Copenhagen Property Market Report 2020

Property Price Index

Copenhagen Property Market Report 2020

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Capital growth driven mainly by yield compression In 2019, capital gains were driven mainly by yield compression, but uptrending rent levels also played a part. Developments were generally determined by favourable trends in the industrial and logistics segment as well as the office market, where we have seen property transactions at record-low initial yields. Market conditions in these two segments have made up for a generally weaker market for retail property, straining under the effects of e-commerce growth and higher consumer demands. Overall, yields compressed by 25 bps in 2019, which seen in isolation resulted in capital growth of 5.9%. On the back of a 0.9% increase in consumer prices or the net price index in 2018, the basis for most annual rent uplifts, uptrending rent levels have only had a limited net effect on capital growth. At first glance, this seems surprising as we have seen climbing office rents as well as a thriving industrial/logistics segment. However, retail property has generally struggled with increasing vacancy rates and decreasing rent levels, especially in secondary locations, partly eroding the positive effect contributed by the office and industrial/ logistics segments. Slower capital growth in 2020 If we focus on 2020 instead, we foresee slightly slower capital growth relative to 2019. Over the past seven years, annual average capital growth has been 5.9%, driven mainly by lower yield requirements of office and logistics properties in particular. Although the commercial property market is fundamentally healthy, we are starting to see weaker rental growth in some segments. In terms of the most attractive office properties, we expect rents to climb, while especially the retail sector is expected to remain beleaguered, albeit with some prospects of the lower rent levels stabilising. We do not expect any significant effect from a decline in vacancy rates as they are at such a low level in both the office and the industrial/logistics markets that the possibility of a further decline is limited. At the same time, we expect yield compression to slow down and stabilise in view of the current, historically high prices. However, the historically low interest rate levels and capital abundance may drive down yield requirements slightly further, leaving room for certain capital growth in 2020. In Greater Copenhagen, total property returns are expected to be in the region of 7-8% in 2020, that is, slightly lower than in 2019. Capital growth will be driven mainly by occupational market trends, with a 0.9% increase in 2019 in consumer prices (often the basis for minimum indexation clauses in lease agreements) supporting rent level increases. As the contribution from increases in real rent levels and vacancies is expected to be limited , the occupational market will have only moderate effect on real returns.

Investment property has been a highly solid and safe investment relative to stocks since 2000. Steady increase in total return on Greater Copenhagen commercial property, with seven years of unbroken capital growth

25 bps general yield compression in 2019

11.8% total return on Greater Copenhagen commercial property in 2019

Vandtårnsvej 83, Søborg