MR 2018

7

Copenhagen Property Market Report 2018

2018: Another solid year for commercial property

Sustained uptrend in Greater Copenhagen commercial property prices documented by five consecutive years of capital gains.

For the fifth year running, Greater Copenhagen commercial property prices continued to climb in 2017. According to the Sadolin & Albæk property price index, Greater Copenhagen commercial properties yielded a total average return of 8.8% in 2017, on a par with the long-term average, resulting from slight compression of income return to around 4.8% and capital growth of 4.0%. Driven by a long period of historically low interest rates, massive placement requirements and a shortage of equally attractive investments opportunities, transaction volume in the property investment market soared to an all-time high of more than DKK 88bn in 2017. The 4.0% capital growth seen in 2017 was driven largely by yield compression and significant recovery in the occupational markets. Income return requirements compressed by some 10 bps in 2017, corresponding to capital growth of approximately 2.0%. As the increase in the net price index (NPI) stood at only 0.5% in 2016, around 1.5 ppts of capital growth is attributable to improvements in the occupational markets, mainly uptrending rents in the logistics/industrial segment and lower Greater Copenhagen office vacancy rates. Having climbed for five years running, commercial property prices have, in nominal terms, moved well beyond the previous peak level recorded in 2007. Factoring in inflation, however, Copenhagen commercial property prices remain some 5% short of 2007 prices.

8.8%

Total average return on commercial property in 2017.

10 bps

Commercial property sector income return requirement compression in 2017.

In real terms, Copenhagen commercial property prices remain 5% below 2007-level

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00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Nominal values Deflated values

Note: Sadolin & Albæk property price index (index 100 = Q3 1984). Source: Sadolin & Albæk