The Norwegian full service company Eiendoms-Consult AS was acquired in 2006. The Baltic full service company Re&Solution was acquired in 2009. In 2005 the group changed its name to Stronghold and the holding company developed a clearer strategy towards becoming more of a pure investment company. Fact and figures | Newsec • 20 offices in 8 countries • 600 professionals • 9 billion euro in transaction deals • 65 billion euro in property valuation • Manage 1,000 properties, total value of 10 billion euro Offices | Northern European Region Stockholm SWE Gothenburg SWE Malmö, SWE Borås, SWE Eskilstuna, SWE Jönköping, SWE Karlstad, SWE Landskrona, SWE Markaryd, SWE Uppsala, SWE Västerås, SWE Oslo NOR Helsinki FIN Tampere, FIN Oulu, FIN Tallinn, EST Riga, LAT Vilnius, LIT Kaliningrad, RUS 68 THE FUL INTRO L SERVICE PROPERTY HOUSE <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=69">Newsec Property Outlook - Spring 2010 Sida 69 TRAN</a> SACTIONS Newsec offers tailor-made property-related financial and strategic advisory services and is one of the fastest-growing consultancy firms for property transactions in Northern Europe. With over 25 professionals specialising in investment and corporate finance, we have experience of transactions exceeding 9 billion euro. Newsec has a unique updated database of 4,000 investors with specific needs, all over Northern Europe. This means that we can find the right buyers for specific projects that we have for sale, in the most efficient way possible. Our transaction team focuses on: • Corporate finance • Property transactions • Acquisition advice ADVICE The key to giving the most accurate and reliable advice about the future is specialist knowledge in all areas that affect the property market. Through extensive research and unique forecasting methods we offer professional advice in areas such as property acquisition, investment, business development and capital development projects. Newsec is the leading property advisor in Northern Europe for investors and corporates. Our advice-team of over 50 professionals has recently been advisors in transactions worth more than 9 billion euro, and we value properties exceeding 65 billion euro annually. Our Northern European analysis and valuation unit (the largest in the market) has access to more information than any other player, and through our international partners we have access to 6,000 specialists based in 80 offices in 20 countries. Our advisory team focuses on: • Research, analysis and valuation • Consulting on ownership matters • Retail advice • Corporate Real Estate (CRE) advice • Strategic consulting • Energy advice HEAD OF TRANSACTIONS Juhani Reen Direct: +358 207 420 407 Mobile: +358 50 1696 juhani.reen@newsec.fi HEAD OF ADVICE Marie Bucht Direct: +46 8 454 40 80 Mobile: +46 708 44 30 70 Fax: +46 8 454 40 01 marie.bucht@newsec.se ASSET MANAGEMENT Newsec is the leading asset management company in Northern Europe. With over 50 years of experience, we currently manage over 1,000 properties representing 7 million m2 with a total value of 10 billion euro. In recent years we have grown by 70% annually. We employ more than 400 professionals and have offices throughout Northern Europe. Since we are also the market leader in letting, we help to minimise vacancies in your property stock. This means that our property administrators and managers know when to sign long or short lease contracts. By virtue of our size we are able to purchase goods and services at advantageous prices. For you as a client this means lower prices and better financial returns. All this together enables us to offer you the highest-quality and most cost-effective service. Our Asset Management team focuses on: • Property management • Leasing of premises • Project development HEAD OF ASSET MANAGEMENT Björn Lindeborg Direct: +46 8 55 80 55 30 Mobile: +46 70 519 30 90 bjorn.lindeborg@newsec.se SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 T HE FULL SERVICE PROPERTY HOUSE 69 INTRO <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=70">Newsec Property Outlook - Spring 2010 Sida 70 DATS</a> CHA A WEB-BASED SERVICE FOR ANALYSIS OF THE SWEDISH PROPERTY MARKET The more information and the better analytical tools you have access to, the less uncertainty in every transaction or valuation you carry out. Datscha is a successful information source and analytical tool covering the Swedish commercial property market. It is both user-friendly and advanced at the same time. • Find property information • Review a company’s property portfolio • Search for comparable sales – updated daily • Locate specific properties or a selection of properties on a map • Value one or more properties quickly You can access all the information, which is constantly updated, from anywhere with access to the Internet, 24 hours a day. This provides a smart and quick analysis which helps you make the right decisions. Datscha is a company in the Stronghold group. For more information contact Datscha +46 8 50 70 50 00, info@datscha.com or www.datscha.com 70 INTRO DATSCHA <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=71">Newsec Property Outlook - Spring 2010 Sida 71 SWED</a> EN Stockholm – Head Office Regeringsgatan 65 P.O. Box 7795 SE-103 96 Stockholm, Sweden Tel: +46 8 454 40 00 Fax: +46 8 454 40 01 info@newsec.se Gothenburg Lilla Bommen 5 P.O. Box 11405 SE-404 29 Göteborg, Sweden Tel: +46 31 721 30 00 Fax: +46 31 721 30 01 Malmö Dockplatsen 12 SE-211 19 Malmö, Sweden Tel: +46 40 631 13 00 Fax: +46 40 631 13 01 Stockholm – Asset Management Humlegårdsgatan 14 P.O. Box 5365 SE-102 49 Stockholm, Sweden Tel: +46 8 55 80 50 00 Fax: +46 8 55 80 50 01 Gothenburg – Asset Management Lilla Bommen 5 P.O. Box 11405 SE-404 29 Göteborg, Sweden Tel: +46 31 721 30 00 Fax: +46 31 721 30 01 Malmö – Asset Management Dockplatsen 12 SE-211 19 Malmö, Sweden Tel: +46 40 631 13 00 Fax: +46 40 631 13 01 FINLAND Helsinki Mannerheiminaukio 1 A P.O. Box 52 FI-00101 Helsinki,Finland Tel: +358 207 420 400 Fax: +358 207 420 499 info@newsec.fi Tampere Aleksanterinkatu 32 B FI-331 00 Tampere, Finland Tel: +358 207 420 400 Fax: +358 207 420 439 NORWAY Oslo Kronprinsens gate 3 P.B. 1800 Vika NO-0123 Oslo, Norway Tel: +47 23 00 31 00 Fax: +47 23 00 31 01 DENMARK Öresund Office Dockplatsen 12 SE-211 19 Malmö, Sweden Tel: +46 40 631 13 00 Fax: +46 40 631 13 01 LATVIA Riga Duntes str. 6 LV-1013 Riga, Latvia Tel: +371 6750 8400 Fax: +371 6750 8401 ESTONIA Tallinn Pärnu rd 67A EE-10134 Tallinn, Estonia Tel: +372 6640 540 Fax: +372 6640 541 LITHUANIA Vilnius Jogailos str. 4 LT-01116 Vilnius, Lithuania Tel: +370 5 252 6444 Download Newsec Property Outlook at WWW.NEWSEC.COM SWEDEN – 12 FINLAND – 29 NORWAY – 37 DENMARK – 44 ESTONIA – 50 LATVIA – 54 LITHUANIA – 58 TRANSACTIONS – 64 CONTACT 71 INTRO <a href="/v5/viewer/files/Default_s.aspx?gKey=77xcg0zz&gInitPage=72">Newsec Property Outlook - Spring 2010 Sida 72 72 I</a> NTRO Newsec Property Outlook | Spring 2010 | www.newsec.com
