Indexed rents
High inflation and rising energy prices create continued uncertainty. Rising inflation affects our operations in numerous ways. It results in increased costs, with regard to project and property operation costs, but has at the same time a positive effect on the company’s rental income as Swedish leases are typically indexed in relation to the consumer price index (CPI). In 2022, this had an impact on rental income of around SEK 90 million and, in 2023, it is expected to contribute over SEK 300 million to rental income.
During the year, Corem’s energy costs in its Swedish portfolio increased by approximately SEK 18 million. Overall, we have a great focus on cost effectiveness in all parts of the company and also see by reason of rising energy costs increased tenant interest in energy-saving investments and measures. Our goal for energy consumption in 2022 was maximum 80 kWh per square metre, a goal we reached by a good margin.
Project development that creates value
Project development and investments in our properties are always aimed to contribute to an increased cash flow, which also contributes to the development of value of the property portfolio. Decisions on new investments are now made in a context with higher construction prices and where the cost of capital for implementation has increased. That is why we are focusing on completing ongoing projects so that project operations are reduced to the most profitable projects.
In February 2023, we had the pleasure of announcing a major lease to the Riksbank in the project property Orgelpipan 4 on Klarabergsgatan in Stockholm. The property has undergone an extensive rebuilding and modernization both inside and out and thus regains its former glory. The agreement runs over six years, with occupancy expected at the end of 2023. In addition, there are plans for a restaurant and cafe at street level, which will further contribute to the positive development in the area.
Our two largest new construction projects are two high-quality buildings with a high environmental classification at attractive locations in Manhattan where the exterior is now completed and where internal tenant customization will continue during 2023. During the last quarter, leases were signed with WonderView Studios for approximately 770 sq.m. at the 1245 Broadway project. In early 2023, a lease was also signed with the marketing agency R/GA for approximately 1,600 sq.m. at the project property 28&7 for immediate occupation. The total annual lease value of all leases signed to date in the US amounts to around USD 11 million and the average rent amounts to the equivalent of just over SEK 11,000 per square metre. We are continuing to see a recovery after the pandemic for new premium segment office buildings in New York and look forward to signing further leases in 2023.
To sum up, we have completed another year, a year affected by a swift rise in interest rates and increased prices with a financial market out of balance. However, despite the macroeconomic challenges, I am pleased about good earnings from property management and a core business that contributes fine flows to operations.
Together, we at Corem will continue to develop and optimize operations and the property portfolio with an unchanged focus on local management close to the customer. A big thank you to all staff for the past year!
Eva Landén, CEO
Stockholm, 21 February 2023