Adapting the business to new conditions
The beginning of 2024 was characterized by continued financial and geopolitical challenges. The 2020s as a whole have been an exceptional time for many real estate companies, beginning with the pandemic and its effects on the office market. This was later followed by an increase in interest rates and rising inflation which resulted in both pressure on property values and increased financial expenses for real estate companies.
We continue to see adjustments in property values, which for Corem has meant a total of 15 percent reduction since valuations were at their peak during spring 2022. The average yield requirement was, as per 31 March, 5.9 per cent, which can be compared with 4.9 per cent at the end of the first quarter of 2022. We are confident that we have made a thorough analysis of the portfolio so as to reflect the current conditions, and expect that property values will gradually rise again going forward, as interest rates hopefully come down somewhat.
At Corem, we were early in making a course correction, shifting from the previous strategy of growth and intensive project development, which has meant we have now significantly reduced the volume of assets and project commitments. We are of the opinion that it is advantageous to sharply reduce dividends for a while, in order to continue to improve the capital structure. These actions are all made with the purpose of adapting to the current market conditions and to strengthen the balance sheet, by minimizing the burden of debt. We hope to be able to continue these efforts during 2024, even if the pace of divestments will be lower. We are pleased to note that the transactions market has showed, and still shows, stability and activity. We feel confident about our ability to continue to complete attractive transactions needed to further strengthen our balance sheet.
During the first quarter, a total of 30 properties were handed over or under agreement to be sold, for an underlying property value of SEK 2.5 billion. Among others, a major divestment was made in Copenhagen, and we also agreed on a larger portfolio sale with hand-over in May that will mean that we completely exit Jönköping.
Stable core business in property management and letting
Net letting was strong during the first quarter and landed at SEK 49 million. Of these 49 million, around 22 stemmed from new builds and 27 from the regular business in the investment portfolio. Taken together with the strong net letting of the previous year, of SEK 83 million, it can be concluded that the rental market continues to exhibit good demand.
In total, we signed over 200 lease contracts during the quarter, for a combined value of around SEK 120 million. We are particularly pleased to have let out around 2,000 sq.m. on three floors at 28&7 in New York to The Visualize Group, Superstate, and Chenel Capital. In Kista, north of Stockholm, we have signed an agreement with OHB Sweden for around 4,800 sq.m. OHB Sweden is an existing tenant who are expanding their activities, which is also a very positive sign.
Net operating income has overall decreased due to the large divestments and the resulting new composition of the portfolio. Together with higher market rates, it has held back the profit from property management which amounted to SEK 215 million for the quarter.
The key figures for both operating margin and economic occupancy rate has decreased during the quarter. This as a result of sales but also as an expected effect of the negative net letting we had during 2022 and which is now reflected in our key figures. Considering the strong net letting we showed this quarter as well as during In 2023, we are confident that the opposite effect will gradually occur impact in the key figures.
