Office space standing empty
June 10, 2009
Commercial real estate brokers all over Norway are having a tough time filling up empty office space, not to mention the new office complexes still under construction. Leasing rates in prime downtown locations in Oslo have fallen as much as 40 percent since 2007 and investors face major losses.
While there have been some signs of recovery in the housing market, commercial real estate is down in the dumps. A construction boom in recent years means many new projects are coming on line, and brokers just aren’t filling them up.
Nearly a third of one large project set to open in Oslo next April, Helsfyr Atrium, is still available and even developers of the prestigious Tjuvholmen project next to Aker Brygge on the Oslo waterfront have failed to find tenants so far for around 13,000 square meters of space that will be available by next summer.
Newspaper Dagens Næringsliv (DN) reports that prime office buildings in the prestigious Vika and Aker Brygge areas in downtown Oslo have lost NOK 5 billion in value in the past two years. Leasing rates per square meter are down 21 percent, from an average NOK 3,750 to NOK 3,000, just since January, estimates a panel of experts polled by DN .
City-wide, office lease rates in Oslo are now averaging NOK 2,250 per square meter per year. That’s still higher than they were in 2004-2005, notes newspaper Aften , but real estate investors expected much larger returns. Those who launched projects at the top of the market are hurting.
All told, an estimated 665,000 square meters of commercial office space is now available in the Oslo metropolitan area, including Asker and Bærum. That means an overall office vacancy rate of about 7 percent, reports Aften .
Ragnar Eggen, chief analyst for real estate firm Akershus Eiendom, told DN that there’s a large inventory of prime office space that’s either vacant now or will be vacant when current tenants move out during the next two years. “That’s pressing down lease rates,” he said.
Insurance firm Storebrand, for example, plans to move from its 35,000-square-meter complex at Filipstad Brygge next to Aker Brygge next year, to new quarters in Lysaker, and its current offices have been on the market for a year. Only 5,000 square meters of the space has attracted new tenants so far, reports DN .
Rates down nationwide
The situation is equally bleak for office space in other Norwegian cities. Vacancy rates have risen in Stavanger and lease rates are falling, says Jon Gunnar Benestad of Norwegian Properties. Brokers expect reductions in Bergen through next year as well: “Lease rates will keep falling as long as unemployment keeps rising,” said Trond Lehmann Syversen of Kyte Næringsmegling in Bergen.
In Kristiansand, at the southern tip of Norway, several office buildings are still under construction. The extra inventory will keep lease rates down, brokers say. Farther north, however, brokers in Trondheim and Tromsø are more optimistic.
“We think lease rates will keep falling a bit, but not dramatically,” Rune Husby of DnB NOR Næringsmeglings in Trondheim told DN . “We think most of the decline has already occurred.”