Introduction

The interest rate peak is most likely reached, both in Norway and among our Western trading partners. This in itself is a positive development, contributing to an improved market sentiment and a decrease in risk premiums in financial markets. The CRE transaction market, which was the weakest in many years last year, is showing signs of improvement. In the rental market, activity has been surprisingly strong in the last few quarters, with continued rental price increases towards the end of the year.

The fear of a global recession has subsided in recent months, and the prevailing expectation in the market now seems to be that both the Norwegian and international economies will gradually normalise over the next couple of years. The interest rate peak is most likely behind us, contributing to an uplift in market sentiment and a reduction in credit spreads. Market participants may have been overly optimistic in expecting interest rate cuts in 2024, and the significant decline in long-term interest rates may have been somewhat premature. However, even if the further decline in interest rates may not be as rapid as market participants had assumed, the worst is probably behind us, both in terms of short and long-term rates. Going forward, we therefore expect market sentiment to remain positive.

The transaction market for commercial real estate was very weak last year, with the lowest traded volume in over 10 years. However, in the fourth quarter, we witnessed a clear improvement, and December was by far the best month throughout 2023. The decline in property values now seems to come to a halt after a sustained downturn in the past year. This is mainly because the property yield requirements are not increasing further but rather stabilising. Looking ahead, we expect the activity in the transaction market to gradually pick up.

In the office rental market, the vacancy rate has remained low, and rental prices have risen more than we expected at the beginning of 2023. The logistics segment has also experienced high activity and continued rental price growth, while there is a more mixed development for other property segments.

Outlook

Assuming the Norwegian economy experiences a soft landing, we expect limited rental price growth this year. However, when economic growth picks up again, likely from 2025, we anticipate that low vacancy rates will contribute to significant rental price growth in several property segments.