Market Update Pulse

DENMARK 2 MARKET UPDATE PULSE QUARTER 3 | 2019 MARKET UPDATE: No signs of gloom in the property market – quite the opposite 2 Property market Has the Copenhagen indicators market for student housing finally reached saturation point? 5 10 No reason not to go ahead with speculative building of logistics facilities 14 2 PULSE MARKET UPDATE | Colliers International | Denmark International | Denmark Colliers Q3 2019 NO SIGNS OF GLOOM IN THE PROPERTY MARKET – QUITE THE OPPOSITE By Peter Winther, CEO, In Denmark, like in the rest of Europe, However, it is important to bear in mind Colliers International Denmark the H1 2019 transaction volume in that the Federal Reserve and European the investment property market was central banks have responded to the substantially below the 2017 and 2018 slowdown in macroeconomic key indica- equivalents. At the same time, there is tors with monetary easing on a massive mounting concern of a global economic scale. Although no one can know if setback entailing the risk of recession in this will have the intended effect on both the USA and Germany. On top of economic activity, it is a well-known fact this, the chaos surrounding Brexit gives that monetary easing and this summer’s rise to additional concerns, putting a interest rate decreases will boost inves- dampener on new investment activity. tor demand for investment properties. It is estimated that bonds worth DKK 100,000bn carry a negative yield today. Right now, the Danish pension fund 3 Colliers International | Denmark International | Denmark Colliers Q3 2019 | It is a well-known fact that monetary easing and this MARKET UPDATE summer’s interest rate decreases will boost investor demand for investment properties. PULSE PULSE sector alone probably has more than It goes without saying that almost ten DKK 1,000bn placed in assets yielding years of uptrending prices in the proper- negative returns. ty market will invariably be accompanied by voices claiming that the market has Of course, interest rates may drop even peaked and a crisis is imminent. further, triggering price hikes and thereby further gains on bonds trading at negative However, this is not how it will pan out. yields. However, this does not change the Investor demand in a world character- fact that government bonds or short-term ised by historically low interest rates Copenhagen Towers standing out as a mortgage bonds today fail to yield any and very substantial savings will make particularly notable exception. returns before reaching maturity. sure of that. Obviously, this trend could potentially However, we see a fairly strong pipeline result in lower net initial yield require- of large-scale investment transactions, ments, driving up prices in particular on Transaction volume will re- and according to our estimates, quite properties associated with very low risk. main high for the remainder a few single-property transactions of If, driven by the low interest rate setting, of the year more than DKK 1bn each are scheduled the entire Danish institutional sector to be completed before year-end. should in one go decide to reallocate In H1 2019, Denmark saw only one even just 2% of its assets from the single investment transaction in the DKK bond market to the property market, this 1bn+ bracket, namely AXA’s acquisition International investors alone would prompt an immediate surge of a residential portfolio at Bella Center dominate the market for by more than DKK 80bn in investment exhibition centre, Copenhagen. The high-volume transactions property demand – more than the number of high-volume transactions aggregate transaction volume of the last was moderate in Q3, with NIAM’s ac- In spite of strong investment demand 12 months. quisition of the office and hotel complex in the domestic institutional sector, the FIGURE 1: 0.8% CIBOR 3M VS. 10-YEAR 0.6% GOVERNMENT BOND YIELD 0.4% Start-2018 to date 0.2% 0% -0.2% -0.4% -0.6% -0.8% 2018-03 2018-06 2018-09 2018-12 2019-03 2019-06 09/20/2019 10-year Danish government bond CIBOR 3M Source: Statistics Denmark 4 market for really high-volume transactions will continue to be predominated FIGURE 2: by foreign investors. Several domes- TRANSACTION VOLUME, DENMARK 2014-2019 PULSE tic institutionals in fact indicate that they find the pricing of very large and (DKKbn), including forecast for H2 2019 well-located investment properties to be 100 excessive. 90 MARKET UPDATE 80 | 70 Colliers International | Denmark International | Denmark Colliers Nevertheless, relative to the net initial 60 yield requirements at which comparable Q3 2019 50 properties trade in Stockholm, Hamburg, 40 Berlin and Munich, many prominent 30 international investors still consider 20 Copenhagen prices to be attractive. 10 0 2014 2015 2016 2017 2018 2019 Low risk tolerance and Budgeted transaction volume for H2 2019 stricter loan requirements Source: Colliers International in the financial sector Kilde: Colliers International All the while that the domestic financial sector is beleaguered by a substantial FIGURE 3: deposit surplus and bemoans the weak PRIME NET INITIAL YIELD demand for loans, even the most prom- REQUIREMENTS, OFFICE, SELECTED MAJOR CITIES inent global investors seem to find it 3.50% increasingly difficult to procure the LTVs Stockholm in the Danish banking and mortgage credit sector that they require for SPV structures, even at an equity ratio of 40-50%. This is hardly due to an overly conserva- tive approach to property financing in the domestic financial sector, but rather to 3.75% rigorous statements by the Danish FSA, Copenhagen which in its no doubt well-intentioned zeal to prevent property market bubbles has opted for detail regulation of the 3.00% financial sector on a very large scale. Hamburg 2.80% In this context, we are pleased to note Berlin that Governor Lars Rohde, Danmarks Nationalbank, recently raised the ques- tion of whether the financial sector has in fact become overregulated. Returning the power to decide whether to grant loans for high-volume property financing to the management of individual financial institutions is hardly going to 2.60% increase the risk of property market bubbles, nor the risk of losses in the Munich financial sector. n Source: Colliers International 5 Colliers International | Denmark Colliers Q3 2019 | PROPERTY MARKET INDICATORS PROPERTY PROPERTY MARKET INDICATORS DEFINITIONS First year stabilised return on investment (less deposits, less transaction costs) based on rental income less operating costs. Vacancy data based on supply statistics by Ejendomstorvet.dk and current market supply estimates. Prime: Prime location and quality. Either a new, modern building, or refurbished so that it is up-to-date and configured to meet future requirements. Low vacancy risk relative to market conditions. 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 You may quote PROPERTY MARKET INDICATORS by providing a full source of reference. 6 OFFICE 2018 2019 Rent levels Q2 Q3 Q4 Q1 Q2 Q3 Forecast DKK/sqm/year excluding operating costs and taxes Copenhagen Prime 2,000 2,000 2,000 2,000 2,050 2,050 Secondary 1,300 1,300 1,300 1,300 1,350 1,350 Northern suburbs Prime 1,525 1,550 1,550 1,600 1,600 1,600 of Copenhagen Secondary 950 950 950 975 975 1,000 Southern and western Prime 1,100 1,150 1,150 1,175 1,200 1,200 suburbs of Copenhagen Secondary 650 650 675 700 725 750 Zealand Prime 1,100 1,100 1,100 1,100 1,100 1,100 Colliers International | Denmark International | Denmark Colliers PROPERTY MARKET INDICATORS PROPERTY Secondary 800 800 800 800 800 800 | Aarhus Prime 1,400 1,400 1,400 1,400 1,450 1,450 Secondary 850 850 900 950 950 950 Horsens Prime 1,150 1,150 1,150 1,150 1,150 1,150 Q3 2019 Secondary 600 600 600 600 600 600 Randers Prime 850 850 875 875 875 875 Secondary 500 500 525 500 475 475 Triangle Region(1) Prime 1,100 1,150 1,150 1,150 1,150 1,150 Secondary 550 575 600 600 600 600 Esbjerg Prime 1,100 1,100 1,100 1,100 1,100 1,100 Secondary 550 550 550 550 550 550 Aalborg Prime 1,000 1,000 1,000 1,000 1,000 1,000 Secondary 750 750 750 750 750 750 Northern Jutland Prime 800 800 700 700 700 700 Secondary 575 575 575 575 575 575 Odense Prime 1,100 1,100 1,125 1,200 1,200 1,200 Secondary 750 750 750 750 750 750 Funen Prime 900 900 900 900 900 900 Secondary 550 550 550 550 550 550 Net initial yields % Copenhagen Prime 3.75 3.75 3.75 3.75 3.75 3.75 Secondary 5.50 5.25 5.00 5.00 4.75 4.75 Northern suburbs Prime 4.25 4.25 4.25 4.25 4.25 4.25 of Copenhagen Secondary 6.00 5.75 5.75 5.75 5.75 5.75 Southern and western Prime 5.00 5.00 4.75 4.75 4.75 4.50 suburbs of Copenhagen Secondary 7.00 7.00 7.00 6.75 6.75 6.50 Zealand Prime 6.00 6.00 5.75 5.75 5.50 5.50 Secondary 8.00 8.00 8.00 8.00 8.00 8.00 Aarhus Prime 4.50 4.25 4.25 4.25 4.25 4.25 Secondary 6.00 6.00 5.75 5.50 5.50 5.50 Horsens Prime 5.75 5.50 5.50 5.50 5.50 5.50 Secondary 8.00 8.00 8.00 7.75 7.50 7.25 Randers Prime 6.50 6.50 6.50 6.50 6.50 6.50 Secondary 8.00 8.00 7.75 7.75 7.75 8.25 Triangle Region(1) Prime 5.00 5.00 5.00 5.00 5.00 5.00 Secondary 6.75 6.75 6.75 6.75 6.75 6.75 Esbjerg Prime 5.75 5.50 5.50 5.50 5.50 5.50 Secondary 7.25 7.25 7.25 7.25 7.25 7.25 Aalborg Prime 5.50 5.25 5.25 5.25 5.25 5.25 Secondary 6.50 6.50 6.50 6.50 6.50 6.50 Northern Jutland Prime 7.25 7.25 7.25 7.25 7.25 7.25 Secondary 8.25 8.25 8.25 8.25 8.25 8.25 Odense Prime 5.25 5.00 5.00 5.00 5.00 5.00 Secondary 6.75 6.50 6.50 6.50 6.50 6.50 Funen Prime 7.00 7.00 7.00 6.50 6.50 6.50 Secondary 9.00 9.00 9.00 9.00 9.00 9.00 Vacancy rates % Copenhagen proper 5.80 5.70 6.00 6.00 6.30 5.90 Greater Copenhagen 11.20 10.00 10.10 10.60 11.40 12.10 Northern Zealand 5.50 5.00 4.80 4.90 6.20 6.20 Eastern Zealand 3.40 3.80 3.90 4.40 5.20 6.70 Western and Southern Zealand 3.00 4.90 5.10 5.20 4.00 4.30 Funen 7.80 7.10 8.30 8.40 8.20 9.20 Southern Jutland 8.90 8.30 8.00 8.00 7.70 7.50 Eastern Jutland 8.50 8.10 8.40 8.20 8.50 9.00 Western Jutland 4.80 5.20 4.10 3.60 3.80 4.00 Northern Jutland 5.50 5.30 5.40 5.60 5.80 6.40 1.

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