Introduction

The Norwegian economy will probably continue to cool ahead, while inflation is expected to remain elevated also next year. Short-term interest rates are expected to increase further from today’s levels, while long-term interest rates are expected to have limited further upside potential.

The office market has been red-hot this year, and we expect vacancy rates to remain low and office rents to increase further in Oslo next year. In the CRE transaction market, we observe upside pressure to yields and expect them to increase over the coming months.

The Norwegian economy rebounded strongly after the COVID-19 pandemic, and activity has remained strong until relatively recently. Unemployment in Norway is now at its lowest level since before the financial crisis. However, activity growth has begun to slow down of late, while consumer price inflation has been far stronger than expected. Many of Norway’s trading partners are finding themselves in a similar situation. Major problems in the international value chains, sharp rises in the cost of energy and electricity and strained labour markets have piled pressure on costs throughout the supply chains.

High inflation can in itself help push up inflation expectations, causing high inflation to become entrenched. Central banks in the West, including Norges Bank, have therefore raised their interest rate forecasts sharply in an attempt to quash inflation. High inflation and rapid interest rises will help curb consumption and investment, and in the markets there have been growing fears of recession in recent months.

If we do get a recession, the central banks are like to cut interest rates at some point, but not before they have gained some ground on current levels. It will probably take some time until we see a return to the current policy rate levels. According to Norges Bank, the policy rate will most likely peak at 3.0 percent this winter, which is another 75bp up from today’s level, and from there on gradually decrease, reaching 2.5 percent by the end of 2025. Norwegian long-term interest rates, which reflect expectations for the Norwegian economy in the longer term, broadly follow international trends and have already reached elevated levels. If the global, and the Norwegian, economy cools down, long-term interest rates will probably begin to fall at some point.

The robust growth in the Norwegian economy until recently has contributed to a red-hot office market with very low vacancy rates and unusually high rent increases. Even if demand for office space were to diminish, we expect vacancies to only increase moderately and remain below its historical average toward the end of 2023. Combined with high CPI growth, we expect low vacancy rates to underpin rising office rents next year.

Den høye aktivitetsveksten vi har hatt i norsk økonomi inntil nylig har bidratt til et brennhett kontormarked med svært lav arealledighet og uvanlig høy leieprisvekst. Selv om etterspørselen etter kontorareal skulle kjøle seg ned framover, antar vi at arealledigheten vil bli holdt nede av historisk lav tilførsel av nytt areal. Sammen med høy vekst i KPI, venter vi at lav arealledighet vil bidra til å støtte oppunder veksten i kontorleie til neste år.

Despite rapidly rising financing costs, activity in the transaction market for commercial property remained surprisingly high until the summer. However, we have recently noted a greater degree of hesitance, both in Norway and neighbouring countries. As we see it, yields have begun to rise. This is putting pressure on property values, but properties which can quickly capitalise on the rent hike will probably do better.