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  • Stockholm leasing market on fire

    PUBLICERAD 2018-11-09 AV sverrirthor
    UPPDATERAD: 2018-11-09 23:22

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    The office shortage in central Stockholm is jacking up rents to unreasonable levels, which will benefit some property owners, but hardly those renting the facilities. “Chances are, we are heading towards a kind of overheating,” says Tor Borg, former head of research at JLL.

    Is the office market heading for a slow puncture? Not sure. It is clear, however, that it has been overshadowed by the housing construction, which in turn has diminished investment. The vacancy rate in Stockholm is scratching the bottom with a meagre 2%, about 5% lower than normal, according to JLL.

    “I believe it is the lowest figure ever, at least since the IT bubble,” says Tor Borg.

    In the other major cities of the country, Malmö and Gothenburg, the situation is a notch brighter.

    “They do not face the same critical shortage as here. Worst of all is the situation in central Stockholm, where cracks are starting to appear.”

    The capital is playing in a different league with racketeering rents inflated by strong GDP and employment growth, low interest rates and favourable structural processes that stimulate demand, according to JLL’s analysis.

    “I, along with many others, have long awaited a slowdown in Stockholm, but rents continue to soar,” says Tor Borg.

    The analysis shows that the office rents in central Stockholm increased by almost 13% in 2017, one of the steepest increases in all of Europe. Even this year’s forecast has been adjusted upwards to 5.7%.

    “The assessment is that the rents in the centre in the long term have reached levels that deter potential tenants, thus curbing the increases,” says Borg.

    The calculation is that average rents increase by 2.4% per year between 2018 and 2022, well above the European average, according to JLL.

    What are the risks?
    “Chances are, we are heading towards a kind of overheating. Because once the slowdown happens it will be very powerful. The whole economy may slow down, plus interest rate increases.”

    What is the best way to protect yourself?
    “When it comes to Stockholm, we need to free up office space or start looking at more infrastructure solutions to create better transport facilities. Those are large, time-consuming projects,” he says.

    Stockholm Chamber of Commerce also flags the fact that record-high rents combined with low vacancies risk stalling the development of Stockholm. The organisation has asked 200 companies in central Stockholm, what they think of the office market. Every third company indicates that the lack of facilities is detrimental to the business itself and every tenth company that they have to give up hiring staff. Two gloomy states of play that make the Chamber of Commerce sound a note of caution.

    “If international companies that actually want to come to Stockholm, instead set up abroad, it can hit Stockholm, and, by extension, the Swedish economy, hard,” says Daniella Waldfogel, Policy Expert at the Chamber of Commerce.

    Yet only 284,000 m2 of new office space is being planned between 2018 and 2019 in Stockholm, compared with 856,000 m2 in Berlin, according to the Chamber of Commerce report “The companies warn of office shortage.”

    Tor Borg provides a possible explanation:

    “The trend in central Stockholm is still to convert offices into housing.”

    With analysts worldwide, JLL can compare trends in different markets and compare rental costs in office buildings in the finest locations, within the so-called premium segment. Stockholm makes the twenty-first place globally with rents of more than SEK 8,000 per m2.

    “The rents in Stockholm increase the fastest across Europe because of a strong economy and low vacancy rates,” says Borg.

    The trend is not sustainable, and he shares the concern that companies will turn away from Stockholm.

    “We have to do something not to lose ground. If companies do not find adequate facilities here, they will move to Copenhagen, Berlin or Paris instead.”

    So far, however, statistics of how many companies actually abandon Stockholm because of the dysfunctional market are missing.

    As for new construction, the dilemma, and at the same time, the charm, is that Stockholm is surrounded by water. In other words, there is no infinite amount of free buildable space. Hence, Tor Borg believes in a natural expansion to the north, from Kungsholmen to Solna, Sundbyberg and Kista.

    “Demand will certainly be subdued as soon as the rapid economic growth slows down and foreign companies choose other European cities.”

    Teresa Ahola

     

     

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