But capital values still face downward pressure due to falling rents and increasing vacancies, according to the Nordic City Report Spring 2010 from consultants Jones Lang LaSalle.
Nordic capital cities are showing signs of stabilisation and all Nordic markets are showing the same pattern in demand for office space. Occupiers are favouring new constructions and vacancy levels in the A segment are considerably lower than in the B and C segments, the report shows.
Investors are favouring prime properties, namely high quality, core CBD products with demand for secondary offices still proving weak. This is largely due to the more prudent lending policies from banks, which are opting for low risk assets, it adds.
Office vacancies in Stockholm, Oslo, Helsinki and Copenhagen have increased on an annual basis by between 2 to 3%. Vacancy rates have increased most significantly in Copenhagen, up 3.1 %, mainly due to a decrease in local demand.
During 2009, occupancy levels fell between 5 and 10% in all Nordic markets with the exception of Oslo where levels declined by approximately 30 %. The large increase in occupancy rates that the city experienced before the recession started is the reason for the decline in occupancy levels in Oslo, and this is now stabilising.
The office rental market in the large metropolitan areas have stabilised more than expected. Vacancies, which at the end of 2009 had increased to 11.5 % in the Greater Stockholm area, 8.3% in the Greater Gothenburg area and 7.1% in Malmö/Lund, are expected to increase modestly in 2010 due to a negative employment rate combined with an increased supply.
In Stockholm and Malmö/Lund, a significant increase in leasing activity was recorded during the fourth quarter of 2009, while office take up in Gothenburg was relatively stable over the same period.
‘The recession, however, is not yet over and a combination of many occupiers no longer using their space to maximum capacity together with negative employment growth will mean increased office vacancies during 2010,’ said Mikael Wallgren, head of Leasing, Jones Lang LaSalle Sweden.
Analysts estimate that by the end of 2010, office vacancy levels will be approximately 14% for Stockholm, 10% for Gothenburg and 8% for Malmö/Lund. Rents in all locations are estimated to continue to decline by 0 to 5 % over the coming year. .
Investment yields in Stockholm and Helsinki have risen on an annual basis by 0.25%, while Copenhagen has demonstrated a more stable market with unchanged yield demand. Oslo is the only Nordic market where yield sank, down 0.50% on an annual basis. In contrast, yield levels for less attractive products will still move upwards over 2010.
The report also shows that investment transaction volumes in Sweden have begun to increase, although they are from low levels. During 2009 transaction volumes declined by around 60% compared to the previous year. ‘We can expect a market characterized by greater activity than the previous year. Furthermore, several international investors continue to be interested in the Swedish market and this should lead to even more transaction volumes,’ said Daniel Gorosch, head of Capital Markets, Jones Lang LaSalle, Sweden.
Nordic commercial real estate market recovering well, report shows
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