Rising vacancy gives declining market rents
Average rents in Oslo have risen by about 25 per cent since the autumn of 2016, driven by record-low office vacancy as a result of solid growth in jobs and moderate newbuild activity. We have expected a change in this trend because it has long been clear that a period is looming where many newbuilds are being completed at the same time as employment growth is likely to slow. That picture has now been reinforced by Covid-19 and the recession unleashed by the virus.
Office vacancy bottomed out at 5.4 per cent in late 2019, and is expected to rise to more than eight per cent next year. We expect this to put pressure on rents. On average, these are likely to fall in Oslo by five to 10 per cent from their first-quarter peak. However, we expect a clear improvement in the letting market from 2022 with newbuilding declining dramatically at the same time as the Norwegian economy is likely to normalise.
Source: UNIONRent growth has been substantially stronger in the most central areas than for the fringe zone in recent years. Vacancy has been very low and newbuilding almost non-existent in the CBD, Bjørvika and the rest of the city centre. Over the past two years, average rents have risen by 14 per cent in the central districts – twice as fast as for the rest of Oslo. These are the areas where we have seen the biggest increase in office vacancy over the past half-year. Collective vacancy for these districts is now 4.7 per cent. We expect this figure to rise further, both because a number of refurbishment projects are entering the market and because these areas contain many tenants who are sensitive to cycl
Sources: Dagens Næringsliv and UNIONVacancy in the eastern fringe has passed 10 per cent, a figure which rises even higher when certain districts such as Bryn/Helsfyr and Økern are viewed in isolation. We also see that the high level of uncertainty is making tenants more price-sensitive.
We expect relatively substantial differentials between districts, with rent levels in the areas west of the centre – including Skøyen, Lysaker and Fornebu – being less affected.