Although the market is supported by a healthy economy, low vacancy rates and rising rents, favouritism for domestic buyers and fast conveyancing are putting off foreign investors
Foreign investors into Norway cannot keep up with the market. Foreign investment in the country during the first half of 2007 was flat at just 8% of total investment volume, according to Jones Lang LaSalle.
In 2006, investors spent €8.8bn on Norwegian property, with 8% coming from foreign investors. Foreign investors have been attracted by Norway’s stable and growing economy but they often fail to get their hands on assets because the market moves quickly and because Norwegians trade heavily among each other.
Although Håvard Nustad, investment director at DTZ Norway, tries to downplay the clubbiness of the Norwegian property sector, he admits that “in some cases, some Norwegian companies have overpaid for their real estate”.
Jones Lang LaSalle’s associate director of European capital markets, Erika Olsén, goes a step further, saying: “If there are foreign investors bidding for assets, Norwegian agents tend to choose a Norwegian buyer, even if the bids are equal.”
It only takes four weeks for a deal to complete in Norway, giving investors far less time to carry out due diligence on an asset than they have in other parts of Europe. And although the process may be faster, there are also fewer competitors.
“In Sweden you may have 50 investors competing initially for an asset, and in Norway you will have about five,” says Knut Stokke, partner at UNION Eiendomskapital.
Investors are also put off by perceived currency risks. Unlike neighbouring Sweden and Finland, Norway is not part of the EU.
Despite the obstacles, there are some strong arguments for investing in Norway. It has a healthy economy and the property market has low vacancy rates.
Oslo, the focus of most foreign investors, has a vacancy rate of only 2%, according to property consultants Newsec. In Stockholm, the vacancy rate is 6%. Rents are lower in the Norwegian capital too.
The combination of low vacancy levels and low rents is expected to lead to strong rental growth. Oslo rents are around €350 to €450 per m2 a year, according to Newsec. But this year, Artic Securities signed a lease for €520m per m2 a year for Haakon Vlls gate 6, and DNO signed a lease for more than €520 per m2 a year for Aker Brygge (see Office performance survey, page 28).
“Interest from foreign investors is bigger now than ever and especially in Oslo, where rents are increasing,” says Jones Lang LaSalle’s Olsén.
Norway also offers investors diversification. The economy thrives on oil whereas neighbouring Sweden relies on industry. GDP growth for Norway in 2006 was 4.6% and unemployment is at 3.5%, which is comparable with Sweden where GDP was estimated to be at 4.5% and unemployment at 5.6%
Fund manager Europa Capital has just entered the market, buying the office Olaf Helsets Vei 5, in south-east Oslo, for €71m. Europa Capital bought the building from Acta, the Oslo Municipality Pension Fund, in a deal reflecting a net initial yield of 6.5%.
Rob Sim, head of asset management at Europa Capital, says that he has tried to invest in Norway before, and concluded that the easiest way to enter the market was with a partner. “We wanted someone to manage the day-to-day property, which is what a partner does, and it also helps us to access stock in places that would pose a challenge if you were going in there cold,” says Sim.
“This asset came to us through DTZ RealKapital Corporate Finance, which will manage the asset for us.” Europa Capital completed the deal within two months and is looking for more.
“Oslo has been characterised by very low vacancies and with OH5 we see a good opportunity to lease the vacant areas and undertake active asset management,” says Sim. “Once you have made your first investment in a country, then following on with further investments should be easier because you have more credibility in the market.”
