Copenhagen Property Market Report 2020

Copenhagen Property Market Report 2020

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Slowdown in residential transaction activity On account of the short supply of existing properties, a more cautious approach to off-plan sales and the political skirmish concerning the old housing stock, 2019 marked a decline in transaction volume in Greater Copenhagen. In recent years, transactions involving existing and turnkey housing have generally accounted for about half of total transaction volume in the property market. This was not the case in 2019. In 2019, residential transactions accounted for approx DKK 12bn, equivalent to about 32% of total transaction volume, a decline of approx DKK 7bn relative to 2018 and down by as much as DKK 10bn on the record-breaking year of 2017. Weak supply drives down yields 2019 was a year marked by a limited supply of existing and fully let residential rental properties. Along with low interest rates, this served to intensify competition for well-located residential investment opportunities. As a result, yields compressed, hitting a historical low of 3.50%. In spite of the strong demand for existing residential properties, investors in 2019 adopted a more cautious approach to housing schemes in more expensive locations for turnkey delivery in 12-18 months’ time. This scenario was unthinkable only one or two years ago when residential turnkey properties traded at higher yields and at higher market rent levels as it was less uncertain what the rent would be once the units were completed. Due to recent years’ added supply of properties and the pipeline of ongoing developments, investors are concerned about trends in the rental market for high-end housing, gradually causing them to hold back on investing in development schemes in prime locations based on sell-side rent projections.

This uncertainty is factored in either in projected rent levels on completion of the housing scheme or as a risk premium in the net initial yield requirement. International investors Transactions involving Greater Copenhagen residential property are still spearheaded by international investors, in 2019 accounting for about 53% of all transactions. Danish residential property is attractive mainly due to favourable mortgage financing and returns exceeding those achievable in neighbouring countries. This perception of the market as being attractive is supported by the new entry of international investors. For instance, 2019 saw French AXA acquire a 36,000 sq m residential portfolio in Ørestad at a price of DKK 1.3bn, representing the year’s largest residential transaction. Another newcomer was US investment manager Invesco, making two Copenhagen acquisitions in 2019 on behalf of German institutionals. The two turnkey transactions involved a residential rental property with 191 units at Grønttorvet, Valby Syd, at a little more than half a billion Danish kroner, and a residential property with 124 units at Bryggens Bastion at a price of DKK 500m. Due to bond market movements with low and negative yields, both institutionals and other investors are likely to reallocate capital from the bond market to other asset types, including core residential property offering low risk. In Colliers’ opinion, this means that capital will continue to be funnelled into secure property market segments, including the residential segment.

Continued strong international investor appetite

Core investments continue to head the field

80% Core 20% Value-add

Note: Residential transaction volume by investment type. Residential transaction volume, Greater Copenhagen. Source: Colliers

Note: Residential transaction volume by investor origins. Residential transaction volume, Greater Copenhagen. Source: Colliers

Domestic 47%

53% Foreign