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Office snapshot 2023 Spring

Stockholm stands strong among European cities

Stockholm, April 5, 2023 - Cushman & Wakefield launches the office report Office Snapshot Sweden with the theme "How has Sweden's office market fared compared to other European cities?".

Office markets across Europe have been strongly affected by changing market conditions in the past year, with higher inflation and interest rates, as well as slowed activity in the investor market.

Cushman & Wakefield has mapped key indicators for office markets in fifteen European cities, where the survey shows that prime yields have increased by between 25 to 80 basis points since each city's lowest level over the past five years. At the same time, prime rents have increased in all cities during the period. Something that may affect rent growth in the future is the fact that vacancy rates have increased recently in all fifteen cities.

Demand for office space in Stockholm CBD remains strong, and the city ranks high in terms of rent levels, rent growth, and vacancy compared to other European markets. Unlike other major European markets, Stockholm has had a limited supply, and this is not expected to change in the next five-year period. The limited supply, along with strong economic incentives, makes Stockholm CBD one of Europe's most attractive office markets. However, the difference between prime and secondary office properties is expected to increase in a market that increasingly seeks quality, despite the market's attractiveness.

Frida Carlsson, Analyst and report author, Valuation & Strategic Advisory at Cushman & Wakefield, says, "The office vacancy rate in Stockholm CBD remains stable, but sublettings and low occupancy in inferior co-working facilities drive up the actual figure. The vacancy rate is expected to increase as leases expire and tenants reassess their space requirements. The typical tenant is now moving to modern premises in better locations with fewer square meters per employee. Flexibility, both in terms of future leased space and lease length, is rewarded. Flexible office solutions have been in demand for a long time, and operators continue to grow. Even property owners have jumped on the bandwagon, either starting their own flexible office operator or partnering with an external operator. The latest in line was Atrium Ljungberg, which acquired the operator A House."

During the first quarter, Cushman & Wakefield noted increasing yield requirements for offices in Sweden's largest cities, while prime rents are increasing. The vacancy rate in Stockholm CBD has remained stable since the previous quarter at a level of 4 percent, while the vacancy rate for the suburbs of the capital has increased to 14 percent. Both Gothenburg CBD and Malmö Nya CBD have seen a similar trend to the suburbs, with increased vacancy rates of 11 percent and 7.5 percent, respectively.

The transaction market has been cautious during the first quarter of 2023, with a transaction volume of just under SEK 14 billion, which is well below half of the ten-year average for this period. Listed companies accounted for a large share of sellers (40 percent) but were notably absent on the buying side (13 percent). Domestic investors have continued to dominate the market with nearly 90 percent of the volume.

Anders Elvinsson, Head of Valuation & Strategic Advisory at Cushman & Wakefield, says, "Stockholm City has chosen to protect the building stock in the city center, and Sweden's relatively small cities enable smooth commuting for the majority. The fact that we are a small, well-connected country contributes to a top position in a European context and may save us from a rapid and painful office demise like what we see in the USA. The net addition of office space in Sweden's most attractive office market, Stockholm CBD, has been practically zero over the past decade, and no change is discernible. This has led to new construction in our suburbs, which now offer relatively modern premises that are in demand by tenants. However, micro-location is increasingly important today, and the difference in vacancy rates is significant depending on the degree of modern office space, good transportation, and amenities in the vicinity."
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