Commercial real estate
Commercial real estate is property used in the business activity of the owner or the tenant. It covers offices, warehouses, industry, shops, hotels, garage facilities, data centres, healthcare buildings, shopping centres and mixed-use buildings, and it also covers the letting of residential and holiday property when the letting is run as a business. The Norwegian market for commercial real estate is worth several hundred billion kroner, and it is traded by a large number of funds, syndicates, investors and institutional owners.
The term has no single legal definition, and its scope varies between the different sets of rules:
- For tax purposes, the use decides whether a gain on sale is treated as personal income, capital income or business income under the Tax Act (skatteloven). Skatteetaten (the Norwegian Tax Administration) also defines the term in connection with the exemption method for share-based property trading.
- For accounting purposes, god regnskapsskikk (Norwegian generally accepted accounting principles) distinguishes between investment property and operating assets, depending on whether the property is held for capital appreciation and rental income or for the owner's own operations. IFRS uses IAS 40 (investment property) for the same distinction.
- VAT has even sharper rules: letting is as a general rule exempt under merverdiavgiftsloven section 3-11, but it can be voluntarily registered under section 2-3 when the tenant runs a VAT-liable business. In mixed-use buildings, the usable floor area is allocated across the different purposes, and that allocation decides how much of the VAT is deductible.
Valuation is mainly done with the income approach: net rental income is divided by a yield that reflects the market's risk premium, and the result is adjusted for vacancy, upgrade needs and lease length. Key risk parameters in a standard commercial real estate analysis:
- WAULT (Weighted Average Unexpired Lease Term): average remaining lease term weighted by income. Low WAULT = higher renegotiation risk.
- Tenant concentration: the share of total rent that comes from one or a few large tenants. If an anchor tenant leaves, the cash flow can be wrecked.
- Indexation clauses: CPI adjustment or a fixed percentage increase per year.
- Maintenance backlog and CAPEX needs: planned upgrades over the next 5 to 10 years.
- Energy standard and sustainability: BREEAM-NOR, EU taxonomy status, energy label. These carry steadily more weight in financing and pricing.
- Location and planning development: zoning plan, municipal master plan, consideration zones, public transport access.
The market is traditionally segmented into office, retail and shopping centres, warehousing and logistics, hotel, industry and residential letting. Each segment has its own market rents, yield levels and lease standards. The industry is led by Norsk Eiendom (the landlords' industry association) and Norsk takst, and market statistics are published quarterly by analyst firms such as Newsec, Akershus Eiendom, Malling, Cushman & Wakefield Realkapital and Eiendom Norge.
Commercial real estate is related to, but not identical with, commercial buildings. A commercial building describes the building itself and its use; commercial real estate is the legal and financial unit, often registered with its own gårdsnummer and bruksnummer in the matrikkel. Property tax on commercial real estate is municipal and is levied under eigedomsskattelova (the Property Tax Act) under a separate valuation regime; municipalities can set a rate of up to 7 per mille for commercial real estate, against the cap of 4 per mille for housing.
In Placepoint, you will find Grunnboken data, building type, UFA and tenants per property in the property panel, and you can use matching to find commercial properties that fit a search profile.
How it looks in Placepoint
In Placepoint, you will find this in the Property panel:
From Placepoint's dictionary: Commercial real estate
More information: Lovdata: Merverdiavgiftsloven section 3-11, Norsk Eiendom, Eiendom Norge, Norsk takst, Store norske leksikon: eiendom
English: Commercial real estate.
Common questions
What is commercial real estate?
Commercial real estate is property used for business activity, such as offices, warehouses, industry, shops and car parks. It is the broadest category within commercial property.
Which segments exist within commercial real estate?
The main segments are office, retail and shopping centres, warehousing and logistics, hotel, industry and mixed-use buildings. Each segment has different leases, risk profiles and yield levels.
How is commercial real estate valued?
Commercial real estate is valued primarily on the basis of rental income and yield, known as the income approach. The property's location, tenant quality, remaining lease term and technical condition are also important factors.
Are public buildings commercial real estate?
Yes, commercial real estate can also include publicly owned buildings such as schools, kindergartens and hospitals where public services are provided. The purpose is what decides, not the form of ownership.
Does commercial real estate pay property tax?
The municipality can decide to levy property tax on commercial real estate at up to 7 per mille, but not all municipalities use this option.