Recent construction boom in the office market in Malmö

CBRE have looked into the development of new offices in Malmö and how the additional areas affect the existing office space. Malmö is situated far south in Sweden, close to Denmark. (This article was originally published 03 december 2019 at the Swedish Real Estate Blog.)

Malmö is growing rapidly. In 2019 and 2020 ten office projects will be completed. Together, the projects comprise almost 100,000 square meters of office space.

The addition can be compared to the existing stock of offices built during the 21st century, which totals around 360,000 square meters. Based on this yardstick the additional areas are therefore almost 30%. It can also be mentioned that, as far as we know, all ten office projects were started in speculation (i.e. without tenants in advance).

The occupancy rate over time

During the fall of 2018, CBRE decided to follow the development of the ongoing office construction projects extra closely, partly based on the thesis that the subsidy was unreasonably large and that the market would be flooded by modern office space. We have measured the occupancy rate on three different occasions, with the following results:

• In October 2018, the occupancy rate was 41%
• In February 2019, the occupancy rate was 54%
• In October 2019 the occupancy rate was 73%

At the first survey, we could see that almost 60,000 sq.m. of offices were without tenants. Thus, our initial concern felt justified, although it was generally far from being finalized for the projects. In the second survey we could note that the occupancy rate had risen by 13 percent. However, as the projects got closer and closer to completion, our disbelief remained.

As of today, we measure the occupancy rate to a full 73%. Some of the projects are now occupied and it is also in these objects that we can generally note the highest occupancy rate. Through our colleagues working with office rental and other contacts in Malmö's office market, we also know that the pressure on the remaining areas has increased during the autumn.

Conclusion

In summary, we can see that the new offices in Malmö have been well received. The market has absorbed a large part of the areas and demand for the remaining premises seems high.

A parallel question is how the new development affects the older office stock in the city. We have not done the same deep dive into this subject but judging by everything we can expect rising vacancy rates, at least in the short term. The growth, and move-in of new companies, is simply not in line with the current expansion of office space in Malmö.

With the above, we would like to point out that we have a positive basic outlook on Malmö's office market, the older portfolio included. Long-term property owners with the right focus and insights will continue to be successful. However, it is important to navigate properly and not close your eyes to the rising competition for tenants.

Read more about CBREs Capital Markets – Nordic expertise – global perspective.