The Norwegian real estate sector has experienced limited operational challenges in recent years. However, increasingly uncertain operating conditions may lead to an economic slowdown affecting rental growth and vacancies, according to a report by Nordic Credit Rating (NCR) published today. We believe the higher financing costs have largely been absorbed by companies, and since bank margins have tightened in recent quarters we expect financing costs to stabilise at 5─6%. We believe this will offset some of the impact on operations that Norwegian real estate companies might encounter.
"We expect most issuers will have satisfactory access to financing in the coming years and that interest coverage will only be modestly affected. However, some syndicates may encounter challenges refinancing maturing debt in capital markets due to decreased asset values and willingness to lend," said NCR credit analyst Gustav Nilsson. "Additionally, yields for prime offices need to widen. The yield gap in Oslo is significantly narrower than in other Nordic capital cities and the market is dominated by all-equity buyers since the current yield gap does not support debt-funded transactions."
NCR expects that other property subsectors will not experience significant yield expansion, with some possibly experiencing compression due to an adequate yield gap and strong operational performance. Companies holding long contracts with creditworthy tenants will have protected cash flows in the event of worsening economic conditions.
Contacts:
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com
Anine Gulbrandsen, analyst, +4797501657, anine.gulbrandsen@nordiccreditrating.com