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There has been a marked absence of the will of foreign investors to engage in Norway for many years. Some years ago we saw some interest from the Swedish market. Other foreign investors have been more or less conspicuous by their absence.
One can ask a number of questions as to why this is the case, but there is no easy answer. It is doubtful that it’s because we are so protective here in Norway that we feel we have to defend all that is ours, not least our ‘right to rule’. On the other hand, it may well be that our repeated ‘no’ to full membership in the EU has been a barrier. The no is of course still in force, so non- membership is not the main reason.
During the last year or two we have seen a marked increase in interest for investments in the Norwegian real estate market. Inflation has been remarkably low and stable during the last few years, and we have even seen a tendency towards deflation during the current year.
The authorities have a declared objective that the CPI shall be in the region of 2.5 %, and as one of the tools used to attain this objective interest rates in Norway have fallen to remarkably low levels. In July 2002 the key interest rate was 7% annually. Today it is 1.75%, and it is forecast that the interest rate will remain low and stable in the foreseeable future.
Rising oil prices and the falling dollar exchange rate have had a positive effect on our economy, and in an international perspective we have low unemployment. Less than 5% of the Norwegian work force is unemployed.
The Norwegian yield level has been at a higher level than that of the other Scandinavian countries. Only a few years ago the yield level in Oslo was around 2% higher than both Stockholm and Copenhagen.
In Norway, the general rule is that long-term lease contracts are entered into than is otherwise the case in Europe. It is not unusual that one enters into lease contracts of up to ten years in the office facilities market. Other commercial buildings such as combination/multi-purpose properties and similar have as a general rule somewhat shorter contracts, although they are longer than otherwise in Europe.
IPD’s unleveraged real estate returns last year rose to 7.8% from 6.8% in 2002 with the retail sector producing the best total returns with 12.8%. The residential sector saw its total returns fall sharply in 2003 to 8.1% from 14.6% in 2002, but the sector continued to produce higher returns than the office sector, which produced the lowest real estate returns at 6%.
The office market in Oslo remains un-balanced with a weak level of office lettings and the vacancy rate at around 10.5%. However, take-up gained some momentum during the first half of 2004 and there is little in the way of new supply. As a consequence, vacancy rates are now likely to have peaked and average rental levels are expected to remain stable.
International investors buy and show interest in commercial buildings when the location is good, when the real estate is fully leased on a long-term contract and when the lease is financially sound and the risk is thus small. When all these conditions are in place, arguments such as low interest rates, the low level of inflation and the presumption that the yield level will fall even further are effective in the decision making process.
Norwegian investors have not left the country to buy real estate. There have been a few short trips to Stockholm and Copenhagen, where we have seen a relatively strong level of interest. Among other projects, two major hotel real estate companies were recently taken over by Norwegian interests. Some of our life insurance companies have traded in real estate in the cities mentioned, and in some cases in London. In addition to this, we can point to investments in specialist areas such as shopping centres in the Baltics, Poland and elsewhere.
The rising oil price has had little or no effect on the investment market. The reason for this is the restrictive attitude of the state to using oil revenues. The authorities allocate a high proportion of oil revenues to the Oil Fund, which has the objective of investing in foreign debentures and funds. The ideal objective is that only the earnings from the Oil Fund shall be used in the day-to-day running of Norway. This objective is not attained every year, but this high proportion of the oil revenues are set aside for future generations and for the time when there is no more oil on the continental shelf.
Availability in the office facility market is currently in the region of 11%, and the experts believe that we will reach an approximate balance when free capacity falls below 5%. On the basis of this, an additional 500 000m2 of office space should have been leased out than is currently the case.
One result of the increase in available space to rent is that lease rates for office space have shown a tendency to fall since early 2001, and the trend is continuing on a slightly reduced level. It is not expected that lease rates will show any major upturn until 2008 at the earliest.
There are a number of foreign chain stores with ambitions to establish themselves in Norway, which is not always that easy. We have legislation that prevents the establishment of shopping centres with a larger area than 3,000 m2 if the location is outside town or city confines. Neither do facilities in attractive shopping streets exactly grow on trees in Norway. This lack of supply means there has been good interest in investing in the Norwegian retail market. We believe that this interest will persist during the coming years.
The interest in investments in Norway is not only apparent in the traditional investor groups; there is a particularly high level of activity being shown by foreign funds and syndication companies.
Olaf Vangstein is a director at Colliers Bjordal Partners

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