During 2004, the Swedish office market experienced a flattening out of the prime rental levels in the major cities. In Stockholm, the prime rent now stands at 3,600m2 annually, and in Gothenburg and Malmö at SEK 2.150 and 1.750m2 annually. There is a shortage of prime office space and high demand for these premises in all three cities.
In Stockholm the overall vacancy rate has started to decline, from 18.3% a year ago to today’s 17.8% in the third quarter. The TMT sector has started to expand in the capital, and construction activity has more or less halted. Take-up has been significant during the first three quarters at 259,000m2, which should be compared to 137,000m2 during the same period in 2003.
In Gothenburg and Malmö, vacancies now stand at 11.6% and 10.6% respectively, but are estimated to increase a bit further at the start of 2005 due to reorganisation among many corporations, limited employment growth and new construction. On the investment side, there was considerable activity during 2004. The total investment volume reached a staggering SEK100bn (including a few corporate deals). Prime yields for office property decreased in all three of the major cities, and now stands at 6.13% in the third quarter in Stockholm, and 6.5% and 6.13% in Gothenburg and Malmö respectively. Compared to Europe, the yield levels still look favourable for Sweden.
German funds and other foreign investors have maintained their strong interest for Swedish properties. Moreover, in the last 12 months the Swedish institutions have become more active on the buy-side after several years of limited activity, and new Swedish property funds are popping up every month. All this points this year to a slow recovery for the office market, and transaction volume all over Sweden will be significant.
Paul Kivimets is head of research at JLL in Sweden