Summary

Ferd Real Estate - 2011 summarised

Main events 2011

  • The Tiedemannsbyen residential project is proceeding well, with a good level of sales. The first construction phase is due to be delivered to purchasers in April 2012.
  • Completion of the first phase of the new office building for the oil-service company Aibel at Kraglund Office Park in Asker
  • Acquired warehouse facilities at Snipetjernveien 3 and 9 in the Regnbuen industry area
  • Very low vacancy levels in the commercial rental portfolio at the start of 2012

Ferd Real Estate is an active real estate investor, involved both in real estate development and asset management. Over the course of 2011, the business area continued the process of successively increasing Ferd's exposure to real estate, and this included the purchase of two large warehouse facilities at Regnbuen and the purchase of an office building at Henrik Ibsensgate 4 in Oslo.

Portfolio and operations
At the close of 2011, the net value of the portfolio was NOK 1.5 billion. The portfolio generated a return on equity for 2011 of 7%.

The management and operation of the portfolio proceeded in accordance with plan in 2011, and no major problems were experienced. All the office premises and warehouse facilities in the portfolio are currently virtually fully let.

Market

  • Commercial property rental market: Conditions in the market continued to improve in 2011, and with only a limited supply of new office buildings this resulted in a net increase in occupation and reduced vacancy levels in the Oslo area. Rental levels for good quality office premises in central locations showed moderate growth in 2011.
  • Rental levels in the warehousing and logistics segment were stable in 2011. There were relatively few new building starts for warehouse facilities in 2011.
  • Purchase and sale of commercial property: The first half of 2011 was characterised by a high level of transactions volume and falling yield requirements, especially for centrally located properties. Investors became more willing to accept development risk over the course of 2011, and many centrally located development projects attracted great interest. In the second half of the year, the European debt crisis caused greater uncertainty, and stricter lending terms also had an adverse affect on the transactions market in Norway. This resulted in somewhat more cautious market conditions, with a minor downward correction in prices towards the end of the year for properties not in prime central locations.
  • Residential real estate: The Oslo area continues to see strong growth in population, and demand for new residential property is expected to remain high for some years to come. There is still an imbalance between the supply of new residential units and demand, and this again caused strong growth in residential property prices throughout 2010. 2011 saw the start of sales of units in a number of new residential projects, and sales of new residential units were again at a good level in 2011. There is a shortage of sites with residential permission in Oslo, leading to intense competition to purchase residential development sites.

Strategy
Ferd Real Estate`s mid-term objective is to increase its total exposure to real estate over time to around NOK 3 billion. Prioritized areas are residential development projects and building up a portfolio of cash-flow generating commercial properties, with an emphasis on office buildings and warehousing/logistics. Ferd Real Estate intends to maintain a significant scale of development projects in the portfolio. At the same time, over the course of the life cycle of each of our real estate investments we will regularly review whether it would be in our best interests to dispose of the property, or whether we should continue to hold and develop.

Organisation
There were no changes to the business area's personnel in 2011. Ferd Real Estate has 7 employees and is organised into the areas of development/projects, property management, markets/rental and investment/finance.

Residential real estate development portfolio

  • Tiedemannsbyen, Ensjø (Oslo): Tidemannsbyen DA launched the first sales phase of its residential project in May 2010. In 2011, marketing started for the remainder of the first sub-area of Tiedemannsbyen (Hagekvartalet), representing 199 townhouses and apartments. Over the course of the year, we sold 89 units in total, representing total value of around NOK 320 million. The pace of sales remained strong throughout the year. Residential purchasers are showing increasing interest in Ensjø and Tiedemannsbyen in pace with the development of Ensjøbyen as a new residential area.
  • Construction of the Hagekvartalet sub-area of the project started in January 2011, and the first units will be completed in April 2012. This project is being carried out jointly with Skanska Bolig AS, which joined the project as a partner in 2008. Our partner has a 50% interest in the first three development areas, which represent in total around 600 residential units. The total project will consist of around 1,300 - 1,400 apartments and townhouses, and will be constructed over of the next 10-15 years.
  • In 2011, the City of Oslo granted Ferd Real Estate an exemption from the duty to connect to district heating on the basis that we intend to install energy sources that are at least as an environmentally friendly as district heating. As part of this, we have incorporated Ferd Energi AS to operate as a supplier of bio-heating to Tiedemannsbyen.
  • Selvaag Pluss Eiendom KS: This company, in which Ferd Real Estate AS has been a partner since 2005, was merged into Selvaag Bolig ASA together with Hansa Property. Following the merger, we hold a financial investment of around 5% of the share capital of Selvaag Bolig ASA.
     

Commercial property portfolio

altDevelopment: Ferd Real Estate signed contracts in 2010 with Skanska and Aibel AS for the development of a new headquarters building for Aibel at Hagaløkkveien 28 in the Kraglund Office Park at Asker. The first phase involved 15,000 m² of office space and 8,000 m² of parking space, and was completed and delivered to the tenant on time on 1 December 2011. An additional building with a further 5,700 m² of office space is due for completion in May 2012. The contractor on this project is Skanska Norge AS. In total, the main building and extension will accommodate around 1,000 employees.

The development is a state-of-the-art and forward-looking office complex with an emphasis on environmentally friendly and energy efficient solutions. This includes the use of a ground source heating system. The building is due to be certificated with energy efficiency class ‘B’ and a Breeam score of ‘very good’. The Kraglund Office Park is attractively located in a well-established area for offices with good access to public transport, including the Airport Express Train serving Oslo Gardermoen Airport.

Warehousing/logistics:
Snipetjernveien 3 and 9. Ferd Real Estate purchased two warehouse facilities in June 2011 which are located in a well-established area for warehousing and logistics facilities at Regnbuen. This location benefits from its good access to the E6 and its proximity to Oslo. The facilities total 26,000 m², and include both dry storage and chiller/freezer storage. These two facilities are fully let to Rema 1000.

Ferd Real Estate has three sites intended for warehousing and logistic purposes at Gardermoen, Vestby and Mastemyr close to Oslo. The sites represent total development potential of around 150,000 m².

At Gardermoen, work has started on an outline planning exercise for a large area which includes our site. This is due to be completed in summer 2013, at which time our site will have planning permission for development. We are seeing increasing interest for warehousing space at Gardermoen, and Coop has started work on constructing a new central warehouse of approximately 50,000 m² adjacent to the area in which our site is located.

The site at Vestby has all permissions in place, and construction will commence once leases with tenants have been signed.

Mastemyr: Ferd Real Estate has permission to develop a building of around 15,000 m² of warehousing and office space on this site, and is currently in dialogue with potential tenants.

Henrik Ibsensgate 4, Oslo. In January 2011, Ferd Real Estate purchased the office building Henrik Ibsensgate 4, which is a six-story building from 1895 of approximately 5,000 m² including cellar areas. The property principally consists of offices with commercial premises at street level. The entire office space is let to the Norwegian Ministry of Foreign Affairs with effect from January 2011. The major part of the commercial space is let to Restaurant Havsmak. We carried out renovation of the building's facade in Autumn 2011.

Commercial rental: The available space in our rental properties was virtually fully let at the start of 2012, including office space at Ensjø and the factory buildings that are let on leases determined by the demolition program. A number of major tenants renewed their lease contracts in 2011.
Ferd Real Estate’s commercial rental portfolio amounted to approximately 100,000 m² at the close of 2011. The Tiedemanns site at Ensjø in Oslo accounts for around 30,000 m² of the total. The existing buildings at this former factory site are defined as redevelopment properties, and this space is rented out for periods that reflect the timetable for demolition as the residential development of this site proceeds. Development of the site is expected to take between 10 and 15 years. At the end of 2010, this space was almost entirely rented out for warehousing.

International real estate portfolio
Ferd Real Estate has invested EUR 25 million, equivalent to just over NOK 200 million, in the Harbert Europe Real Estate Fund II, which holds real estate investments in Great Britain, France, Germany, Spain, and Norway, with most of the investment carried out in 2009. In 2011, we committed a further NOK 200 million to the Harbert Europe Real Estate Fund III, which made its first two investments in the course of the year.

Outlook

  • Commercial property rental market: A number of projects are due to be completed in 2012, and this may cause some increase in vacancy rates in Oslo over the course of the year, resulting in only limited scope for increases in rental levels in 2012. We expect rental levels to remain stable in 2012.
  • Purchase and sale of commercial property: 2012 started with a number of major transactions in the commercial property market. We expect to see a higher volume of transactions in 2012 than in 2011. The stable outlook for the Norwegian economy makes it likely that investor interest in the Norwegian real estate sector will continue to be strong. Ferd Real Estate continues to work on identifying attractive investment opportunities that fit with our strategy and meet our target for investment return.
  • Residential real estate: We expect the residential market in Oslo to remain strong over the next few years. Work on the development of the Tiedemanns site in partnership with Skanska Bolig will be an important task for Ferd Real Estate in 2012, and this will continue for several years to come. Ferd Real Estate will also consider taking positions, in either whole or part, in other residential projects in addition to the Tiedemanns development.

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