Project Grønttårnet

Project Grønttårnet DANISH INVESTMENT MARKET

Broadly speaking, the Danish market for investment properties is considered a highly transparent and liquid market, with Copenhagen as the premier growth locomotive. In 2016, Greater Copenhagen accounted for all of DKK 50bn of total transaction volume in Denmark, viz. a record-breaking DKK 64bn.

In recent years, international investors have become more active players in the Danish investment property market, today accounting for approximately 45% of the total transaction volume. They have a strong appetite for the residential segment, but are increasingly active in other segments as well. Due to the low bond yield level and a general lack of investment opportunities that provide the same risk-adjusted returns as property investments, the property investment market has experienced historically high capital inflows. In addition, because of stock market and geopolitical volatility both domestic and international investor are expected to continue to allocate substantial investment resources to alternative investments, including real estate. In general, investors are moving further out the risk curve. As a result, transaction activity is picking up in the so-called value-add segment, typically involving relatively high-risk property assets with less cash-flow security and returns that hinge on proactive management skills. Danish residential investment market Also the Danish residential investment market is characterised by high liquidity. In Copenhagen, recent years have seen substantial hikes in prices as strong population growth and favourable demographic shifts have served to whet investor appetite. Strong investor demand has driven down yields to the 3.75% mark for prime residential properties. In general, investor demand for Danish residential property investments has been

mounting since 2011. Despite the surge in transaction volumes, the short supply of high-quality investment opportunities appears to put a ceiling on transaction activity, spurring yield compression in this segment. Although yields on residential property investments have been downtrending, they still exceed the return on bonds by a great margin. This allows for a historically high risk premium in a segment associated with low risk due to strong demand and a weak supply. Student housing investment market The investment market for student housing properties has been experiencing increasing interest from investors, likely owing to the yield compression in the prime residential market, where supply has been unable to meet investors’ demand throughout the past year or so. Historically, some investors have been hesitant to enter the market for student housing. This may be because investors do not consider student housing to represent standard residential rental property, and as a result it is perceived to be associated with higher operational risk. This trend has somewhat served to curb investment market demand and, by extension, development activity. This may help explain why student housing property typically trades at yields that exceed those of ordinary residential rental property.

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