MARKET UPDATE

Labour marketGDP: Mainland Norway vs. Eurozone

Number formatting: SI style (English version)

Latest figures – Norway

Latest transactions

Latest lease contractsVACANCY** IN OFFICE CLUSTERS IN GREATER OSLO

Asker

Billingstad

Sandvika

Majorstuen

Nydalen/Sandaker

Økern/Løren/Risløkka

Bryn/HelsfyrCBD

Bjørvika

Kvadraturen

Skøyen

Fornebu

LysakerInner city

0 - 5 %

5 - 10 %

10 - 15 %

> 15 %

*Advertised office space of the total office building stock in Greater Oslo. This includes potential advertised new projects. **Space available within 12 months

Tenant Address Cluster Size (m²)

Norsk Moteforum Snarøyveien 30 Fornebu ~ 9 000

Wikborg Rein Dronning Mauds Gate 11 CBD ~ 8 600

Elkjøp Nydalsveien 18 Nydalen ~ 7 000

GE Oil & Gas Eivind Lyches Vei 10 Sandvika ~ 4 700

CSC Norge Filipstad Brygge 1 CBD ~ 2 300

Address/property Buyer SellerSize

(NOK mill.)

Zander Kaaes Gate 7 KLP ROM Eiendom 760

Rosenbergveien 15 Arctic Syndicate Pareto Syndicate 325

Breivollveien 31 Stenshagen Invest Platou Syndicate 270

Dronning Eufemias Gate 42 Wahl Eiendom Oslo S Utvikling 250

Varnaveien 30 Ragde Eiendom Enata Eiendom 240

APRIL 2016

Sale of Dronning Mauds Gate 15, OsloMalling & Co Corporate Real Estate advised Eksportfinans ASA in the sale of their sections in Dronning Mauds Gate 15 to Genesta Nordic Real Estate Fund II. The property is centrally located in CBD in Oslo and has a lettable area of 9 400 m2.

Source: FINN.no/Malling & Co – April figures

GREATER-OSLOSUPPLY*

10.7 %

GREATER-OSLOVACANCY**

7.2 %Trend last 12 months Trend last 12 months

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

Mainland-Norway Euro areaSource: Statistics Norway/IMF

-2.0 %

-1.0 %

0.0 %

1.0 %

2.0 %

3.0 %

4.0 %

5.0 %

Unemployment rate Employment growth

Source: Statistics Norway

• The Norwegian Central Bank lowered the keypolicy rate by 25 basis points to 0.50 % onMarch 18th. The reasoning was that the growthprospects for the Norwegian economy haveweakened somewhat, and inflation is expectedto moderate further out.

• The current outlook for the Norwegianeconomy suggests that the key policy rate maybe reduced further in the course of the year.But the probability of a reduction already at theJune meeting is reduced. As the key policy rateapproaches a lower bound, the uncertaintysurrounding the effects of monetary policyincreases. This now suggests proceeding withgreater caution in interest rate setting.

• On April 28th, SSB reported an increase in theunemployment rate (LFS) of 0.1 percentagepoint to 4.6 % as a 3-month sliding average.This is an increase of the number ofunemployed by 3 000 to 130 000, while thetotal workforce increased with 13 000 since thelast three month period (This is a change withinthe LFS error margin).

• The trade surplus for March 2016 totaled nearlyNOK 9.1 billion, which is the lowest sinceSeptember 1999, apart from April 2015. Bothimports and exports of goods were less than inMarch last year, but were almost unchangedfrom the previous month.

• The seasonally-adjusted volume index of retailsales decreased by 0.7 % from February toMarch this year. This follows a decrease of0.5 % from January to February this year.

• In the first quarter of 2016, the number of bankruptcies was 1 163, which is a drop of 10 % compared with the same quarter in 2015. The falling bankruptcy filings is a continuing trend.

• House prices increased by 1.7 % from the 4th quarter of 2015 to the 1st quarter of 2016, when adjusted for seasonal variations.

Commercial Real Estate

Transaction volume (>50 MNOK)Office rents in Oslo (NOK/m²/yr.)

Topic of the month:

Eiendomshuset Malling & CoDronning Mauds gate 10, Postboks 1883 Vika, NO-0124 Oslo, NorwayT: +47 24 02 80 00 – E: post@malling.no – www.malling.no

Key facts real estate Advertised office space in Oslo (m²)

OFFICE CLUSTERPER APR. 2016

Prime / normal*PER APR. 2015

Prime / normal*

CBD (Vika/Aker Brygge/Tjuvholmen)

4800 / 2800-3200 4700 / 2700-3300

Skøyen 3000 / 2000-2300 3300 / 2100-2400

Central Oslo 3500 / 2100-2500 3500 / 2000-2400

Bjørvika 3500 / 2700-3000 3500 / 2700-3000

Lysaker 2250 / 1700-1900 2350 / 1600-1800

Fornebu 2000 / 1500-1700 2150 / 1400-1600

Nydalen/Sandaker 2150 / 1500-1700 2300 / 1500-1700

Økern/Løren/Risløkka 2150 / 1000-1500 2100 / 1400-1600

Bryn/Helsfyr 2150 / 1550-1750 2100 / 1550-1750

Office letting market

• The office supply in the defined office clusterswas 10.7 % in April, while the vacancy rate(within 12 months) was 7.2 %. The averagesupply rate in 2015 was 11.1 %, while theaverage vacancy rate was 7.6 %. The centralareas are the clusters that enjoy the lowestsupply rates.

• There is no doubt that the lower oil price hasaffected the office market in the western fringezone. Our mapping of the tenants in the axisshows that 18 % are in the Oil & Gas sector, andare directly affected by the situation. However,the share of subletting on FINN.no (in thedefined office clusters in Greater Oslo) hasremained lower than the observed fromapprox. 3.3 % in Q4 2015, at approx. 2.7 % inQ1 2016.

• The office construction volume in 2016 and2017 is low, approx. 70 000 m², about half theaverage volume over the last 20 years. In 2018and 2019 we expect the construction volume toincrease. A total of almost 300 000 m² officespace can be finalized in 2018 and 2019.

• Rental searches has had an increase in activityin the recent month, including a couple ofsearches for office space above 10 000 m2.

Transaction market

• We have year to date registered a transactionvolume of NOK 11.4 billion divided into 45transactions. We will be closely monitoring theQ2 volumes as the restrictive bank lendingmarket sets the premise for the remainder ofthe year. Our full year projection of NOK 65billion could be revised down if financing doesnot pick up and match the vast amount ofequity seeking real estate exposure.

• Almost 70 % of the transaction volume hasbeen office, retail makes up another 20 %,while combination is roughly 5 % of the market.The remaining 5 % is made up by various othersegments including residential and land.

• We estimate the prime office yield to be4.00 %, this a slight reduction of 20 bps fromour previous update. The estimate for normalproperty is held firm at 6.00 %.

• Oslo has by far seen the most transactions thisyear, with roughly 60 % of the volume. Bergenhas seen just about 20 %, while the remainingtransactions are scattered across the rest ofNorway, predominantly in and around majorcities.

• The share of international buyers in terms ofvolume in single buyer deals still remains low asthe count stands. But there is a lot of interestfrom foreign investors, both new andexperienced with the Norwegian market.

Finance disruption?

PER APR. 2016 PER APR. 2015

Prime yield* 4.00 % 4.50 %

Normal yield* 6.00 % 6.25 %

5 yr. swap rate (per 25 April)**

1.15 % 1.54 %

Average of 15 % highest rents in Oslo*** (Q1)

2 920 NOK/m²/yr. 3 060 NOK/m²/yr.

Office contracts signed(Oslo)*** (Q1)

152 630 m² 134 540 m²

Largest office contract (Oslo)*** (Q1)

25 790 m² 8 869 m²

Avg. contract length (Oslo)*** (Q1)

4.9 yrs. 4.9 yrs.

Source: Malling & Co

*Source: Malling & Co **Source: Kommunalbanken ***Source: Arealstatistikk Q1 2016

Source: Malling & Co

Source: FINN.no/Malling & Co

*Definitions: Prime rents are consistently achievable headline rental figure that relates to a new, well located, high specification unit of a standard size commensurate demand within the predefined market area. The prime rent reflects the tone of the market at the top end, even if no new leases have been signed within the reporting period. One-off deals that do not represent the market are discarded. Normal rents should reflect the interval where most contracts are signed in the specified market area.

Definition: Normal yield is defined as the net yield of a well maintained building situated in the fringe zone with strong tenants on a 5 – 8 year contract.

As many players in the Norwegian CRE-market are experiencing, financing is getting more difficult toobtain as well as increasing lending margins. Increasing cost of funding in USD for banks can result inlending margins staying higher than before as a permanent trend. This trend is also shown in NorwegianCentral Bank lending survey form first quarter 2016 (see graph below). The scale is a qualitative rangefrom -100 to 100. As we can see, the credit practice has become significantly stricter in the past twoquarters and we have to go back to Q3 2014 to find a positive change. 5 consecutive quarters with anegative change is a cumulative huge change in credit practice.

The banks are attributing this to stricter capital requirements and a weaker development in theNorwegian economy. As they see a risk for overinflated real estate prices and other credit marketsoffering better returns, they turn down real estate, a capital intensive sector. However, we experiencethat banks now even refuse good and sound projects and that financing is the main obstacle for thetransaction market. Despite the fact that the market seems to be swamped with available equity seekingreturn, the lack of financing is grinding the market to a standstill. But what will happen next?

As the demand for accessible financing is considerable, we see that other players are seeing a marketpotential. Some new startups are already looking at the web based crowdfunding concept, operating inthe grey market and trying to find their place in existing regulation. We believe some banks should beaware that new technology is challenging the existing system of bank and bond financing, and may endup offering something in between. These players may revolutionize the financing if they succeed, andmay be a threat to the traditional banks in the CRE market. The current “closed door” policy from thebanks may fuel this technological disruption even further.

NO

K B

ill.

0

10

20

30

40

50

60

70

80

90

100

110

120

130

Registered Estimate

-

100 000

200 000

300 000

400 000

500 000

600 000

700 000

800 000

900 000

1 000 000

Q1

20

11

Q2

20

11

Q3

20

11

Q4

20

11

Q1

20

12

Q1

20

12

Q3

20

12

Q4

20

12

Q1

20

13

Q2

20

13

Q3

20

13

Q4

20

13

Q1

20

14

Q2

20

14

Q3

20

14

Q4

20

14

Q1

20

15

Q2

20

15

Q3

20

15

Q4

20

15

Q1

20

16

< 5 000 m² > 5 000 m²

-60.0

-40.0

-20.0

0.0

20.0

-60.0

-40.0

-20.0

0.0

20.0

Q2 2014 Q4 2014 Q1 2015 Q2 2015 Q4 2015 Q1 2016 Q2 2016

Last three months Expectations from quarter before

Lending survey, change in CRE financing sentiment

Source: Norwegian Central Bank Lending survey Q1 2016