Nordea - Real Estate Norway
Norges Bank - Finansiell fagdag
Thomas Due, Head of Real Estate Norway 14.11.2018
Nordea at a glance
Nordea by numbers
• We combine local expertise with global strength to provide you with a complete portfolio of financial service and solutions – one of the strongest, most diversified product ranges in the Nordic region with superior Nordic distribution power and global capabilities.
• We were the No. 1 issuer of corporate bonds in the Nordics in 2017
• We were the No. 2 issuer of green bonds in the Nordics in 2017
• We were the No. 2 issuer of syndicated loans in the Nordics in 2017
Nordea by numbers
• We combine local expertise with global strength to provide you with a complete portfolio of financial service and solutions – one of the strongest, most diversified product ranges in the Nordic region with superior Nordic distribution power and global capabilities.
• We were the No. 1 issuer of corporate bonds in the Nordics in 2017
• We were the No. 2 issuer of green bonds in the Nordics in 2017
• We were the No. 2 issuer of syndicated loans in the Nordics in 2017
Source: Nordea.com 22.10.218
Personal customers
10m
Q1 2018
Corporate customers
700,000
Q1 2018
Number of employees
30,339
Q1 2018
Total operating income
EUR 9.5bn
2017
Total assets
EUR 581.6bn
2017
Nordea’s real estate bank lending portfolio in the Nordics The breakdown
The breakdown
162,764
104,177 98,316
74,927
Sweden Denmark
Norway Finland
*31.12.207 *MNOK
• Nordea’s total exposure is 440 NOKbn
«Hvordan vil
næringseiendomsforetak finansiere seg fremover?»
Obligasjoner vs. bank finansiering
Bond market development
• Commercial real estate has grown from being almost non-existing before 2012 to being a leading segment in the bond market
• Oil & gas, shipping, supply and drilling has been heavily reduced after 2014
• Commercial real estate has grown from being almost non-existing before 2012 to being a leading segment in the bond market
• Oil & gas, shipping, supply and drilling has been heavily reduced after 2014
Source: Nordea Markets 08.10.2018
Total corporate bond issuance per sector
Bond market development
Outstanding real estate bond debt
Source: Nordea Markets 08.10.2018 | E24.no 29.10.2018
• Outstanding real estate bond debt has heavily increased from 20 NOKbn in 2013 to more than 110 NOKbn in 2018
• Interesting to see this in context to the recent numbers Norges Bank released
• Of the 1.427 NOKbn Norwegian financial
institutions have lent to the corporates, commercial real estate represents 642 NOKbn (45 %)
• The bond market has grown, but still has a long way to go
• The present bond financing side is equivalent to approx.
15 % of the lending volume
• Outstanding real estate bond debt has heavily increased from 20 NOKbn in 2013 to more than 110 NOKbn in 2018
• Interesting to see this in context to the recent numbers Norges Bank released
• Of the 1.427 NOKbn Norwegian financial
institutions have lent to the corporates, commercial real estate represents 642 NOKbn (45 %)
• The bond market has grown, but still has a long way to go
• The present bond financing side is equivalent to approx.
15 % of the lending volume
Norwegian real estate issuers
SPV real estate bonds 2016-2018ytd (higher capital requirements..?)
The fixed rate and size of real estate bonds issued during 2016-2018ytd
2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
2.9%
3.0%
3.1%
3.2%
3.3%
3.4%
3.5%
3.6%
3.7%
3.8%
3.9%
4.0%
4.1%
4.2%
4.3%
4.4%
4.5%
4.6%
4.7%
7/5/22
7/5/22 7/5/22 7/5/22
NOK 500m
7/5/22
Source: Nordea Markets 23.10.208
The green shift
Nordic real estate issuers are very Green compared to the Global issuers
• The Green Bond market has grown rapidly the last five years
• Roughly doubling in size 2016 and 2017
• Low carbon buildings and energy efficiency stands for 29 % of the global Green Bond market (2017)
• Over 90 % of Green Bonds issued by property companies and lenders were originated in Sweden (2017)
• Could be explained by the large group of listed real estate companies in Sweden
• The only two Norwegian real estate companies which have issued Green Bonds are so far;
• OBOS Forretningsbygg AS (430 NOKm outs.)
• Entra ASA (1,000 NOKm outs.)
• The Green Bond market has grown rapidly the last five years
• Roughly doubling in size 2016 and 2017
• Low carbon buildings and energy efficiency stands for 29 % of the global Green Bond market (2017)
• Over 90 % of Green Bonds issued by property companies and lenders were originated in Sweden (2017)
• Could be explained by the large group of listed real estate companies in Sweden
• The only two Norwegian real estate companies which have issued Green Bonds are so far;
• OBOS Forretningsbygg AS (430 NOKm outs.)
• Entra ASA (1,000 NOKm outs.)
Europe, with the Nordic region at the forefront, is paving the way towards greener funding
Source: Climate Bonds Initiative 04.11.2018 | Nordea Markets 04.11.208
• Swedish issuers make up around 80 % of the total market for Green Bonds to the real estate sector
• 31,431 SEKm in total volume issued in between Aug-14 and Jun-17
• Swedish issuers make up around 80 % of the total market for Green Bonds to the real estate sector
• 31,431 SEKm in total volume issued in between Aug-14 and Jun-17
Comparison of bank vs. bond
Source: Nordea Markets 23.10.208
Bonds generally provide for less stringent structures, but are also less flexible in some regards
• Many of our clients want to look their debt owners in the eyes
• Refurbishments or newbuilding projects are not well suited for bond solutions
• Term period development
• Pricing development
• Refinancing risk
• Many of our clients want to look their debt owners in the eyes
• Refurbishments or newbuilding projects are not well suited for bond solutions
• Term period development
• Pricing development
• Refinancing risk
Real Estate financing by banks will remain attractive and continue in a strong manner, supplemented by bond financing
«Hvordan vil
næringseiendomsforetak finansiere seg fremover?»
Hvilken effekt vil økte renter få for salgspriser og
næringseiendomsforetaks gjeldsbetjeningsevne?
The downward trend for the key rate is broken and is expected to increase in the years to come
oktober 18 april 18
oktober 17 april 17
oktober 16 april 16
oktober 15 april 15
oktober 14 april 14
oktober 13 april 13
oktober 12 april 12
oktober 11 april 11
oktober 10 april 10
oktober 09 april 09
oktober 08 april 08
oktober 07 april 07
oktober 06 april 06
oktober 05 april 05
oktober 04 april 04
oktober 03 april 03
oktober 02 april 02 0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
Key rate Source: Nordea Markets 08.10.2018 | Norges Bank 25.10.2018
The downward trend in broken. Interest rates are coming up, therefore property prices must fall.. Or do they?
• There is a market-wide consensus that interest rates are on their way up
• Important to remember why they are on their way up.
• The common “rule” is that there is a strong correlation between interest rates and yield- levels
• Difficult to know exactly how the interest rate hike will effect the yield-level
• With that said, we do not believe property prices will fall as a direct result
• There are other factors effecting price levels such as;
• BNP growth
• Employment
• Rent levels
• Newbuilding activity
• Conversion to private properties
• There is a market-wide consensus that interest rates are on their way up
• Important to remember why they are on their way up.
• The common “rule” is that there is a strong correlation between interest rates and yield- levels
• Difficult to know exactly how the interest rate hike will effect the yield-level
• With that said, we do not believe property prices will fall as a direct result
• There are other factors effecting price levels such as;
• BNP growth
• Employment
• Rent levels
• Newbuilding activity
• Conversion to private properties
The downward trend for the key rate is broken and is expected to increase in the years to come
1 7 13 19 25 31 37 43 49 55 61 67 73 79 85 91 97103 109
115 121
127 133
139 145
151 157
163 169
175 181
187 193
199 0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
Key rate Prime yield CBD Oslo Source: Nordea Markets 08.10.2018 | Norges Bank 25.10.2018
The downward trend in broken. Interest rates are coming up, therefore property prices must fall.. Or do they?
• There is a market-wide consensus that interest rates are on their way up
• Important to remember why they are on their way up.
• The common “rule” is that there is a strong correlation between interest rates and yield- levels
• Difficult to know exactly how the interest rate hike will effect the yield-level
• With that said, we do not believe property prices will fall as a direct result
• There are other factors effecting price levels such as;
• BNP growth
• Employment
• Rent levels
• Newbuilding activity
• Conversion to private properties
• There is a market-wide consensus that interest rates are on their way up
• Important to remember why they are on their way up.
• The common “rule” is that there is a strong correlation between interest rates and yield- levels
• Difficult to know exactly how the interest rate hike will effect the yield-level
• With that said, we do not believe property prices will fall as a direct result
• There are other factors effecting price levels such as;
• BNP growth
• Employment
• Rent levels
• Newbuilding activity
• Conversion to private properties
The other major factor effecting property prices is the labor force unemployment rate
2008M01 2008M04
2008M07 2008M10
2009M01 2009M04
2009M07 2009M10
2010M01 2010M04
2010M07 2010M10
2011M01 2011M04
2011M07 2011M10
2012M01 2012M04
2012M07 2012M10
2013M01 2013M04
2013M07 2013M10
2014M01 2014M04
2014M07 2014M10
2015M01 2015M04
2015M07 2015M10
2016M01 2016M04
2016M07 2016M10
2017M01 2017M04
2017M07 2017M10
2018M01 2018M04
2018M07 2,400,000
2,450,000 2,500,000 2,550,000 2,600,000 2,650,000 2,700,000 2,750,000 2,800,000 2,850,000
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
Labour force, seasonally adjusted Unemployment rate (LFS), seasonally adjusted Source: SSB 29.10.2018
After the peak of the oil crisis in the beginning of 2016 the unemployment rate has come down to a relatively low level. Employment is increasing too!
The other major factor effecting property prices is the labor force unemployment rate office vacancy
Source: Akershus Eiendom, Autum 2018
The other major factor effecting property prices is the labor force unemployment rate office vacancy rent levels
Source: Akershus Eiendom, Autum 2018
We believe that this trend will absorb the potential yield increase, and keep the prices relatively stabile in general
Both the lending and borrowing side are well prepared for a potential rainy day
• As the capital requirements for the financial institutions have increased, so has the equity requirement for the borrowers
• One interesting observation in the market is that the 60 - 65 % LTV consensus is well establish by the borrowers (down from 75 % LTV)
• We are seeing solid cases with LTV levels around 50 %
• The wall of money from investors (also foreign)
• Banks can pick and choose
• Well functioning transaction market, but why sell?
• Approximately 40 - 50 % of the lending volume in Norway is interest rate hedged through swapped interest rates
• We are seeing a trend of shorter term loans in the market
• Financial institutions are applying covenants to a larger extent
• Amortization is applied more frequently
• As the capital requirements for the financial institutions have increased, so has the equity requirement for the borrowers
• One interesting observation in the market is that the 60 - 65 % LTV consensus is well establish by the borrowers (down from 75 % LTV)
• We are seeing solid cases with LTV levels around 50 %
• The wall of money from investors (also foreign)
• Banks can pick and choose
• Well functioning transaction market, but why sell?
• Approximately 40 - 50 % of the lending volume in Norway is interest rate hedged through swapped interest rates
• We are seeing a trend of shorter term loans in the market
• Financial institutions are applying covenants to a larger extent
• Amortization is applied more frequently
Consequently, we believe that the majority of the market is well positioned for an interest rate hike
