Transaction
Investor sentiment was strong in the Norwegian and international property markets at the start of 2022. However, high inflation, geopolitical unrest and rising interest rates began to create uncertainty in the markets as the year wore on.
Liquidity remained good in the first six months but stalled in the third quarter as a result of a more hesitant market in a state of repricing. By mid-October, we had recorded a transaction volume of NOK 62 billion, which is 36 per cent lower than at the same time last year.
Transaction volume, billion NOK
0
2 Transaction
Transaction volume per segment
Transaksjonsvolum per segment
Increased funding costs
Five and 10-year swap rates have risen from just over 2 per cent at the start of the year to the interval 3.60 – 3.90 per cent in mid-October. Credit spreads in the same period have increased, meaning funding costs are now far higher than they have been in the last couple of years. Higher financing costs are perceived very differently by different investor groups depending on the loan to value ratio. The most interest-rate sensitive investors, such as leveraged funds and transaction-driven property companies, were behind much of the activity in the property market and have been forced to downgrade their risk-adjusted rate of returns. This has helped create a far more selective market.
Increase in five and 10-year swap rates YTD, bps
~
95
%
10-year govt. bond vs. Oslo Prime yield, percent
Prime yield
Prime yield for offices in Oslo has, according to our experience, increased from 3.30 percent to 3.75 per cent, which corresponds to the yield level before the pandemic. In line with the office prime yield, yields for the other segments have all also been adjusted upwards. There is further upward pressure on yields and further developments in interest rates will govern the development in prime yields.
Prime yield
15
%
3.
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.