Norway presentation

International perspective on the Norwegian property market

Tony HorrellCEO UK and Ireland

What is Norway famous for?

• Northern Lights

• Fishing

• Oil

• Nordic games

• Christmas trees (Trafalgar Square)

• Morten Harket / AHA

• Aksel Lund Svindal

2

Norwegian Icebreaker heads up the Mississippi River

3

As you may have seen on the news it's been very cold in Iowa,

Wisconsin, & Minnesota. So cold, in fact, that the US Corp of Engineers

has borrowed a Norwegian Icebreaker to clear the Mississippi River for

freighter traffic. The Icebreaker is starting near Davenport and working its

way northward for 3 months.

Here is a picture as the hard work of ice breaking begins. Impressive!

Norwegian Icebreaker heads up the Mississippi River

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Positive factors for Norway19

91

1992

1993

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1995

1996

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1998

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2001

2002

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2004

2005

2006

2007

2008

2009

2010

2011

2012

10

15

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30

35

40

45

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55

60GDP per capita (PPP)

Norway UK Eurozone G7 EU27

US

D T

ho

usa

nd

s

Source: IMF

$12,700 higher than the G7 average

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Positive factors for Norway

Norway

Austra

lia

Nethe

rland

sUS

Canad

a

Germ

any

Sweden

Switzer

land

Japa

n

Icela

nd

Denm

ark

Belgium

Austri

a

Franc

e

Finlan

dSpa

inIta

lyEU27 UK

0.82

0.84

0.86

0.88

0.90

0.92

0.94

0.96

Human Development Index

Source: United Nations Development Programme

Highest HDI in the world

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Positive factors for Norway

Sweden

Denm

ark

Norway

Austri

a

Finlan

d

Germ

any

Icela

nd

Beligu

mEU27

Austra

lia

Nethe

rland

sSpa

inIta

ly

Canad

a

Franc

e

Switzer

land

UKJa

pan

Wor

ld US

0

5

10

15

20

25

30

35

40

45

50

Income Inequality – Gini Coefficient

Source: CIA

More inequalityLess inequality

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Positive factors for Norway

Denm

ark

Finlan

d

New Z

ealan

d

Sweden

Singap

ore

Switzer

land

Austra

lia

Norway

Canad

a

Nethe

rland

s

Icela

nd

Germ

any

Belgium

Japa

nUK US

Franc

e

Austri

aSpa

inIta

ly20

30

40

50

60

70

80

90

100

Corruption Perception Index

Source: Transparency International

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Positive factors for Norway

• 6th easiest country to do business in for Small and Medium-size

Enterprises – Doing Business Report 2013 (World Bank)

• Prudent management of natural resources extraction and the

subsequent oil fund

• Flexibility of own currency and central bank

• 5th largest merchant ships fleet in the world

• Low unemployment rate (3% in September 2012)

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European Overview 2012 – CRE Investment

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EMEA v Americas v Asia-Pacific

Includes Offices, Retail, Industrial, Hotels, Apartments and Development Sites

2007 2008 2009 2010 2011 20120

100

200

300

400

500

600

700

800

900

Global All Property Transactions

Americas AsiaPac EMEA

€Bil

lio

ns

Source: RCA ** Ex. China Land Sales

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2012: Q1 - Q3

Q4 est.

Nordics v Western Europe v CEE

2007 2008 2009 2010 2011 20120

50

100

150

200

250

European Commercial Property Transactions

CEE W. Europe Scandinavia

€ B

illi

on

s

Source: RCA

12

8%

79%

13%

Norway within the Nordics

2009 2010 2011 20120

2

4

6

8

10

12

14

1.4

5.46.8 7.0

1.0

2.3

2.33.5

1.1

1.0

1.3

1.0

1.7

1.1

1.4

0.9

Nordic Commercial Property Transactions

Denmark Finland Norway Sweden

€Bil

lio

ns

Source: RCA

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International investment by sector

2009 2010 2011 20120

100

200

300

400

500

600

700

800

900

International Investment in Norway by Sector

Industrial Retail Offices

€ M

illi

on

s

Source: RCA

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International investment

Sweden UK US Switzerland Germany Madagascar0

200

400

600

800

1,000

1,200

1,400

International Investors in Norway by Nationality (2009-2012)

Industrial Retail Offices

€ M

illi

on

s

Source: RCA

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Outperforming compared to larger EU markets

UK

IPD Pan-Europe

Germany

IPD Eurozone

France

Norway

-2 -1 0 1 2 3 4 5 6 7

-0.7

3.5

3.8

4.6

6.5

6.5

Europe: All Property Total Return (%pa) 2006-11 in Local Currencies

PercentageSource: IPD

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Outperform the Nordic average

Denmark

Nordic Market

Sweden

Norway

Finland

0 1 2 3 4 5 6 7

Nordics: All Property Total Return (%pa) 2006-11 in Local Currencies

PercentageSource: IPD

17

All Property returns higher than Equities

Inflation

Bonds

Offices

Equities

All Property

Retail

Industrial

0 2 4 6 8 10 12 14

1.8

6.6

8.1

8.7

9

10.7

12.1291890482798

Norway: Total Returns (%pa) by Sector and Asset Class 2001-11

PercentageSource: IPD, Oslo Bors, Statistics Norway

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Norway – Most active foreign buyers

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Norway – Indirect funds

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Local capital dominant

Rest of Scandinavia (mainly Sweden), UK, US and Germany main

sources of foreign capital

Focus is on Oslo (53% of total volume in 2012) and other largest

centres

Office most traded commercial property asset type in 2012 (42%)

followed by retail (34%)

High demand for core properties...but lack of product a constraint

Residential Investment also popular: residential boom; prices up

8.5% y/y in January; mainly private individual investors; banks

keener on lending against resi to reduce risk and meet Basel III

requirements

Capital values stabilising

Investment market trends

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Debt market

Lenders mainly local (DnB, Nordea, BN Bank, Sparebank 1 Gruppen)

International active banks: Handelsbanken and SEB

Norwegian banks exposure to CRE was NOK 446 billion (approx. 58 billion) as

of q3 2011

292% of tier 1 capital and ca. 35% of corporate bank loans (40% of total loans)

Credit standards for CRE expected to remain tight (source:Norges bank survey)

Higher capital requirements main contributor

LTVs: around 65-70% (80-90% before crisis)

Financing above NOK 1 billion difficult; typically loans above NOK 300 – 400m

are syndicated.

Relatively high margins (>250 bps); no changes expected in the short term

Bonds attractive source of financing, but predominantly for the larger players –

and mainly deals > NOK 30022

Example of debt-driven transaction

Statoil’s 65,000 sq m in suburban Oslo

Madison International (USA) bought 35% of the office building, fully-let to

Statoil, for NOK 392 m (€53 m)

Loan-to-Value ratio of 70%

Arctic Securities was the syndicator of the equity and also organised the

bond financing

Margin is 220-230 basis points

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Credit conditions

Source: Norges Bank

Credit to CRE to remain tight

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Expectations for Q1 2013

STRENGTHS

+ Strong economy, relative insulated from

Eurozone crisis

+ Oil as wealth generator

+ Very low sovereign debt (AAA rating)

+ Excellent physical and human

infrastructure

+ Low unemployment (ca. 3%)

+ No pressure to increase tax as

elsewhere in Europe

+ No transfer tax on sale of shares in

Norwegian or foreign companies holding

real estate in Norway

+ Positive rental growth outlook

+ Favourable landlord act

Strengths & weaknesses

WEAKNESSES

− Volatile exchange rate, tracks oil price

fluctuations

− Full employment/skills shortage

− High hedging costs

− Less transparent than other

Scandinavian countries

− High debt financing cost (margins >250

bps)

− Risk of overheating of residential

market

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Strong economic outlook: 2.8% GDP growth in 2013 (source: Experian)

Positive economic and property market fundamentals justify growing interest from

foreign buyers…

..in practice strong competition from local investors and limited size of the market

remain an obstacle

Tightening in financial regulation (Basel III, etc.) will negatively affect bank lending to

CRE

Share of bond financing to increase in 2013 as a result (to ca.30-35% of loan value)

Lack of products will maintain downward pressure on yields despite difficult financing

conditions – Prime office yields to remain stable between 5.5-6.25%

More investors to move up the risk curve in search of higher returns as risk is re-priced

Occupier market outlook stable

Outlook 2013

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Our Global Strength

Top 3 global real estate services brand

• 522 offices in 62 countries

• 12,000+ employees

• $1.8 billion in revenue

• Over 90% “owned” revenues

• $68bn transaction value

• Over 2.1 bn square feet under management *

* Includes FirstService Residential Management

International perspective on the Norwegian property market

Tony HorrellCEO UK and Ireland