Market update Q1 2025

The property market

The transaction market

In 2024 we ended up with a total transaction volume for the year of around NOK 80 bn. This was a marked improvement on the previous year, which is regarded as one of the worst years for the transaction market. For the first quarter of 2025 we have registered a transaction volume of approx. NOK 11.5 bn. This is considerably below the first quarter of last year, when we registered a volume of NOK 23 bn. That volume was, however, boosted by Entra's sale of its property portfolio in Trondheim to EC Dahls Eiendom for NOK 6.45 bn. For 2025 we are forecasting a total transaction volume of NOK 90 bn, which is roughly in line with the 10-year average.

Liquidity in the transaction market picked up sharply in the last quarter of 2024, but was again affected by uncertainty about future rate cuts towards the end of the year. At the start of 2025, macroeconomic and geopolitical turbulence is even more pronounced. The latest inflation figures also led Norges Bank to decide to postpone the previously expected rate cut at the end of March. This, combined with uncertainty about the development of US and EU tariffs on Norway, which could lead to higher inflation, is creating uncertainty in the transaction market going forward. On the other hand, it appears that investors have returned to a more optimistic view of the market. There is still a great deal of capital seeking the right asset, provided that financing falls into place. In addition, it can be argued that property becomes more attractive to investors when there is considerable turbulence in global equity markets.

In the first quarter there were far fewer large transactions than over the course of last year. Among the larger transactions, we can highlight Capman's acquisition of 28 hotel properties, 8 of which were Norwegian, through its purchase of Midstar Fastigheter. This was the largest hotel transaction ever in the Nordics. Furthermore, KLP has acquired Ulven Boligutleie for NOK 1.015 bn. With these large transactions dominating the first quarter, we see that residential and hotels are currently leading the way in transaction volume. We also see that office, as usual, still accounts for a significant share of total volume.

The office market

Overall, the Oslo office letting market faces a somewhat uncertain future. Rising vacancy, a wave of new office supply and uncertain economic prospects are creating challenges for both landlords and tenants. The market is likely to be characterised by increased competition, flexible leases and greater demands for quality and location in order to attract tenants in the time ahead.

Office vacancy in Oslo is rising and now stands at 7.3 per cent for Oslo as a whole. It is lowest in Bjørvika at around 2 per cent and highest at Bryn/Helsfyr, where vacancy is around 14 per cent. Office vacancy in Oslo has risen steadily since the end of 2024, which is in line with expectations owing to the completion of several new-build and refurbishment projects. However, there are also many vacant, smaller premises that contribute to pushing overall vacancy upwards.

According to figures from Arealstatistikk, 195,430 square metres were let in the fourth quarter of 2024, spread across 242 contracts. This represents a 23 per cent decline in square metres compared with the fourth quarter of 2023, when 260 contracts were signed. Furthermore, the two-quarter moving average rent was down -1%. The geographically weighted average rent, on the other hand, showed an increase of 3% for the fourth quarter of 2024.

There are still expectations of some economic growth in Norway during 2025, which could contribute positively to the office market. On the other hand, low employment growth and an increase in space are pulling in the opposite direction. It will be particularly challenging for landlords letting smaller premises, as a record amount of small and medium-sized vacant premises is being reported.

Rents have so far shown moderate growth, and we see some uncertainty regarding further rental development for Oslo as a whole. If the macroeconomic situation deteriorates, and especially if employment remains weak, rents will most likely remain relatively flat. There is still demand for the most central areas, so these will lead any rental growth. In contrast to the central areas, rental growth in areas outside the city centre such as Bryn-Helsfyr and Fornebu is expected to be more moderate.

The logistics market

Rents for the most attractive warehouse and logistics space fell back somewhat in the second half of 2024, but averaged NOK 2,000/sq m in 2024, up 2.3 per cent from 2023. Rents for warehouse and logistics as a whole are, however, being pulled up by strong price growth for premises in the lower price bracket.

Warehouse and logistics, industrial and mixed-use properties accounted for just under 25 per cent of total transaction volume in 2024, which adds up to around NOK 18 bn. In the first quarter, the segment accounts for a considerably lower share of total transaction volume at approx. 16 per cent.

Rental growth in the warehouse and logistics market has levelled off somewhat compared with previous years. Limited new construction activity is also expected in the sector, as today's high construction costs require high rents for warehouse and logistics buildings. This trend is expected to persist for a period, in line with weak economic growth and low consumption. In the longer term, however, a rapid upturn in the market is expected once economic growth accelerates, wage levels rise and consumption of goods strengthens. In addition, limited new supply of warehouse space will reinforce this effect, as the supply side will lag behind demand as a result of low new construction activity.

The retail market

Shopping centres

According to figures from the Norwegian shopping centre index, shopping centre turnover fell marginally, by 0.4 per cent, in February. This decline is explained by there being one fewer trading day in February 2025 than in 2024. Furthermore, food and beverage outlets and specialist shops saw slightly positive development in February. For January and February combined, shopping centre turnover is 2.5 per cent higher than in the same period last year. Adjusted for floor space and trading days, turnover has risen by 4.3 per cent.

In 2024, shopping centre property worth around NOK 3.5 bn changed hands. The largest transaction was carried out by Scala Eiendom when it was announced in September that it had acquired Trekanten senter in Asker from Citycon for NOK 1.325 bn. So far this year we have registered one shopping centre transaction. Sjøsiden senter and Sortland storsenter were sold in February for just under NOK 500 million.

Retail trade

Households held back from increasing consumption through 2024, despite an increase in purchasing power. Going forward, households are expected to increase consumption as economic growth is expected to pick up and rate cuts come closer. On the other hand, this increase may take some time, as there is still considerable uncertainty in the market related to the geopolitical situation and greater uncertainty about a possible rate cut.

Retail property accounted for around 5 per cent of the total transaction market in 2024. Taking the retail and shopping centre categories together, however, they accounted for around 10 per cent of total volume. This has increased in the first quarter of the year, with shopping centres and retail together accounting for just under 14 per cent of transaction volume.

According to Statistics Norway's retail trade index, the twelve-month change in retail trade excluding motor vehicles was -4.9 per cent in January 2025. The three-month change was -0.5 per cent.

Macroeconomics

• Over the last two years, economic growth in Norway has been modest. High inflation and the associated interest rate rises have helped dampen activity in the Norwegian economy.
• Trade conflicts will weaken overall global value creation going forward, but according to Statistics Norway this will nevertheless not prevent further growth.
• Despite increased trade tensions, higher tariffs and more fragmented global trade, Statistics Norway expects continued high real wage growth, lower interest rates and increased public demand to lift activity in the Norwegian economy in the coming years.
• GDP growth for Mainland Norway is expected to pick up from 0.6 per cent in 2024 to just over 1 per cent this year and further to around 2 per cent from 2026 onwards.

The labour market

• Figures from Statistics Norway show growth in average accrued annual earnings of 5.6 per cent from 2023 to 2024, giving an increase in real wages of 2.4 per cent over the same period.
• Real wage growth was the highest since 2012. Good profitability in manufacturing could contribute to continued high real wage growth.
• Unemployment, as measured by the Labour Force Survey (LFS), rose from a low level of 3.2 per cent in 2022 to 4.0 per cent towards the end of 2024. This level is roughly the same as the average for the 2010s.
• According to the LFS trend figures, unemployment fell further to 3.9 per cent in January 2025.

CPI

• Inflation as measured by the consumer price index (CPI) was historically high in 2022 and 2023, but fell markedly in 2024. Annual CPI growth ended at 3.1 per cent in 2024, down from 5.5 per cent the year before.
• Inflation as measured by the CPI-ATE was 3.7 per cent in 2024, down from 6.2 per cent in 2023. Overall, inflation in recent years has been historically high, and we have to go back to the 1980s to find comparable annual CPI growth.
• After a period of declining inflation, the CPI surprised with annual growth of 3.6 per cent from February 2024 to February 2025, an increase of 1.3 percentage points from January 2025.
• Marked nominal wage growth, the weakening of the krone in recent years and increased international inflation mean that inflation is likely to remain slightly above the 2 per cent inflation target in the years ahead as well.

The interest rate market

• Since December 2023 the policy rate has been 4.5 per cent, the highest since December 2008. At the last rate meeting, Norges Bank indicated that the policy rate would probably be lowered in March this year, but owing to rising inflation after the new year the rate cut was postponed.
• The uncertainty we are now seeing, with trade conflicts and a tenser security situation, has normally weakened small currencies such as the Norwegian krone. High inflation has, however, led the market to now price in higher interest rates. This, together with lower growth expectations and reduced demand for dollars, among other things, has helped strengthen the krone.
• Fewer rate cuts are now expected than previously, but Statistics Norway's interest rate forecast estimates two rate cuts this year and three next year. In that case, the policy rate would come down to 3.25 per cent in 2026.
• The 5-year swap rate has fluctuated between 3.88 and 4.25 per cent during the first quarter of the year, reflecting a marginal increase from the fourth quarter. The increase is driven partly by expectations of fewer rate cuts than previously assumed.