Rents in Greater Oslo rose by about 11 per cent over the past year – their strongest increase since 2008.¹ Several factors help to account for this sharp growth.

• The Norwegian economy has been booming, with employment growing strongly in most office-based sectors.

• The supply of office premises remains low. Office vacancy bottomed out at 5.5 per cent around the New Year, and little new space is being completed.

• Building costs have increased substantially as a result of high raw material costs and bottlenecks in global value chains as well as a tight labour market. Construction and conversion costs remain at a high level.

While a rather cautious attitude has admittedly prevailed in the office market so far this year, we have seen few signs of significant weakening. However, it remains likely that growth in the Norwegian economy will slow significantly and possibly shift to a mild recession. That would in the event weaken the labour and office rental markets. 

Several factors nevertheless suggest that we will not experience any particular decline in rents.

• Inflation remains high. While most observers admittedly expect this rate to fall back sharply during the year, considerable uncertainty continues to prevail about how fast and how large this decline will be.

• Although raw material prices have fallen considerably, building costs remain substantially higher than before the pandemic. 

• We also observe structural changes, including more tenants making tougher demands for technical equipment and soundproof telephone and Teams rooms. That raises customisation costs, which in turn pushes up rents. A risk moreover exists that new environmental standards will increase investment requirements.

• Office vacancy remains low and little new capacity is being built. With current building costs and yield trends, many projects will probably remain on ice. 

A strong correlation exists between rent developments and the labour market, with the former always flattening out or falling when the latter slows. We expect that to happen this time too. Providing the downturn is not too deep, however, we believe the most likely outcome is a flatter trend for rents.

Largely thanks to a favourable supply side, moreover, we expect rents to resume growing from 2024. Our forecasts indicate an annual nominal rent growth of five per cent in 2024-25, but these predictions are naturally sensitive to the possible depth and duration of a Norwegian economic downturn and how soon it begins.

Since most office areas have experienced sharp growth in rents over the past year, the rise has been broad-based. We expect a fairly flat and uniform trend for rents in the various office areas during 2023.

• Many tenants in central Oslo and the CBD are sensitive to economic trends. On the other hand, vacancy is low and very little new capacity is being built.

• Vacancy in the areas west of the city centre has declined a great deal in recent years, and very little newbuilding is under way. Moreover, oil and energy companies are still experiencing good times.

• East of the central area, vacancy has declined a great deal over the past three years. Although many potential newbuild projects exist in these districts, it is difficult to get the sums to add up with high building costs and rising yields. In other words, rent levels in any new buildings must be higher than before.