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Nordic Office Markets – August 2012

Nordic City Report Autumn 2012

Economies: The Nordics have remained resilient to the continuing financial instability in the euro zone.

Office Markets: Office rental markets have remained strong in Oslo and Stockholm but are slowing in Helsinki and Copenhagen.

Investment Markets: Transaction volumes have been stable, with prime assets still the most in demand.

2 On Point • Nordic City Report • Autumn 2012

DefinitionsCBD Central Business District.Prime rent Represents the top open-market annual rent per sq m that can be expected for a notional office unit of the

highest quality and specification in the best location in a market. All prime rents are effective, representing face rent. The rent quoted normally reflects prime units of over 500 sq m in size.

Prime yield Represents the best (i.e. mid point) yield estimated to be achievable for a notional office property of the highest quality and specification in the best location in a market.

Net-absorption Net absorption represents the change in the occupied stock within a market.Cross-border Cross-border describes investment flows from or into a country, including cross border - cross-border

transactions.Vacancy rate Vacancy rate represents finished floor space offered on the open market for leasing within three months.Take-up Take-up represents floor space acquired within a market for occupation during the survey period (normally

three months).Grade A property Real estate for which the rental level is above average for the submarket in question (e.g. CBD and near

suburbs).Grade B property Real estate for which the rental level is average for the submarket in question.Grade C property Real estate for which the rental level is lower than the average for the submarket in question.

Executive Summary ..................................................................................................... 3 Stockholm Office Market ............................................................................................. 4 Gothenburg Office Market ........................................................................................... 6 Malmö/Lund Office Market .......................................................................................... 8 Oslo Office Market ..................................................................................................... 10 Copenhagen Office Market ........................................................................................ 12 Helsinki Office Market ................................................................................................ 14 New tax regulations create uncertainty on the Swedish real estate market .............. 16 Transaction Data ........................................................................................................ 18 About Jones Lang LaSalle ......................................................................................... 19

Economic Key Data Sweden Norway Denmark Finland EUGDP growth 2011 (%, change p.a.) 3.9 2.4 0.8 2.7 1.5GDP growth 2012(F) (%, change p.a.) 0.7 3.2 0.9 1.0 0.0Inflation 2011 (%, change p.a.) 3.0 1.0 2.8 3.4 3.1Inflation 2012(F) (%, change p.a.) 1.2 1.3 2.4 2.7 -Employment growth 2011 (%, change p.a.) 2.1 1.4 -0.36 1.1 -Employment growth 2012(F) (%, change p.a.) 0.3 2.1 -0.15 0.1 -Unemployment rate (%, seasonally adj.) 7.5 3.3 6.20 7.9 10.4Exchange rates (SEK/NOK/DKK per €)* 8.32 7.39 7.44 - -Typical lease length (years) 3-5 3-10 5-7 3-5 Property tax (%) 0.5-1.0 0-1.0 1.6-3.4 0.6-1.35 -Capital gains tax (%) 30.0 28.0 25.0 24.5 -VAT (%) 25.0 25.0 25.0 23.0 -Stamp duty (%) 4.25 2.5 0.6 4.0/1.6 -Corporation tax rate (%) 26.3 28.0 25.0 24.5 -

Contents

Source: European Central Bank, European Commission, Eurostat, IHS Global Insight, Ministry of Finance, National Statistics*Exchange rates from 2012-08-02

On Point • Nordic City Report • Autumn 2012 3

Despite the continuing financial instability in the euro zone, the Nordic countries have remained resilient. Trends have varied slightly for each of the countries, with Norway forecasting a strong GDP growth in 2012, whereas GDP growth in the other Nordic countries is expected to be considerably weaker, albeit outperforming the European average.

Demand for office space in the Nordic capital cities has remained strong in H1 2012. Take-up is on a par with results in H2 2011 and has even strengthened in several markets. However, it should be noted that decision-making processes have become increasingly slow, which reflects a more cautious approach on the occupier side. There has also been a steady focus on prime office space in central locations, in spite of the increase in new construction in more peripheral areas. In the aftermath of the financial crisis, a certain degree of price sensitivity has also been evident, and if there is too great a differential between rent levels in the CBDs and in less central locations, occupiers will prioritize cost benefits over location.

With the exception of Oslo, where prime rents have increased as a result of a positive trend in the employment rate in conjunction with limited supply, rental growth for prime office space in the CBDs has slowed despite the limited supply. A major reason for the stable rental market in the Nordics has been the minimal amount of new construc-tion reaching the market. However, construction activity is currently rising in both Oslo and Helsinki, although this is not expected to impact on rents in Oslo, but it may affect rents in Helsinki.

Transaction volumes have remained stable in all markets despite the continuing austerity, restricted access to capital and increasing risk aversion among both banks and investors. Prime assets are still the most in demand, which has placed downward pressure on prime yields in several markets. In contrast, prices have declined for secondary assets and interest from investors has been very slow.

This issue of the NCR also features an article by Wistrand, the law firm, on the Swedish government’s ongoing proposal to restrict tax deductions, so-called interest loops. The proposal is causing un-certainty in the property market and many investors have chosen to defer their decisions, at least until more beneficial investment conditions can be ensured.

Executive Summary

Note: Short-term rental cycle

Total

inve

stmen

t volu

me in

H1

2012

Note: Corporate deals and transactions < €4 million not included Residential and land not included

Source: Jones Lang LaSalle


Europe: Office Property Clock Q2 2012

Europe: Rental Growth Rates

Nordics: Direct Property Investment Volumes

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Cross-borderDomestic

DenmarkFinlandNorwaySweden

*Non Euro currencies converted to the average rates for the quarter, ECB. Note: Residential and corporate deals not included.

Dire

ct P

rope

rty In

vest

men

t Vol

umes

H1

2012

€ Million

Athens

Barcelona, Brussels, Budapest

Dublin

Rentalgrowthslowing

Rentsfalling

Rentalgrowth

accelerating

Rentsbottoming

out

Gothenburg

Bucharest, Edinburgh, Frankfurt, Istanbul, Kiev, Malmö, Milan, Prague, Rome

St. PetersburgManchester

Lyon, Stuttgart

Amsterdam, ZurichParis CBD

GenevaLondon City, London West End

Helsinki, Oslo, Stuttgart

Munich

Cologne

Berlin, Düsseldorf, Moscow, Warsaw

Copenhagen, Hamburg, Stockholm, Lyon

Luxembourg

Lisbon, Madrid

-10-8-6-4-202468

1012

Brus

sels

Mad

rid

Rom

e

Barc

elon

a

Lisb

on

Mal

mö

Edin

burg

h

War

saw

Mos

cow

Lond

onFr

ankf

urt

Cop

enha

gen

Buda

pest

Hel

sink

i

Berli

n

Stoc

khol

mG

othe

nbur

g

Paris

Osl

o

Cha

nge

in p

rime

rent

Q2

2011

- Q

2 20

12

%

Osl

o

Paris

Got

henb

urg

Stoc

khol

m

Berli

n

Hel

sink

i

War

saw

Mos

cow

Lond

on

Fran

kfur

t

Cop

enha

gen

Buda

pest

Edin

burg

h

Mal

mö

Lisb

on

Barc

elon

a

Rom

e

Mad

rid

Brus

sels

Source: Jones Lang LaSalle IP


E18

E4

E20

AdjacentSuburbs

Solna/Sundbyberg

Kista

Rest of Inner City

CBD

Bromma

Frösunda

Alvik

Nacka

Marievik Globen

Solna Centrum

Nacka Strand

KTH

Sundbybergs Centrum University

E4The total vacancy rate in Stockholm has increased slightly during H1 2012, but demand for office space has remained high. The financial instability in the euro zone has had little impact on the Stockholm market, where the proportion of international inves-tors has risen. Nevertheless, the crisis has led to increasing investor caution with only a limited amount of speculative space under construction. Prime rents have remained stable in all sub-markets with the exception of the Stockholm CBD and Adjacent Suburbs, where they have increased.

Economy – Growth is slowingThe sovereign debt crisis in the euro zone is still ongoing. Growth in Europe will remain weak due to the austere economic policies that debtor nations have been obliged to implement. Since the euro zone is Sweden’s largest export market, this austerity has had a negative impact on the Swedish economy this year. In the first six months of 2012, there was a reduction in the level of investment in the Swedish market and Swedish households have tightened their belts. The Swedish economy is still relatively resilient due to the political reforms that have been introduced as well as the healthier labour market of recent years, and an annual average GDP growth of 3 to 5 percent has been forecast between 2013 and 2016. According to the National Institute of Economic Research (NIER), GDP growth will drop to 0.7 percent during 2012, but it is expected to recover slightly to 2.3 percent in 2013. Due to the poor economic climate, employers no longer need to recruit new labour quickly. Unemployment in Sweden currently stands at 7.5 percent, but as economic demand picks up, this rate is expected to decrease steadily to 6.4 percent in 2016. More specifically, the unemployment rate in the Stockholm region is expected to be at 6.5 percent by the end of 2012.

Supply – Limited new supply, more is expectedDuring H1 2012, the total vacancy rate in Stockholm showed an increase of 0.6 percentage points to 10.3 percent from 9.7 percent, while in the Adjacent Suburbs and Kista, rates rose to 16.9 percent and 14.9 per-cent respectively in the same period. However, in Solna/Sundbyberg the rate dropped by 0.7 percentage points to 10.4 percent. The con-struction of Arenastaden, which is gradually emerging around the new national arena, has enhanced the attractiveness of this area. In the Stockholm CBD, the vacancy rate rose to 4.3 percent, an increase of 1.1 percent since the end of 2011. In contrast, Rest of Inner City, where the vacancy rate finished at 4.6 percent, recorded the most signifi-cant vacancy decrease during H1 2012, a drop of 1.0 percent and the lowest recorded rate for this submarket since 2001. During H1 2012 only 3,000 sq m of new office space was completed in Stockholm, and for

the year as a whole a total of 109,000 sq m is scheduled for completion, of which only 13 percent is speculative.

Demand – Less focus on the CBDDemand for office space in Stockholm has been robust during H1 2012. The total take-up for H1 was 229,000 sq m, compared with 295,000 sq m for the same period last year. Nonetheless, this is the second largest half-yearly take-up since H1 2008, just prior to the escalation of the financial crisis. H1 2012 has seen less focus on central locations such as the CBD and more office space leased throughout the other submarkets in Stockholm. The most active submarket during H1 2012 was Rest of Inner City, which recorded a take-up of 58,000 sq m, followed by Solna/Sundbyberg with a take-up of 50,000 sq m. One of the largest transactions during H1 was Skatteverket’s decision to lease 29,000 sq m of office space in Solna/Sundbyberg.

Rents – Slowing rental growthThe most significant increase in the prime rent level was recorded in the Adjacent Suburbs, where it rose by 12.5 percent during the first half of 2012. Prime rent in this area is now SEK 2,250 per sq m, the highest recorded level since year-end 2001. In the Stockholm CBD, prime rent rose to SEK 4,300 per sq m, which is an increase of 2.4 percent for the half. Prime rents in the other submarkets remained unchanged during H1 2012. The property clock for the Stockholm market has been set at slowing rental growth.

Investment Market – Office properties have dominatedDuring H1 2012, transaction volumes totalled SEK 21 billion in Stockholm, which is an increase of 12 percent compared to H2 2011. The largest single transaction during H1 was Humlegården’s acquisition of a portfolio of office properties in Solna/Sundbyberg for SEK 4 billion. The proportion of cross-border transactions in Stock-holm during H1 2012 was 23 percent, and for the first time in many

Stockholm Office Market


Office Properties CBD Rest of Adjacent Kista Solna/ Total* Q2 2012 Inner City Suburbs Sundbyberg

Office Stock Q2 2012 (sq m) 1,744,406 3,412,100 1,744,300 872,000 1,614,400 11,260,206Total Est. Completions 2012 (sq m) 2,600 - 12,700 27,000 67,000 109,300Total Est. Completions 2013 (sq m) - 29,000 - - 16,000 45,000Total Est. Completions 2014 (sq m) 15,000 55,000 19,300 26,000 - 115,300Vacancy Rate (%) 4.3 4.6 16.9 14.9 10.4 10.3Short-term forecast ( ) -Prime Rent (SEK/€/sq m/p.a.) 4,300 3,300 2,250 2,100 2,200 -Short-term forecast ( ) -Prime Yield (%) 4.75 5.50 6.50 6.50 6.00 -

years a majority of international investors acted as buyers in these transactions. Sweden is one of the countries that has been least affected by the ongoing financial instability in the euro zone, hence it is an attractive market. Office properties, which accounted for 72 percent of the total transaction volume, have continued to dominate demand in Stockholm, followed by residential and retail properties with 20 percent and 3.5 percent of the total respectively. Prime yield has decreased by 25 basis points in the Stockholm CBD, Rest of Inner City and Kista submarkets. Prime yield in the other submarkets has remained unchanged. Yield levels are forecast to remain rela-tively stable during the rest of 2012. Market Outlook – Rents are forecast to remain stableDuring H1 2012, only 3,000 sq m of new office space was completed in Stockholm, although during H2 2012 several new projects are scheduled for completion, which will add over 100,000 sq m of space to the Stockholm market. Only 13 percent of this new space is speculative, hence it will have little impact on the Stockholm vacancy rate. Fewer developers are choosing to construct based on speculation due to the austere financial climate caused by the sovereign debt crisis in the euro zone. During H1 2012, the vacancy rate in Rest of Inner City dropped while the vacancy rate in the CBD increased slightly. A major factor in this trend has been companies choosing locations in Rest of Inner City, where rents are lower and supply greater than in the CBD. The rental growth in Stockholm is now slowing due to the reduction in pressure on space in the CBD and the current instability in the financial world. Jones Lang LaSalle is forecasting that rental levels in Stockholm will remain relatively stable going forward.

Vacancy Rate


Prime Rent

Inflation

Source: Jones Lang LaSalle, Eurostat

Prime Yield

Source: Jones Lang LaSalle* Also including submarkets not presented

Prime Rent / Vacancy Rate

Prime Yield / Inflation

3,500

4,000

5,000

6,000

5,500

4,500

20

15

10

5

0

2003

2004

2005

2006

2007

2008

2009

2011

2010

2012

(F)

CBD Prime Rent (LHS) Total Vacancy Rate (RHS)

SEK/sq m/p.a. %

0

1000

2000

3000

4000

5000

0

1000

2000

3000

4000

5000Vacancy rate

Prime rent

2003

2004

2005

2006

2007

2008

2009

2011

2010

2012

(F)

Prime Yield (LHS) Inflation (RHS)


5.0

7.0

7.5

6.5

8.0

8.5

6.0

5.5

4.5

%%

%%

-1

0

1

2

3

4

5

6

-1

0

1

2

3

4

5

6Inflation

Prime Yield20

02

2003

2004

2005

2006

2007

2008

2010

2009

2011

(F)

3.5

2.5

1.5

0.5

3.0

2.0

1.0

0

4.0

-0.5


The office market in Gothenburg has been consistently strong during H1, with low vacancy rates in central locations and the highest half-yearly take-up since 2008. The investment market has remained resilient with office properties dominating investment demand. Only a limited amount of new office space has so far reached the Gothenburg market during 2012, and of the new space scheduled for completion during the remainder of the year only 10 percent is speculative.

Economy – Optimism is still high The economic turmoil in Europe is currently impacting Sweden, which has resulted in a weak national GDP growth during the first six months of 2012. Nonetheless, optimism is still very high in the Gothenburg office market. Unemployment in the region has decreased by 1 percent-age point since the end of 2011 and currently stands at 7 percent, which is lower than the national average. Among all the urban regions of Sweden, Gothenburg has experienced the fastest employment growth and there are no indications that this trend will change going forward.

Supply – Low vacancies in the city centre The total vacancy rate in Gothenburg has dropped by 0.7 percent-age points to 7.2 percent, which is on a par with the rates recorded before the financial crisis of 2008. High absorption in the CBD, Rest of Inner City and Norra Älvstranden caused vacancy rates to fall in these submarkets, with the one percentage point drop in Norra Älvstranden since the end of 2011 the most notable. In the Gothenburg CBD, the vacancy rate has dropped by 0.4 percentage points to 4.1 percent since H2 2011. In Rest of Inner City, a vacancy rate as low as the current 4.5 percent has not been recorded since H1 2003. In the less central locations such as Mölndal and Western Gothenburg, vacancy rates increased slightly to 10.4 percent and 15.6 percent respectively. The low vacancy rate in Gothenburg can partly be explained by the minimal amount of new office space entering the market during the first six months of 2012. Only 5,000 sq m has been completed so far this year, Hufvudstaden’s extension of Femmanhuset in the CBD, which upon completion had little vacant office space available. A total of 21,300 sq m of office space will reach the market in 2012, of which only 10 percent is speculative. This indicates that the new supply will have little impact on vacant space in the market.

Demand – High activity in Rest of Inner City Total take-up in Gothenburg during H1 2012 was 60,200 sq m, which is the highest half-yearly take-up since H1 2008. This also confirms that take-up has recovered to the same level as it was before the escalation of the financial crisis in 2008. The highest activity occurred

in Rest of Inner City, where take-up during H1 represented 38 percent of the total in Gothenburg. The largest leasing transaction during H1 2012 was PEAB’s decision to occupy 4,200 sq m in their own Lyck-holms Fabriker construction project. Another notable transaction was JB Grundskola’s agreement to rent 2,900 sq m of space for school activities in newly-constructed Pedagogen Park in Mölndal. The most active sectors during H1 were public administration, health and education with 17 percent of the total take-up, followed by technology and telecom with 9 percent.

Rents – Prime rents stable but expected to increasePrime rents during H1 2012 have shown moderate growth, with prime rents in all submarkets remaining unchanged except for one. Recently signed rental contracts in Norra Älvstranden indicate an increase in rents in this submarket and prime rent rose by 5.0 percent to SEK 2,100 per sq m. Jones Lang LaSalle is forecasting that prime rent is likely to increase in Gothenburg CBD and Rest of Inner City later in 2012 if the strong demand for office space in these submarkets continues.

Investment Market – High transaction activityDuring H1 2012, the total transaction volume in Gothenburg was SEK 5.2 billion, which is twice the volume of H2 2011. The single largest transaction was the portfolio of office properties acquired from Diligentia by Vasakronan for SEK 2.1 billion, all of which are situated in central Gothenburg. The second largest investor was Platzer, which in Q2 acquired two portfolios of office properties situated in Mölndal and central Gothenburg from Vasakronan and Wallenstam totalling SEK 1.5 billion. In fact, the Gothenburg invest-ment market has been dominated by domestic purchasers, and of the total 21 transactions that took place during H1, only three were cross-border and only one of these involved an international purchaser. Gothenburg has a strong local investment climate and the sovereign debt crisis in the euro zone has resulted in caution

Gothenburg Office Market

Gullbergsvass

Eastern Gothenburg

20 km

CBD

Rest of Inner City

Mölndal

Norra Älvstranden

Hisingen

WesternGothenburg

E6

Gårda

LindholmenScience park Kålltorp

Chalmers University of Technology

E20

SahlgrenskaUniversity

Hospital

GothenburgBusiness School


Office Market Data CBD Rest of Norra Hisingen Mölndal Western Eastern Total* Q2 2012 Inner City Älvstranden Gothenburg Gothenburg

Office Stock Q2 2012 (sq m) 863,900 712,600 248,700 424,000 360,600 325,300 246,600 3,176,700Total Est. Completions 2012 (sq m) 7,300 14,000 - - - - - 21,300 Total Est. Completions 2013 (sq m) 11,000 8,100 9,500 - 12,000 - - 40,600 Total Est. Completions 2014 (sq m) - - - - - - - -Vacancy Rate (%) 4.1 4.5 10.0 9.8 10.4 15.6 9.6 7.2Short-term forecast ( ) Prime Rent (SEK/€/sq m/p.a.) 2,400 2,000 2,100 1,000 1,500 1,150 1,100 -Short-term forecast ( ) -Prime Yield (%) 5.00 5.75 6.25 8.00 6.75 7.50 7.50 -

among international investors, with most of the investment activity in the capital cities. Office properties have dominated demand in Gothenburg and accounted for 83 percent of the total transaction volume during H1. Prime yields remained unchanged during H1 2012 in all submarkets except for Rest of Inner City and Mölndal where prime yields decreased by 25 basis points to 5.75 percent and 6.75 percent respectively.

Market outlook – Demand expected to increase The first six months of 2012 indicate a strong demand for office space in Gothenburg. The total volume of new office space entering the market in 2012 will be 21,300 sq m. About 10 percent of this space is currently speculative. The positive trend in the labour market combined with the limited amount of new office space indicates a higher demand for office space and lower vacancies going forward. Several new speculative projects are scheduled to begin in the next 12 months, which is likely to cause vacancy rates to rise in the long term as the supply of office space increases. A trend that is expected to continue is the high demand for modern, space-efficient buildings that enable companies to minimize their rental costs per employee. As a result, vacancies in Western Gothenburg and the peripheral parts of Mölndal are expected to increase since the majority of prop-erties in these submarkets are older. Norra Älvstranden and Rest of Inner City, where properties are more modern and there is a consid-erable amount of new space under construction, are becoming more attractive to potential tenants.



InflationPrime Yield


Vacancy RatePrime Rent

*Also including submarkets not presented




2003

2004

2005

2006

2007

2008

2009

2011

2010

2012

(F)

1,750

2,250

2,750

2,500

2,000

15

10

5

0

SEK/sq m/p.a. %

0

500

1000

1500

2000

2500

0

500

1000

1500

2000

2500Vacancy rate

Prime rent

0,00

1,00

2,00

3,00

4,00

5,00

6,00

7,00

8,00

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008F

Prime Yield Inflation


2003

2004

2005

2006

2007

2008

2009

2011

2010

2012

(F)


2002

2003

2004

2005

2006

2007

2008

2010

2009

2011

(F)

5.0

7.0

6.5

8.5

8.0

9.0

7.5

6.0

5.5

4.5

%%

%%

-1

0

1

2

3

4

5

6

7

8

-1

0

1

2

3

4

5

6

7

8Inflation

Prime Yield

3.5

2.5

1.5

0.5

3.0

2.0

1.0

0

4.0

-0.5


The total vacancy rate in the Malmö/Lund market has risen during H1 2012. Prime rents have remained unchanged in all sub-markets except for the Malmö CBD, where they declined. Prime yields have remained consistently stable throughout H1 despite the fact that transaction volumes have increased significantly. A minimal amount of new office space was completed during H1 2012, though a large upcoming supply is expected in H2 2012.

Economy – Decreasing unemployment rate GDP growth has decreased to 0.7 percent during 2012 and forecasts from the National Institute of Economic Research (NIER) indicate that economic growth in Sweden will remain weak during 2012, with a recovery not expected until 2013. Between 2013 and 2016, the Swed-ish economy is expected to grow by an average of 3 to 5 percent annually. The unemployment rate in the Skåne region was estimated at 9.9 percent at the end of H1, and although it is still higher than the Swedish average, this represents a decrease of 0.4 percentage points since the end of 2011.

Supply – More speculative space entering the marketThe total vacancy rate in the Malmö/Lund area has increased by 1.5 percentage points from 5.9 percent to 7.4 percent since year-end 2011. With the exception of Rest of Inner City, where the vacancy rate dropped by 0.1 percentage points to 7.9 percent, vacancy rates in all submarkets of Malmö/Lund increased during H1 2012. In Lund Pålsjö the vacancy rate increased from 4.9 per-cent at year-end 2011 to 8.3 percent at the end of H1 2012. In the Malmö CBD, the vacancy rate finished at 5.5 percent, an in-crease of 1.3 percentage points since H2 2011. The vacancy rate in Västra Hamnen also increased during H1 2012 and finished at 10.2 percent, which is an increase of 2.7 percentage points and the highest rate in this submarket since Q1 2006. During 2012 a total of 62,000 sq m of new office space is scheduled for com-pletion in Malmö/Lund. The only project completed during H1 was Wihlborgs’ Media Evolution City with 7,500 sq m of office space. The entire building had already been leased before completion, in other words no vacant space reached the market. Of the 62,000 sq m of new space expected to reach the market in 2012, 39 percent is speculative. This indicates that there will be an in-crease in vacancy rates by year-end 2012, especially in the sub-market of Västra Hamnen, where 48 percent of the construction space due for completion this year is speculative.

Demand – High take-up levels The total office take-up for Malmö/Lund has been estimated at 44,600 sq m for H1 2012, which is an increase of 28 percent com-pared to H2 2011. One of the reasons for this increase has been the number of major leasing transactions in the Malmö/Lund area, where the three largest accounted for 37 percent of the total take-up. The largest transaction was ÅF’s lease of 6,000 sq m in the Wihlborgs Fören project in Västra Hamnen. Wihlborgs were also involved in the second largest transaction during H1 when they agreed to lease 5,600 sq m in the Boplatsen 3 property in Eastern Malmö to Lant-männen. The bulk of the take-up during H1 2012 has consisted of lease agreements signed for the Malmö CBD, where take-up has been estimated at 17,500 sq m. The sectors that have been most active during H1 have been wholesale and retail, followed by finance and insurance.

Rents – Prime rents have remained stablePrime rents have continued to remain stable and unchanged in all submarkets during H1 2012 with the exception of Malmö CBD. Recorded rental levels in the CBD did not achieve current prime rent levels during H1, hence prime rent in the CBD decreased to SEK 2,000 per sq m, a drop of SEK 50 per sq m. Large volumes of new, modern office space have been constructed in the Malmö/ Lund area, but these new, modern properties are competing with older properties, which are often located in central districts, and this may be one reason for the prime rent decrease in the CBD. The property clock has been set on stable rents, which is in line with unchanged prime rents in most submarkets. Investment Market – Transaction volumes increasingThe total transaction volume for Malmö/Lund during H1 2012 was

Malmö/Lund Office Market

25 km

E22

Gamla Staden

Bulltofta

Malmö Stadion

Rest of

RosengårdLimhamn

öllevången

Hamnen

Hyllie

Inre Ringvägen

Inner City

VästraHamnen

UniversitetsholmenCBD

M


Office Market Data CBD Rest of Västra Lund Research Park Lund Other Total for Q2 2011 Inner City Hamnen Inner City in Lund Malmö/Lund*

Office Stock Q2 2012(sq m) 606,000 340,700 174,500 54,400 247,300 240,200 1,997,300Total Est. Completions 2012 (sq m) 18,400 - 20,200 - 9,000 - 62,000 Total Est. Completions 2013 (sq m) 9,600 - 15,000 - 8,300 - 24,600Total Est. Completions 2014 (sq m) - - - - - - -Vacancy Rate (%) 5.5 7.9 10.2 0.8 8.3 5.4 7.4Short-term forecast ( ) Prime Rent (SEK/€/sq m/p.a.) 2,000 1,350 2,100 1,700 1,900 1,600 -Short-term forecast ( ) -Prime Yield (%) 5.50 6.75 5.50 6.25-6.75 6.25-6.75 7.00-7.50 -





Source: Jones Lang LaSalle*Also including submarkets not presented


Prime Yield / InflationSEK 4.2 billion, an increase of 90 percent compared to H2 2011, which indicates that the transaction market is recovering well. The largest single transaction during H1 was AFA’s acquisition of the Malmö Kongress hotel project from Skanska for SEK 900 million. Hotels are the property type that has accounted for the bulk of the transaction volume in H1, 37 percent of the total, followed by office and residential assets. This is the first time since 2010 that resi - dential properties have not dominated transaction volumes in Malmö/ Lund, which reflects a similar trend in Stockholm and Gothenburg, where commercial properties have dominated the market in recent years. Only 3 of the 15 transactions that took place in Malmö Lund during H1 were cross-border, and only one of these involved an inter-national purchaser. Prime yields in all submarkets in Malmö/Lund have remained stable and unchanged for the past 18 months.

Market outlook – Large construction volumes indicate optimismThe Malmö/Lund area is expanding rapidly and major new con struction volumes are scheduled for completion in 2012 and 2013. As a result, the total office stock in Malmö/Lund is expected to increase by 3.1 percent during 2012. Corresponding levels in Stockholm and Gothen burg are 1.0 percent and 0.7 percent respectively. In addition, 24,600 sq m of office space is scheduled for completion in 2013 and more projects are scheduled to start in the next few years. Approx- imately 41 percent of this construction volume is speculative, which reflects the optimism and high expectations in the Malmö/Lund market. Nonetheless, economic growth has been slow and vacancy rates can be expected to rise as new office space is completed.

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2,000

2,500

2,250

1,500

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2002

2003

2004

2005

2006

2007

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7.0

9.0

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4.5

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1999 2000 2001 2002 2003 2004 2005 2006 2007 2008F

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%%

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-1

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Oslo Office Market

30 km

Rest of Inner City

Outer City West

Outer City East/ North/South

CBD

LysakerStabekk

Fornebu

Skøyen

ydalen

E18

E6

ygdøy

Holmenkollen

Oppsal

Tøyen

Ryen

Bryn

Helsfyr

Økern

N

BE18

Rent levels in the CBD are currently experiencing growth as demand has been absorbing the large supply. The transaction market has also been active, though it is becoming more selec-tive and challenging.

Economy – Moderate upturn going forward Strong domestic demand has continued to offset the low rate of growth internationally. The petroleum sector has been the key growth driver for growth and this is expected to continue in the short to medium term. GDP growth for 2012 has been revised upwards from a modest 1.4 percent in 2011 to 3.1 percent, according to Statistics Norway. The employment rate trended positively during 2011 and this significant increase is expected to continue during 2012, while at the same time the labour force is expanding as a result of a rise in the population and an increasing work ethic. Overall, unemployment is expected to remain stable at just above 3 percent. The key policy rate has been cut by 75 basis points over the last 6 months, and currently stands at 1.5 percent.

Supply – Strong supply and positive employment growth300,000 sq m of new office space is scheduled for completion in 2012, while figures for 2013 have been revised upwards to 200,000 sq m. However, a significant number of old office buildings in challenging locations are being converted into residential units, so the net effect has been limited. The few speculative projects that were initiated with-out tenants in place are now starting to fill, which confirms a trend of robust demand for modern and efficient office space. The strong supply is not expected to impact vacancy and rent levels significantly due to the fact that strong employment growth is expected to absorb much of the secondary effects of tenant relocation. The overall vacancy rate currently stands at a moderate 7 percent and our current projections are for vacancies to remain at this level in the medium term. Demand – Demand remains strong in top locationsThe healthy demand for office space from last year has continued into H1 2012. So far in 2012, total take-up has reached 278,000 sq m, distributed over 428 contracts. One current trend is for large corpora-tions to co-locate their subdivisions into a single large office facility and we expect this to continue. The Fornebu area confirmed its standing as an attractive technology hub when Accenture signed a ten-year lease for office space totalling 5,000 sq m. In addition, the Norwegian Public Service Pension Fund has signed a twelve-year lease for 9,200 sq m at Skøyen. Demand has been strongest for central locations such as the CBD, Skøyen and Fornebu, while the

Eastern fringe areas are experiencing a more challenging situation with vacancy levels in the 10 to 15 percent range. Rents – Rent levels rising in the CBD, but at a slower rate High-standard CBD and Skøyen locations have recorded a rental growth of 10 percent in 2011, while prime properties have shown growth greater than 15 percent. In contrast, the rent level trend in remaining fringe areas has remained rather flat. Vacancy levels in the CBD areas have fluctuated around 5 percent, while many fringe areas are recording vacancy levels as high as 10 percent. One would expect this trend to normalize as price-conscious tenants opt to relocate to more affordable locations. However, several new projects have reached the market and a significant amount of space will become vacant in the coming year, which will ensure a consistently healthy supply in the fringe areas. Going forward, we are forecast-ing an overall growth of 5 percent for the CBD areas in 2012, while remaining areas are expected to remain unchanged. Investment Market – Investment market in an uncertain state The transaction market began 2012 in strong fashion with total volumes of NOK 15 billion in Q1. However, a resurgence of the concerns over sovereign debt in the euro zone and the solvency of European banks has intensified market caution in Q2. Overall, a total transaction volume of approximately NOK 24.5 billion has been recorded during the first half of 2012. Banks are still willing to finance sound investments, but most are more restrictive with regards to secondary products. To a certain extent, interest rates, which are close to all-time lows, have continued to outweigh the mark-up on borrowing costs. Prime office yield is still estimated at 5.25 percent, but the number of properties that can achieve these prices is limited. The estimate for B-location properties is 50-100 basis points higher.


Office Market Data CBD Rest of Outer City Outer City Total Q2 2012 Inner City West East/North/South

Office Stock Q1 2012 (sq m) 3,000,000 1,200,000 1,600,000 2,200,000 8,000,000Total Est. Completions 2012 (sq m) - - - - 300,000Total Est. Completions 2013 (sq m) - - - - 200,000Total Est. Completions 2014 (sq m) - - - - -Vacancy Rate (%) 4.0 6.5 9.0 10.0 7.0Short-term forecast ( ) Prime Rent (NOK/€/sq m/p.a.) 4,000 2,900 2,700 1,800 -Short-term forecast ( )

Rent – Grade B properties 2,400 1,800 1,450 1,300 -(NOK/€/sq m/p.a.)

Short-term forecast ( ) - - - - -Prime Yield (%) 5.25 5.50-6.00 5.50-6.00 5.75-6.25 - Yield – Grade B properties (%) 5.75-6.25 6.25-6.75 6.50-7.00 6.75-7.75 -

Source: Jones Lang LaSalle, Akershus Eiendom AS, Eurostat


Source: Jones Lang LaSalle, Akershus Eiendom AS


Market Outlook – Vacancies are forecast to remain stableDespite the healthy construction volumes for 2012 and 2013, we believe that Oslo office vacancies will remain stable as demand for centrally-located office premises remains strong due to the faster growth in the Norwegian economy than in the rest of Europe. During the rent-level peak of 2007 and 2008, several governmen-tal and municipal institutions relocated to fringe areas where rents are lower. If rents in the CBD continue rising, this may well occur again. Despite the high bank margins and the fact that banks are restricting their property loan activities, investment volumes reached NOK 24.5 billion in the first half of the year, and it is our view that total volumes will achieve NOK 50 billion (6.7 billion Euros) by year-end. Thus our forecasts are largely unchanged from the Spring report because the market remains strong without the negative euro zone trends impacting it unduly.



Source: Jones Lang LaSalle, Akershus Eiendom AS

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0


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4.0

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eldPrimme YnInfllationYin

% %

% %

0

1

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8

0

1

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Prime Yield


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(F)


Copenhagen Office Market

Greater Copenhagen

Frederiksberg Old CBD

North Harbour

Tuborg

New CBD(Waterfront)

Ørestad Kastrup

Glostrup

Skovlunde

Hellerup

Bronshoj

GladsaxeBallerup

Lyngby

South Harbour

The level of activity and volume of transactions in the Danish office letting and investment market has been healthy and stable in the prime segment. There is a current “flight-to-quality” trend that is placing secondary suburban office buildings under additional pressure, which has resulted in an increase in the vacancy rate.

Economy – Slow growthThe Danish economy appears to have become mired in the same crisis-like state since the financial crisis began in 2008. Growth in Denmark will remain very low in the coming years, despite the signifi-cant easing in economic policies this year and a less austere climate expected in 2013 than was previously forecast. The prospect of a full recovery from the crisis appears to be further away than originally estimated. GDP growth was 0.8 percent in 2011 and is expected to remain less than 1 percent for 2012, despite the government’s so-called “kick-start” stimulus package. The low GDP growth rate can be explained by the weak outlook for the euro zone economies, which is placing downward pressure on the export rate. Furthermore, private consumption is still very weak, despite the release of early retirement scheme contributions and extremely low interest rates. However, in contrast to many other countries in Europe, Denmark still holds an AAA rating. Supply – Increasing vacancies Some degree of optimism still prevails for the outlook for office vacancy rates in Copenhagen due to the moderate level of new construction activity. However, growth in the economy and employ-ment rate has been so weak that it has dampened the demand for new office space somewhat, and an actual decline in office vacancy rates is still unlikely. H1 2012 has seen an increase in the vacancy rate, which currently stands at 9 percent, up from 7.7 percent in Q4 2011, mainly as a result of the current economic situation. There is still a major differential between the prime and secondary segments. Occupier demand for prime property remains robust while the secondary segment is experiencing a decline. Low construction activity during the past 3 years has contributed to the reduced growth in supply, and we are expecting the vacancy rate to trend stably for the rest of 2012. Construction activity continues to be slow, but there are several projects in the pipeline.

Demand – Increasing activityDespite the increasing vacancy rates, it has also been evident that letting activity has been picking up. Following the aftermath of the financial crisis, when businesses tended to wait in the wings due to

the uncertain market conditions and when the public sector was just about the only source of office occupier demand, we are sensing a renewed resolve in the business sector. Nevertheless, very many businesses still appear to be relocating to smaller, often more space-efficient, premises. The prime segment has consistently recorded the highest demand, whereas the secondary segment is still suffering. The 31,000 sq m occupied by Haldor Topsøe in Kongens Lyngby was one of the major leases in Copenhagen in H1 2012. Rents – Rent levels stable Office rent levels have remained relatively stable, albeit with an increasing price differential between up-to-date, space-efficient office premises and older, inefficient or inflexible office premises. In addi-tion, rent levels in several older and secondary office locations have been coming under pressure, and it is quite likely that vacancies will become structural in some of these areas as they also suffer from relatively poor infrastructure. Prime rents in the CBD currently stand at DKK 1,350 - 1,650 per sq m p.a., exclusive of taxes and operating costs, with top rents of DKK 1,800 per sq m p.a. Office rents in more secondary CBD locations are currently in the DKK 1,100 - 1,300 per sq m p.a. range.

Investment Market – Healthy investor interest for prime propertiesInvestor interest in prime office properties in H1 2012 has remained stable. In particular, low interest rates and a limited choice of alternative investments has fuelled investment inter-est among institutions and property companies, and international investors have also been active. One of the impacts of the sovereign debt crisis has been the rise of real estate investments as an attractive option for well-capitalized investors, at least as regards prime properties. Investor demand has been quite robust for properties in good locations with strong tenants on long lease terms. The yield for prime office properties in the CBD has remained stable at 5 percent, with the secondary CBD segment


Office Market Data Old CBD New CBD Rest of Ørestad Greater Q2 2012 (City) (Waterfront) Copenhagen Copenhagen*

Office Stock (sq m) - 5,500,000 190,000 10,700,000Total Est. Completions 2012 (sq m) 25,000 - 50,000 - 115,000Total Est. Completions 2013 (sq m) - 80,000 50,000 15,000 165,000Total Est. Completions 2014 (sq m) 35,000 50,000 20,000 40,000 175,000Vacancy Rate (%) 9.00 9.00 9,00 9.00 -Short-term forecast ( ) - Prime Rent (DKK/€/sq m/p.a.) 1,350-1,650 1,800 1,000-1,650 1,250 -Short-term forecast ( ) -

Rent – Grade B properties 1,050-1,200 1,350 600-1,100 900 -(DKK/€/sq m/p.a.)

Short-term forecast ( ) -Prime Yield (%) 5.00 5.00 5.25 5.50 -Yield – Grade B properties (%) 5.75-6.50 5.50-6.00 7.25-8.75 6.00-6.50 -

Source: Jones Lang LaSalle, Sadolin & Albæk A/S, Eurostat


Source: Jones Lang LaSalle, Sadolin & Albæk A/S


Source: Jones Lang LaSalle, Sadolin & Albæk A/S

also stable at 5.75 percent. The yield for prime office property out-side the CBD has declined by 25 basis points and currently stands at 5 percent, while the secondary segment outside CBD has risen by 25 basis points to 7.5 percent.

Market Outlook – Positive outlook for prime propertiesThe outlook for the prime office market remains positive, while the investment market is also quite strong with a healthy demand, particularly from institutions. It cannot be ruled out that the sub-stantial capital inflow into Denmark and the exceptionally low interest rates could serve to drive net initial yield requirements on prime investment properties down, motivated by a surge demand for index-adjusted cash flows. This is likely to apply especially to properties let to very strong tenants, including public sector tenants, on leases with very long non-cancellation periods. The outlook for the secondary office market remains uncertain. Vacancy rates will continue their upward trend, and rents are expected to decrease.



5.5

7.5

7.0

8.0

6.5

6.0


2003

2004

2005

2006

2007

2008

2009

2011

2010

2012

F)

5.0

4.5

0,00000000

1,00

2,00

3,00

4,00

5,00

6,00

7,00

8,00

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008F

Prime YieldPrime YieldInflation

%


2001

2002

2003

2004

2005

2006

2007

2009

2008

2010

F)

% %

0

1

2

3

4

5

6

7

8

0

1

2

3

4

5

6

7

8Inflation

Prime Yield

3.0

2.5

3.5

4.0

2.0

1.5

1.0

0

0.5

1,250

1,750

2,000

2,250

2,500

1,500

12

8

4

6

2

0

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2004

2005

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10


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Prime rent

*Also including submarkets not presented


Helsinki Office Market

Rest of Helsinki

Vantaa

Espoo

CBD

Malmi

Tapiola

ItäkeskusLeppävaara

Ruoholahti

Pitäjänmäki

Keilaniemi

Herttoniemi

Aviapolis

Pasila

Like the other euro zone countries, Finland is still struggling to cope with the persistent sovereign debt crisis. The vacancy rate in the Helsinki office market picked up slightly while rental levels remained stable. Along with the significant development pipeline, the outlook for the remainder of 2012 is also challeng-ing. The investment market is witnessing continuing interest in prime assets but secondary yields are facing continuing upward pressure.

Economy – Expanded euro zone crisis is increasing uncertaintyRegardless of the persistently unstable economic situation in the euro zone, the Finnish economy has exceeded most forecasts with a GDP growth of 1.7 percent (y-on-y) in Q1 2012, and an estimate for the full year of approximately 1 percent, which outperforms the euro zone average. Since Finland’s export-driven economy has been negatively impacted by the weakening global prospects in recent years, growth has mainly been reliant on domestic demand. However, the long period of growth in household purchasing power is expected to slow going forward. In June 2012, the Finnish unemployment rate was 7.9 percent, which was 0.5 percent lower than in June 2011. It is expect-ed to decrease in mid-term as growth in the labour force drops off, but remain stable or increase slightly due to the sluggish economic outlook.

Supply – New developments still launched despite increasing vacancy rateThe slight downward trend in the vacancy rate in H2 2011 reversed in H1 2012. However, although the vacancy rate in Helsinki CBD also increased slightly, the differential between the more attractive areas and those that are less popular has remained high, which clearly reflects the problems that grade B/C stock is experiencing outside prime locations. In addition, modern stock in areas such as Ruohol-ahti has also been hit due to the restructuring and relocation deci-sions of several major occupiers. At the same time, new office space is still under development, and despite weakening market prospects, new projects have also reached the market, in the Aviapolis area for example. Nevertheless, the amount of new space entering the mar-ket will decline from almost 150,000 sq m this year to approximately 100,000 sq m in 2013 and 70,000 sq m in 2014, while the vacancy rate is forecast to continue increasing in the short term.

Demand – Decision-making reflects a more cautious approachOccupier activity has remained fairly stable in H1 2012, but the speed that decisions are made has become increasing slow, which reflects a more cautious approach on the occupier side. With only a small per-centage of take-up classed as expansionary, the market has remained

focused on replacement. Whilst prime space in the CBD remains most popular with occupiers, availability is limited. Large floor plates are virtually non-existent, which is driving tenants to the business park hubs outside the CBD. New developments in the bay area adjacent to the CBD (Töölönlahti) have also attracted strong tenant interest and all buildings are almost fully-let despite the fact that they are not scheduled for completion until between the end of 2012 and 2014. A continuing polarization of the market is also evident, with tenants trading up in terms of new space and vacating secondary, out-of-date product that is very unlikely to be let in the current market.

Rents – Rental growth has also stagnated in the Helsinki CBDPrime rents in the Helsinki CBD remained stable at €300 sq m p.a. in comparison with H2 2011. At the same time, the potential for rental growth seems minimal in the short term due a combination of worsening economic prospects and an increasing supply due to several large CBD occupiers relocating to the Töölönlahti area. Rental levels have also remained fairly stable outside the CBD. In the Ruoholahti/Salmisaari area, prime rents are averaging approx - imately €228 sq m p.a. and in the more peripheral office districts rents they range from approximately €192 to 204 sq m p.a. However, downward rental pressure outside the CBD may result, particularly if leasing activity declines in the new developments due for comple-tion in the next 12 months. In addition, the level of tenant incentives has remained relatively stable. In the Helsinki CBD, rent-free periods are almost non-existent and outside the CBD, available incentives are typically from two to three months for grade A premises, with more attractive terms only available for grade B/C premises. On the other hand, there are signs of an increase in tenant incentives, for example in new developments, particularly if tenants are willing to sign longer lease agreement than the market practice of 3 to 5 years. Investment Market – Strong investment demand supporting prime yields The slow start to H1 2012 picked up towards the end of the half and the number of office transactions in the Helsinki metropolitan area,


Office Market Data CBD Rest of Espoo Vantaa Total Q2 2012 Helsinki

Office Stock (sq m) 1,060,000 4,800,000 1,715,000 880,000 8,455,000Total Est. Completions 2012 (sq m) - 80,000 60,000 5,000 145,000Total Est. Completions 2013 (sq m) - 40,000 30,000 35,000 105,000Total Est. Completions 2014 (sq m) - 40,000 20,000 10,000 70,000Vacancy Rate (%) 5.4 10.4 11.8 6.9 9.7Short-term forecast ( ) Prime Rent (€/sq m/p.a.) 300 228 204 204 -Short-term forecast ( ) -Rent – Grade B properties (€/sq m/p.a.) 186-210 78-114 72-108 72-108 -Short-term forecast ( ) -Prime Yield (%) 5.30 6.00 6.40 6.75 -Yield – Grade B properties (%) 7.00-7.50 8.00-8.50 8.50-9.00 8.50-9.00 -





as well as the transaction volume of approximately €220 million, has remained at about the same level as H2 2011. The bulk of these properties have been in secondary locations, and because of a limited investment demand for these assets, the buy-side has been dominated by equity-rich local institutions. International investors have been more selective, focusing on long-term cash flows in good quality buildings. As a consequence of the strong investment demand for prime prop-erties, CBD prime yield has moved slightly in during H1 2012. At the same time, prime yields in other areas have remained relatively stable or moved slightly out, particularly in more peripheral office hubs with significant development pipelines. Due to the limited investment demand and availability of financing, secondary yields have also experienced upward pressure.

Market Outlook – The polarisation of the market has continuedDespite the sluggish outlook for the Finnish economy, Finland is expected to continue outperforming the euro zone average. Never-theless, minimal growth prospects will impact the office occupier market, and in conjunction with the notable development pipeline, the vacancy rate is forecast to continue increasing, with rental levels outside the CBD coming under downward pressure. The CBD with its limited supply is still expected to remain the strongest submarket but the potential for rental growth is limited in the short term there as well. The polarization of the investment market also appears to be continuing. Demand for core assets is expected to remain strong as equity-rich investors continue searching for safe havens. At the same time, the availability of debt and financing terms will remain scarce, which will restrict activity particularly in secondary assets. Finally, the fact that the number of potential buyers for these properties is also limited and that they are aware of the buyer’s market will place continuing downward pressure on the price of secondary assets.




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350Vacancy rate

Prime rent


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2005

2006

2007

2008

2009

2011

2010

2012

(F)

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7.5

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Prime Yield

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Prime Yield


New tax regulations create uncertainty on the Swedish real estate market

Current regulations Generally speaking, the interest paid on loans in Sweden is deduct-ible, but the interest paid between affiliated companies that exceeds the interest payable in an arm’s length transaction is considered disguised distribution or a shareholder’s contribution for tax pur-poses, hence non-tax-deductible. The existing regulations for tax deductions on interest expenses, whose purpose was to restrict opportunities for Swedish companies to deduct interest paid on internal loans, came into force in Janu-ary 2009. They were introduced after it became evident that many companies were increasingly relocating their business activities to tax havens and using debt-financed assets for investments as an element in their business strategy.

The regulations were initially developed to impact on venture capital firms and other companies that are structured in such a way that a buying company located in Sweden can purchase shares using mainly debt-funded assets, which allows major interest costs to be incurred and used to offset taxable profits in Sweden.

As a result of the new regulations, interest expenses became non-tax-deductible when a loan was granted by an affiliated company for the purpose of acquiring securities in another affiliated company.

The above also applies to loans granted by cross-border affiliated companies with effect from 1 January 2010.

A company is deemed an “affiliated company” of another company when: (i) one company, by equity, interest or otherwise, directly or indirectly, has the power to govern the other company; or (ii) two companies are primarily governed by the same management.

The existing regulations concerning so-called interest loops also apply to interest on: (i) temporary loans granted by a third party, which are replaced by loans granted by an affiliated company; and

(ii) loans granted by a third party insofar as a company affiliated to the debtor company has a debt claim from that third party, or from a company that is an affiliated company of that third party, provided that the loan can be deemed to be related to the debt claim, and to concern the acquisition of securities in an affiliated company.

However, there are two exceptions. The restrictions do not apply when: (i) the interest income would have been taxed at a minimum of 10 percent in the state of residence of the beneficial owner thereof, assuming that such income was its only income; or (ii) the acquisi-tion of the securities/part-ownership rights as well as the underlying loan are motivated by business reasons.

New legislative initiative Despite the regulations described above, the Swedish Tax Agency argued that the rules were not sufficient to deter companies from transferring taxable profit out of Sweden via payments on internal debts. On 7 June 2012, the Swedish Government proposed a new bill to the Council on Legislation that contained even more stringent regulations on interest loops.

These updated rules will impact all investors regardless of company size or business type.

It has also been suggested that they should apply to interest expenses on all loans within one group. The existing regulations only apply to interest payments on loans provided by an affiliated company for the purpose of acquiring securities in another affiliated company. If the loan is granted for any other purpose, e.g. to acquire shares from an external party or business assets from an affiliated company, they do not apply.

Under the new bill, interest will be non-tax-deductible if a debt has been incurred primarily to obtain tax benefits for the group, even if an internal interest payment meets the required taxation of 10 percent.

THE SWEDISH GOVERNMENT IS PROPOSING NEW, MORE STRINGENT TAX REGULATIONS ON SO-CALLED INTEREST LOOPS, WITH THE AIM OF DETERRING AGGRESSIVE TAX PLANNING AND SAFEGUARDING THE SWEDISH CORPORATE TAX BASE. HOWEVER, ALTHOUGH SWEDEN IS CURRENTLY BENEFITTING FROM ITS EXTRAORDINARILY STRONG PUBLIC FINANCES, LOW INTEREST RATES AND EASIER ACCESS TO FINANCING, INTERNATIONAL INVESTORS MAY WELL FIND THE PROPOSED NEW REGULATIONS TRICKY TO ANALYZE, WHICH MAY ALSO RESULT IN A REDUCTION IN CROSS-BORDER REAL ESTATE INVESTMENTS IN SWEDEN.


Unfortunately for the companies involved, this will be determined by the Swedish Tax Agency on a case-by-case basis, taking indi-vidual circumstances into account as well as considering, inter alia, whether the affiliated company could have been financed with equity capital instead of debt (which, in our opinion, is always an option).

It has also been suggested that the exception for loans motivated by business purposes be amended in the new regulations. The new bill states that even if a company can provide evidence that a loan has primarily been motivated by commercial interests, no exception is applicable if the lending company is located outside the European Economic Area. The same applies if the lender is domiciled in a country that has not entered into a tax treaty with Sweden.

Furthermore, the new draft proposal also contains a change in the definition of the term “affiliated company”. According to the new definition, a company can be deemed “affiliated” if it has significant influence in another company. This means that holdings of less than 50 percent of the share capital in another company can be included in the definition.

The new bill is scheduled to come into force on 1 January, 2013.

The Swedish Government has also proposed that this reduction in interest deductibility should finance a reduction in the corporate tax rate from 26.3 to 25.3 percent.

Impact on the market The existing 10 percent rule is a safe haven; interest received is tax deductible on condition that a minimum of 10 percent taxation has been paid on it. With the proposed new legislation, the out-come of the Swedish Tax Agency’s decision on whether a debt “has been incurred primarily to obtain tax benefits” will become far more uncertain. There have been few or no guidelines issued by the government outlining the circumstances that should be taken into

account when making an analysis. Moreover, the burden of proof has now been placed on the company making the interest deduc-tion. The Council on Legislation has criticized the draft proposal with regard to this issue and suggested that the decision on whether a debt can be motivated by tax benefits should be dealt with by a court of law.

If the proposed updated regulations come into force, evaluating whether an investment would be better made using debt or equity capital will become of the utmost importance. In addition, the issue of whether the lending company can be deemed as “affiliated” with the borrowing company must also be taken into consideration. There are no safe havens any more.

Tommy Grönberg, partner, WistrandJohan Linder, associate, Wistrand

Tommy Grönberg heads Wistrand’s Banking & Finance and Real estate team in Stockholm.

Johan Linder specialises in all aspects of corporate tax, including M&A, corporate reorganisations and private equity tax.

About WistrandAs one of the first law firms in Sweden, Wistrand has acquired formidable expertise in business law. We provide legal solutions for the public and private sectors. We now have more than 180 employees in offices in Stockholm, Gothenburg and Malmö. Our well-established international networks enable us to provide expert advice in most of the industrialized world.


Transaction Data

Property Location Area (sq m) Price Purchaser Vendor (Million €)

Portfolio Stockholm 200,000 480.8 Humlegården Länsförsäkringar

Kungsbrohuset Stockholm 24,600 252.4 Folksam Jernhusen

Läkaren 8 & 9 Stockholm 53,000 132.2 Norrporten Handelsbanken Liv

Såpsjudaren 15 Stockholm 16,500 68.5 Länsförsäkringar KLP Eidendom

Portfolio Gothenburg 92,000 258.4 Vasakronan Diligentia

Portfolio Gothenburg 67,400 114.2 Platzer Wallenstam

Portfolio Gothenburg 23,000 67.9 Platzer Vasakronan

Stampen 6:17 Gothenburg 10,300 n.a. Elof Hansson Wallenstam

Bassängkajen Malmö 16,200 78.4 Vasakronan Skanska

Lejonet 2 Malmö 6,000 24.0 Balder HSB Malmö

Point Hyllie etapp 1 Malmö 3,900 22.2 Schroders PEAB

Ellenbogen 38 Malmö 5,500 10.2 Diligentia Vasakronan

Barcode : B121/123/115; DNB HQ Oslo 80,000 649.5 DNB Liv Oslo S Utvikling

Tordienskiolds gate 6 Oslo 5,585 n.a. Oslo Areal Niam

Hovfaret 13 Oslo 5,957 n.a. Oslo Areal Niam

Sørkedalsveien 8 Oslo 13,000 51.8 Stor Oslo Eiendom Statoil Fuel & Retail

Marmormolen (UN-city) Copenhagen 45,000 241.9 ATP/PensionDanmark CPH City & Port Dev.

Weidekampsgade 8 Copenhagen 20,000 69.2 PFA User

Carl Jacobsens Vej 29-37 Copenhagen 20,000 39.0 PensionDanmark Property company

Lautrupbjerg 8-12 Copenhagen 26,000 47.7 Private Investor Essex

Teglholmsgade/Teglholms Allé Copenhagen 9,200 26.1 PKA NCC Property Development

Kalvebod Brygge 39-41 Copenhagen 8,500 23.5 HSH Norrporten

Stella Nova & Stella Solaris Helsinki 8,000 n.a. Tapiola Pension Etera & Finnish Paper Worker’s Union

Eteläranta 8 Helsinki 8,700 37.7 Kirkon keskusrahasto Ilmarinen

Sörnäisten rantatie 25 Helsinki 7,100 n.a. Veritas IVG Polar

Kumpulanhovi Helsinki 5,500 17.5 Catella RE KAG (fund) Carlyle Group

Source: Jones Lang LaSalle, Akershus Eiendom AS, Sadolin & Albæk A/S

Representative Office Investment Transactions Q1-Q2 2012

Source: Jones Lang LaSalle, Akershus Eiendom AS, Sadolin & Albæk A/S

Representative Office Leasing Transactions Q1-Q2 2012

Property Location Tenant Leased Area (sq m) Owner

Kvarteret Nöten Stockholm Skatteverket 29,000 Fabege

Uarda 1 Stockholm Carlsberg 2,700 Fabege

Träsket 17 Stockholm Klarna 9,000 Diligentia

Klaraporten Stockholm SJ 5,700 Storebrand

Globen City Stockholm Aastra Telecom 4,500 Carlyle Group

Lyckholms Fabriker Gothenburg PEAB 4,200 PEAB

Pedagogen Park Gothenburg JB Grundskola 2,900 Aspelin-Ramm

Stigberget 34:11 Gothenburg Teleperformance Nordic 2,500 Platzer

Lindholmen Science Park Gothenburg Volvo IT 2,500 Älvstranden projekt

Fören Malmö ÅF 6,000 Wihlborgs

Boplatsen 3 Malmö Lantmännen 5,600 Wihlborgs

Kronan 10 Malmö Trygg-Hansa 5,000 Niam

Masthusen Malmö Kronofogden 3,500 Diligentia

Drammensveien 134 Oslo Statens Pensjonskasse 9,200 Norwegian Property

Stortingsgata 6 Oslo AON / Stortinget 4,900 Norwegian Property

Stranden 1 Oslo DNO International 2,400 Norwegian Property

Portalbygget Oslo Accenture 5,300 IT Fornebu Properties AS

Hoffsveien 70 B Oslo Lindorff 6,000 Nordea Liv

Haslelinje Oslo Aller Media 10,000 Høegh Eiendom / Bunde Eiendom

Nymøllevej 91 Copenhagen Haldor Topsøe 31,000 Danica Pension and Nordea Liv Pension

Borupvang Copenhagen Siemens 12,000 PenSam

Sortemosevej 19 Copenhagen Niras 11,000 Topdanmark

Stationsparken Copenhagen Danish Veterinary and Food Administration 10,000 PFA


* Services in Malaysia are provided through a strategic alliance with Jones Lang Wooton Malaysia

ArgentinaBuenos AiresBrazilCuritibaRio de JaneiroSão PauloCanadaCalgaryMississaugaMontrealOttawaTorontoVancouverChileSantiagoColombiaBogotaMexicoGuadalajaraMexico CityMonterreyTijuanaPuerto RicoSan JuanUnited StatesAlpharetta, GAAltamonte Springs, FLAnn Arbor, MIAtlanta, GAAustin, TXBaltimore, MDBellevue, WABethesda, MDBoston, MACharlotte, NCCherry Hill, NJChicago, ILChicago, IL – O’HareCincinnati, OHCleveland, OHColumbus, OHDallas, TXDenver, CODetroit, MIEast Bay, CAEl Segundo, CA

Fort Lauderdale, FLFort Worth, TXHartford, CTHasbrouck Heights, NJHouston, TXIndianapolis, INIselin, NJJacksonville, FLKansas City, MOKing of Prussia, PALas Vegas, NVLos Angeles, CALos Angeles(North), CALos Angeles(West), CAMelville, NYMemphis, TNMiami, FLMinneapolis, MNMontgomery, ALNew York, NYOrange County, CAOrlando, FLPalo Alto, CAParsippany, NJPhiladelphia, PAPhoenix, AZPittsburgh, PAPortland, ORRaleigh, NCRichmond, VASacramento, CASan Antonio, TXSan Diego, CASan Francisco, CASt. Louis, MOSeattle, WAStamford, CTTacoma, WATampa, FLVienna, VAVirginia Beach, VAWashington, DCWestmont, IL

Americas

AustraliaAdelaideBrisbaneCanberraMelbourneMelbourne – GlenWaverlyPerthSydneySydney – BrookvaleSydney – LiverpoolSydney – MascotSydney – NorthSydneySydney – ParramattaGreater ChinaBeijingChengduChongqingGuangzhouHong Kong – KowloonHong Kong – QuarryBayHong Kong –QueenswayMacauQingdaoShanghai – PudongShanghai – PuxiShenyangShenzhenTianjinIndiaAhmedabadBangaloreChandigarhChennaiCoimbatoreDelhiGurgaon – MG RoadGurgaon – South CityHyderabadKochiKolkataMumbai – Lower ParelMumbai – Parel

NoidaPuneIndonesiaBaliJakartaSurabayaJapanOsakaSapporoTokyo-Nagatac-choTokyo-Sanban-choKoreaSeoulMalaysia*Johor BahruKuala LumpurPenangNew ZealandAucklandChristchurchWellingtonPhilippinesManilaSingaporeSingaporeTaiwanTaipeiThailandBangkokPhuketPattayaVietnamHanoiHo Chi Minh City

Asia Pacific

BelgiumAntwerpBrusselsLiègeCroatiaSplitZagrebCzech RepublicPragueEgyptCairoFinlandHelsinkiFranceLyonParis – Central Paris –La Defense Paris –Plessis-Robinson Paris –Saint-DenisGermanyBerlinDusseldorfFrankfurtHamburgHannoverCologneLeipzigMunichStuttgartHungaryBudapestIrelandDublinIsraelTel AvivItalyMilanRomeKazakhstanAktauLuxembourgLuxembourgNetherlandsAmsterdamEindhovenThe HagueRotterdamUtrechtPolandGdanskKatowiceWarsawPortugalLisbon

RomaniaBucharestRussiaMoscowSt. PetersburgSerbiaBelgradeSaudi ArabiaJeddahRiyadhSlovakiaBratislavaSouth AfricaJohannesburgSpainBarcelonaMadridSevilleValenciaSwedenGothenburgStockholmSwitzerlandZurichTurkeyIstanbulUnited Arab EmiratesAbu DhabiDubaiUK/EnglandBathBirminghamBristolExeterLeedsLiverpoolLondon - CanaryWharfLondon - City London- South East London -Heathrow London -West End ManchesterNewcastle upon TyneNorwichNottinghamSouthamptonUK/ScotlandEdinburghGlasgowUK/WalesCardiffUkraineKiev

Europe, Middle East and Africa

Global Presence

We offer our clients integrated real estate services through our owned corporate offices distributed through more than 200 major world cities. Through this core global platform we provide access to the range of our corporate client outsourcing and related ser-vices. We maintain additional operations in 1,000+ world cities, including project offices and client sites. All told, we operate through Jones Lang LaSalle FTEs on site in more than 70 countries with a total resource base of 45,500 employees. In the Nordic region Jones Lang LaSalle is one of the leading real estate advisors, with specialists in all areas offering strategic services to owners, investors and occupiers. Jones Lang LaSalle

unites a strong local presence with world-class knowledge of both the Swedish and international property markets and offers a whole range of high-quality property services, including Capital Markets, Leasing, Corporate Solutions, Tenant Representation, Retail development, Research, Valuation and Asset/Property Management. To give some examples, the firm manages 1.1 million square metres of property in Sweden, of which 70% is retail property and shopping centres bringing ‘Best in Class’ management standards including the latest thinking on sustainability and environmental management issues. For further information, please visit our web-site, www.joneslanglasalle.se.

About Jones Lang LaSalle

© Copyright Jones Lang LaSalle 2012. This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written consent of Jones Lang LaSalle IP, Inc. The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation is made, or warranty given, in respect of the accuracy of this information. We would like to be informed of any inaccuracies so that we may correct them. Jones Lang LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.

Contacts:

StockholmJones Lang LaSalleJakobsbergsgatan 22Box 1147SE-111 81 StockholmTel: +46 8 453 50 00Fax: +46 8 453 50 10www.joneslanglasalle.se

GothenburgJones Lang LaSalleLilla Bommen 6Box 1058SE-405 22 GöteborgTel: +46 31 708 53 00Fax: +46 31 708 53 10www.joneslanglasalle.se

HelsinkiJones Lang LaSalleMikonkatu 15 AFI-00100 HelsinkiTel: +358 207 61 99 60Fax: +358 207 61 99 62www.joneslanglasalle.fi

In cooperation with:

Oslo Akershus Eiendom ASHaakon VII’s gate 5, 7 etg NO-0161 OsloTel: +47 22 41 48 00 Fax: +47 22 41 48 06www.akershus-eiendom.no

Copenhagen Sadolin & Albæk A/SNikolaj Plads 26DK-1067 Copenhagen KTel: +45 70 11 66 55Fax: +45 33 32 72 96 www.sadolin-albaek.dk

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