New JLL Nordic Outlook: Strategic Retrofitting breathes new life into the office market

Older Offices are losing value and strategic office refurbishment is no longer an option, but a necessity if you want to maintain the relevance and rate of return of your property. This is one of the main points in the theme article in the autumn edition of Nordic Outlook, which JLL has just published.

The report focuses primarily on the Stockholm office market, where upgraded offices achieve up to 22% higher rents despite high Vacancy rates. The same pattern is seen in Copenhagen, says Helle Nielsen Ziersen, Head of EDC International Poul Erik Bech:

“A number of parallels can be drawn from the Stockholm office market to the Copenhagen office market. In Copenhagen, we see a clear division of the office market with modern, newly built offices on one side and older, outdated properties on the other. The modern, new Offices achieve higher Tenants and lower Vacancy rates, while the older Offices are more difficult to sell.”

The report shows that modern premium offices typically have up to 60% shorter vacancy rates compared to average offices in the same area.

Limited new construction increases renovation needs
In Stockholm, total office construction has decreased by 25% since 2021 and by 2028, new construction will only add 0.6% new office stock per year. Therefore, strategic retrofitting is needed if the office market is to keep up with developments, says Joseph Alberti, Head of Research at EDC Poul Erik Bech:

“As mentioned in the report, there are still very few strategic office renovations underway in Stockholm, which is also the case in Copenhagen, where new construction is more important. Therefore, there is also great untapped potential in the Copenhagen office property market, where there are good opportunities to ‘retrofit’ outdated office properties and turn them into attractive quality leases.”

“There are different Types and scopes of retrofitting, but overall it’s about renovating rather than building new. Strategic office refurbishment helps improve operational efficiency, reduce Vacancy rates, strengthen the ESG profile and can open access to green financing. It also increases the property’s resale value and makes it more attractive to Tenants who are willing to pay more for the Reversionary lease. This can be anything from medium retrofitting, such as new Windows, to deep retrofitting, where the entire property’s certification is upgraded, resulting in even higher premiums.”

Denmark stands out favourably
While the commercial property market in the Nordics is still characterised by macroeconomic uncertainty, Denmark stands out positively when we look at transaction volumes. Unlike Stockholm and the Swedish market, which are still struggling with high Vacancy rates and reluctant investors, Denmark is showing signs of stability with more activity in the commercial property market than last year.

“Foreign investors have returned to Denmark and in the first seven months of the year they accounted for 44% of the transaction volume. Already after seven months, the transaction volume represents 75% of the volume for 2024. We are on track for a solid increase in transaction volume considering that we still have the end of the year left, where there is normally more activity than the first part of the year due to budget finalisation and investors’ need to allocate capital before the end of the year,” says Joseph Alberti and continues

“Norway and Finland are also seeing some progress, but the development is more uneven and strongly dependent on sectors and geographical location. Sweden is described as the most challenged market with continued price adjustment and low risk appetite among investors. In general, Denmark and Norway appear to be the most robust markets in the region, with better access to capital and higher price transparency.”

Common to the four Nordic countries is that ESG, location selection and Asset management are becoming increasingly important for both investors and Tenants. Copenhagen has an advantage with its sustainable urban development, strong infrastructure and international focus, which makes the city attractive, also for foreign investors, and therefore Denmark and Copenhagen are also further ahead than our Nordic neighbours.