Office vacancy in the Oslo region is now 5.5 per cent,¹ and has thereby fallen by a further 0.2 percentage points over the past six months and by one percentage point since the same time in 2018. Over the past half-year, vacancy has fallen in 10 of 16 defined office areas. The biggest decline in square metres is at Lysaker, where vacancy now stands at 8.3 per cent. Vacancy in the central areas has stabilised at less than four per cent, which is overall very low in historical terms.

A total of 90 000 m² of new office space is due to be completed by 2019. Of this, 15 per cent remains unlet. Almost 200 000 m² is set for completion next year, with a third still not let. Several developers have initiated major projects on a speculative basis which are due to be ready in 2020, such as OBOS Eiendom’s 30 000 m² office building at Freserveien 1 and Skanska’s 19 500 m² Parallel office project at Lørenveien 65 in Økern. These two projects account between them for a quarter of next year’s newbuild volume.

We are aware of five newbuild projects scheduled for completion in 2021. The largest are Storebrand and Aspelin Ramm’s VIA project in the CBD and Oslo Pensjonsforsikring’s Økern Portal project. These two developments collectively represent 90 000 m² of office space, and 60 per cent of this is already let. We expect that 130 000 m² of office space will be completed in 2021, but that newbuild activity will decline to 80 000 m² in 2022. It is still more than three years to the end of 2022, but no office buildings due to be completed in that year have been confirmed at present.

Large leases have been awarded over the past couple of years in newbuild projects due for completion in 2020-21. Examples include law firms Thommessen and Arntzen de Besche, who are moving to VIA, and Telia and Get, relocating to Økern Portal.

The volume of office space being converted to other purposes is expected to decline gradually, from 100 000 m² at the 2017 peak to 20 000 m² by 2022. After adjusting for office space being removed from the market, the net growth in space will be only 30 000 m² in 2019. Our expectation for next year is a net newbuild supply of no less than 150 000 m². We are accordingly sticking with our forecast that office vacancy will bottom out at 5.4 per cent this year before rising gradually from 2020 when the supply of space increases.

¹ Oslo, Asker and Bærum local authorities

Employment growth in Oslo was high during 2017-18, helping to increase demand for office space by no less than 150 000 m² in the latter year. Data from SSB indicate that this trend has persisted into 2019. Moreover, ManpowerGroup’s labour market survey for the fourth quarter of 2019 shows that companies in Greater Oslo are at their most optimistic for six years.

At the same time, several clouds are gathering. The Norwegian economy will get less help from increased oil investment next year, and the growth outlook is weaker internationally. SSB expects growth to decline gradually, and the national rise in employment to slow from an estimate of about 1.6 per cent this year to 0.5 per cent in 2020.

Growth in demand for offices in Oslo has been positively affected by the fact that many providers of flexible office premises have signed up a lot of space. The latter has been removed from the vacancy statistics, but remains to be filled up. We expect that part of the requirement for space will be channelled into flexible offices in the future. Combined with a somewhat weaker labour market, our view is that this will moderate the growth in demand. The latter is likely to be about 70 000 m² this year, and we believe it will gradually decline to 50 000 m² in 2022.

Interest in city-centre offices remains stable and high. Roughly eight out of 10 tenants searching for new premises cite the centre as a relevant area. Consultancy, engineering services and consultant engineers, banking, finance and insurance, and public sector tenants account for more than half the search volume so far this year. The IT and telecommunications sector, which accounted for 14 per cent of the volume in 2012-18, has made up only four per cent of this year’s total. In contrast, consultancy, engineering services and consultant engineers alone have been responsible for 20 per cent of the search volume so far this year, while their 2012-18 average was four per cent.

Demand from tenants who use search agents to find new office premises was record-high in 2017. The volume in 2018 was somewhat lower, but nevertheless high in historical terms. Generally speaking, tenant representation agents are used by big tenants and they are usually out in the market one-three years before the lease expires. According to Arealstatistikk, fewer large tenants have expiring leases in 2021-22, and we thereby expect search volumes to decline in 2019-20.

More than 30 000 m² of flexible office space has opened annually on average over the past three years in Oslo.¹ Although such premises still represent a small share of the office market in the Oslo area,² at around two per cent, their rapid expansion and the great interest in the segment have made them an important part of the office market. A capacity of more than 6 000 workplaces has been established in such premises over the past two years. By comparison, we have calculated that the number of office employees in Oslo, Asker and Bærum expanded by almost 16 000 annually in the same period.

The market is expanding both through the entry of new players and through the opening of new centres by existing participants. Over the past three years, the number of players has almost tripled to 33. Four newcomers have also confirmed that they will be opening their concepts by the end of 2020. WeWork, for example, has secured leases for its first three premises in Oslo. The first of these will already open this side of New Year. IWG, which owns Spaces and Regus, is still the player with the biggest market share.

UNION Gruppen conducts a detailed analysis of Oslo’s flexible office market twice a year. Data are acquired from players in the sector, and no less than 92 per cent of the market is analysed. Carried out in January 2019, the previous survey showed 53 per cent occupancy. This had increased to 63 per cent in the latest exercise. Members have thereby increased by more than available space during the period.

About 7 000 members currently occupy flexible offices, and space is available for another 4 000. Given today’s spare capacity and expectations of establishing a further 4 000 workplaces up to 31 December 2020, much of the future employment growth will be channelled directly or indirectly into flexible offices.

We see a clear connection between occupancy in the individual centres and the length of time since they opened. Average occupancy is below 40 per cent for centres operational for 12 months or less, 56 per cent for those open for 12-24 months and 85 per cent for those in action more than 36 months.

Rents for most of the space leased to players offering flexible office solutions are square-metre based and accord with market levels. In addition to rent, marketing costs and a couple of work-years in managing the centre are unavoidable on top of normal overheads. Centres which are about half full are thereby unsustainable. In our view, important requirements for creating a viable business model are therefore space-efficient premises, a high level of occupancy and very good operation.

According to our questionnaire-based survey, flexibility and efficient use of space are key factors for most of the players in this sector. Flexible lease terms are also important for many of them, not least by offering opportunities to extend and expand the lease. Several existing players also report that they have a steadily increasing number of large companies as members, and this trend is likely to persist. The trend whereby landlords are challenged on flexibility will undoubtedly continue.

¹ “Flexible office” is used here as a collective term for office hotels, coworking, flexible office workspaces and so forth.
² Oslo, Asker and Bærum local authorities

Rents in Oslo are rising for the third year in a row. Average nominal rents in the capital have increased by 21 per cent since the autumn of 2016, and by six per cent over the past year.¹ The top rent – the average of the highest 15 per cent of rents agreed in Oslo over the past three years – has risen by 24 per cent over the same period. Rents are now high in historical terms, which thereby means they are too low in many older leases and will have to be renegotiated in the time to come.

A marked twofold division of the market persists. The differential between top and average rents in Oslo has increased by 33 per cent over the past three years.² We have registered particularly strong rent growth in the CBD, Bjørvika and the rest of the city centre. Office vacancy is very low in these areas, with little newbuilding, and rent rises have been above the Oslo average. Office vacancy for the central areas overall is 3.7 per cent, after declining by 1.3 percentage points since last winter. Low vacancy and a high level of demand for office premises in central Oslo mean that we expect rent growth to remain highest in the city centre.

A good deal of newbuilding is underway, and relatively large numbers of planned newbuilds are available, in several of the areas outside the city centre – particularly in the eastern fringe area. That has had a moderating effect on rent growth for several years, and we expect this to persist. A double-digit number of office projects are competing for a limited number of tenants.

Office vacancy for Oslo as a whole is expected to bottom out at 5.4 per cent over the next few quarters, since growth in demand exceeds the supply of new space in the short term. However, we expect vacancy to start rising during 2020 as supply-side growth accelerates and is likely to outstrip demand. We believe this will be enough to slow down the rise in rents, and our forecast is for a three-per-cent increase in the Oslo average during 2020.

¹ Source: Arealstatistikk at 31 December 2018. The data have been processed by UNION.
² Source: Arealstatistikk at 31 December 2018. The data have been processed by UNION.