5 Outrageous Predictions 6 Months on

Market update PULSE Q2 2021 Market update Q2 2021 5 outrageous predictions 6 months on ... Market update: 5 outrageous predictions 04 – 6 months on ... Property market indicators 07 Q2 2021 One year post-intervention: Exit of foreign, short-term investors and less than 12 expected drop in prices Five reasons to engage in speculative 18 industrial/logistics building Q2 MARKET UPDATE PULSEPULS Q2 Q2 2021 2021 Market update Q2 2021 5 outrageous predictions – 6 months on ... At the end of 2020, we ventured to make five outrageous predictions for the property market in 2021 – so outrageous that we did not entirely believe in them, but still with a touch of feasibility. Inspired by Saxo Bank’s “10 outrageous predictions”, our predictions reflected scenarios that are unlikely but cannot be ruled out altogether, intended to give food for thought. So, where are we today, six months later? By Peter Winther, Executive Director, Partner, Colliers 4 Five outrageous predictions In December 2020, we did some out-of-the-box thinking. We wanted to challenge consensus. And we arrived at these predictions, when we were in the midst of winter darkened by the shadow of the coronavirus threat, still without vaccines: 1. Initial yield requirements dropping below 3.00% 2. At least two hotel chains stand to face bankruptcy or reconstruction 3. Residential rents dropping, but not in Copenhagen 4. Mark-to-market taxation being abandoned 5. Transaction volume increasing by 50% Two hotel chains facing bankrupcy 1. Net initial yields dropping 2. or reconstruction Long-term interest rates have gone up, giving rise to At the time of writing, BC Hospitality Group has undergone strong concerns of further rate hikes, also as far as short- reconstruction, the share capital is lost, and fresh capital term interest rates are concerned. Inflation is climbing, in has been injected. particular in the United States, forcing the FED to tighten monetary policies to avoid overheating. Europe too is see- With its exposure concentrated in Copenhagen and a very ing budding signs of rising inflation. substantial MICE component, BC Hospitality Group has been more severely hit by the coronavirus pandemic than Nobody knows for certain if rising inflation is a natural and most. temporary knock-on effect of the reopening of society post COVID-19, or if it is a long-term phenomenon, driven When shareholders and other stakeholders lose money, by exceptionally expansive monetary and fiscal policies. criticism invariably follows. However, Colliers is happy and Real estate, however, is perceived as an inflation-hedged proud to have assisted in raising fresh capital for a busi- asset class, with no signs of an increase in yield require- ness that urgently needed it, when a collapse would have ments, quite the opposite. had not only dire consequences for the parties directly in- volved, but near-immeasurable consequences for Copen- In the H1 2021 transactions where the net initial yield hagen’s entire hotel and MICE industry. was around 3.00%, it was possible to leverage on rent reserves or other optimisation potential to justify a lower Are more going to follow? net initial yield. However, we are convinced that today’s initial yield on top-quality properties in the residential and We certainly hope not. But with the relief packages being office segments alike stands at 3.00%, even if you dis- phased out, the Copenhagen hotel industry – unlike the count reserves or other optimisation potential. Domestic provincial hotel industry – may well be facing the most dif- buyers will hardly be clamouring to buy at such prices, but ficult summer ever. there will likely be buyers from other European countries as well as from North America and the Far East.. Given time, the Copenhagen hotel industry will undoubt- edly make a full recovery. Nevertheless, the 2021 predica- ment could take its toll in terms of further casualties. 5 MARKET UPDATE PULSE Q2 2021 Nobody knows for certain if rising inflation is a natural and temporary knock-on effect of the reopening of society post COVID-19 – or if it is a long-term phenomenon, driven by exceptionally expansive monetary and fiscal policies. 3. Residential rents down 4. Mark-to-market taxation being abandoned Investor demand is strong for residential When you try to predict the future, it is sometimes hard to distinguish properties, capital is more than abundant, faith from hope. Indeed, there seems to be a stable political majori- and residential newbuilding is exceptionally ty in favour of imposing mark-to-market taxation on property investors brisk. Mainly German and Far Eastern inves- with effect from 2023. Against such a political majority, even the most tors are aggressive buyers in Copenhagen, well-reasoned arguments – citing arbitrary taxation, lacking procedur- and when Goldman Sachs invests in hous- al fairness and the failure of expectable proceeds to match the costs of ing in provincial towns and cities like Silke- administration and control – will often be in vain. borg, Horsens, Viborg, Kolding and Randers, it is fair to say that international investors are So far, we can but urge all investors affected by the proposed mark-to- present not only in Copenhagen and Aarhus. market taxation of properties to secure the best possible proof of 2023 entry values and market values going forward. The completion of a great many new residential units tends to trigger a higher risk In the years ahead, we will no doubt see many advisors touting valua- of supply and demand imbalances. How- tion reports to serve as documentation for market values vis-à-vis the ever, we have not really seen any indica- Danish tax authorities, SKAT. However, it will hardly be wise to try to tions of more structural vacancy, nor a re- save a few thousand kroner in valuation fees if risking that the tax au- sulting drop in rental prices. Nevertheless, thorities subsequently override the valuation because the quality and the threat is latent in some markets. It will documentation are found to be wanting. not seriously manifest itself in 2021, but 2023-2024 will see a drop in rental prices in In other words: We (regrettably) believe that mark-to-market taxation will some areas and for some types of housing. be introduced. 5. Transaction volume increasing by 50% At this point, it is premature to make tors allocate substantial capital to Den- ing, and investors with an “expiry date”, a qualified estimation of the full-year mark. What is more uncertain, how- e.g. property funds to be wound up. transaction volume. However, the out- ever, is whether there are sufficient However, there will also be several in- rageous prediction – a 50% increase on investment opportunities. vestors that, with good reason, use the 2021 – is not beyond reach. market momentum to divest assets not We will not hit a record-high in the aligned with their long-term strategy. Compared to most other European transaction market if the sellside is rep- The question then remains how many property markets, Denmark continues resented only by those that are more will be tempted by prices that are at an to offer quite favourable framework or less forced to sell, e.g. financially dis- all-time high, knowing full well that the conditions. It is therefore not surprising tressed investors, project developers renewed placement of the freed-up that a great many international inves- making a living by developing and sell- capital poses a challenge in itself. n 6 MARKET UPDATE PULSE Q2 2021 Colliers Denmark Property market indicators Definitions Important notice First year stabilised return on investment (less deposits, less transaction The quoted market data are costs) based on rental income less operating costs. Vacancy data based on associated with some degree of supply statistics by Ejendomstorvet.dk and current market supply estimates. uncertainty due to the consequences of the current coronavirus outbreak. Prime: Prime location and quality. Either a new, modern building, or refurbished so that it is up-to-date and configured to meet future require- You may quote property market ments. Low vacancy risk relative to market conditions. indicators by providing a full source of reference. Secondary: Average location and condition. The vacancy risk is moderate and reflects current market conditions. The number is expected to increase in a year The number is expected to be unchanged in a year The number is expected to be lower in a year 7 Q1 2021 Colliers Danmark MARKET UPDATE PULSE Q2 2021 Office 2020 2021 Rent levels Q1 Q2 Q3 Q4 Q1 Q2 Forecast DKK/sq m/year excluding operating costs and taxes Prime 2,050 2,050 2,050 2,100 2,100 2,100 Copenhagen Secondary 1,400 1,400 1,400 1,400 1,400 1,400 Northern suburbs Prime 1,600 1,600 1,600 1,600 1,600 1,600 of Copenhagen Secondary 1,000 1,000 1,000 1,000 1,000 1,000 Southern and western Prime 1,250 1,250 1,250 1,250 1,250 1,250 suburbs of Copenhagen Secondary 750 750 750 750 775 775 Prime 1,100 1,100 1,100 1,100 1,100 1,100 Zealand Secondary 800 800 800 800 800 800 Prime 1,450 1,450 1,450 1,450 1,500 1,500 Aarhus Secondary 950 950 950 950 950 950 Prime 1,150 1,150 1,150 1,150 1,150 1,150 Horsens Secondary 600 600 600 600 600 600 Prime 875 875 875 875 875 875 Randers Secondary 475 475 475 500 500 500 Prime 1,150 1,150 1,200 1,200 1,200 1,200 Triangle Region(1) Secondary 600 600 650 650 650 650 Prime 1,100 1,100 1,100 1,100 1,100 1,100 Esbjerg Secondary 550 550 550 550 550 550 Prime 1,000 1,000 1,000 1,000 1,100 1,100 Aalborg Secondary 750 750 750 800 800 800 Prime 700 700

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