Newsletter Q1 UK 2018

Newsletter Q1 2018

DANISH PROPERTY MARKET nearing international maturity

By Christopher Elgaard Jensen, Manager, Sadolin & Albæk, Research & Valuation

In recent years, the Danish investment property market has seen an unprecedented surge in investment activity and historically high price levels on the most coveted types of investment property. As the prevailing economic upturn unfolds, with prospects of sustained low interest rate levels and continued brisk investment activity, parts of the Danish property market seem to be undergoing some kind of maturing process.

Typically, any property investment will be characterised based on structural indicators showing the “maturity” of the market for the property type in question. A mature investment market is a market that is highly efficient and transparent. Efficient in this context denotes a market where the return equals a completely market-conforming risk premium, fully consistent with the risk assumed by an investor. The maturity of an investment market is driven largely by active professional investors. In the Danish property market, recent years have seen mainly pension funds, major institutional – most often international – investors and major property companies and funds contributing to the professionalisation of investment markets. Professional investors are increasingly making demands, for instance with respect to due diligence proceedings, as investors keep gaining more experience with the segments (sectors) in which they are active. Market maturity driven by professionalisation

attracting institutional capital from abroad indicates that the Danish investment market in general is heading for a higher maturity stage.

Some sectors have higher efficiency potential

Other sectors of the property market have not seen the same level of investment activity, which means that it is reasonable to expect these parts of the investment market to become more efficient as investors are moving further out the risk curve to achieve higher returns and/or if they shift to new sectors. Two such sectors of the investment property market currently undergoing a maturing process are the markets for hotel and logistics properties, respectively. To illustrate this, Sadolin & Albæk has prepared a market maturity scale that shows the general maturity stages for hotel and logistics properties, including the characteristics defining each stage. Maturity stages vary according to type of property and not all market sectors are at the same stage at the same time. Theoretically speaking, the scale may be applied to all types of investment property. Please note that a given market may move in either direction, that is, both up and down the maturity scale. In recent years, logistics facilities have accounted for a very limited share of total transaction volumes as this market is characterised by a relatively pronounced

Foreign investors have favourable influence on the market

Broadly speaking, investors have for years been highly active in the markets for prime (first-rate) residential, office and retail properties, both before and after the financial crisis. Today, an increasing number of foreign investors are active in the Danish market. The fact that Denmark is capable of

6