Colliers Copenhagen Property Market Report 2019

Investing in Denmark – Market Report 2019

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International investors dominate the Danish investment market International investors have continued to consolidate their market share in the Danish investment property market. In 2018, they were involved in around 50% of overall prop- erty investments, with frontrunners Heimstaden, Blackstone, Klövern and Niam combined accounting for more than 23% of total transaction volume. Transaction activity in 2018 mainly driven by core assets A breakdown of transaction volume by investment profile shows that investor appe- tite has become stronger for value-add assets. Value-add assets are typically associated with weaker and more uncertain cash flows and a potential for operational improvements subject to proactive asset management. In 2018, 32% of transaction volume involved value-add assets. Core assets, typically fully let investment property assets associated with low risk and high cash-flow security, accounted for 60% of total transaction volume in 2018, reflecting an increase of 10 ppts on 2017. This increase to some extent ties in with the fact that investors are looking further afield, placing investments in other markets than the Copenhagen market in line with a shift in risk-profile. In the provincial markets investors still tend to focus on core assets. Investment market outlook remains bright Even though the 2018 transaction volume fell short of the previous year’s all-time high, the outlook for the Danish investment property market remains bright. In fact, the moderate slowdown may fundamentally be considered a sign of health as it reflects an investment market characterised by professional investors that base their decisions on solid analyses and calculations, resisting the temptation to be beguiled by previous years’ rallying rental prices and yield compression. Investment demand is expected to remain strong in the property market, driven by the prevailing capital abundance in the market in tandem with continued massive place- ment requirements. Relative to other asset classes, investment property continues to offer attractive risk-adjusted returns. However, climbing interest rates may motivate institutional investors to funnel allocations from property and other assets in order to increase bond exposure. Shift in the risk preferences of domestic pension funds Relative to GDP, Danish pension wealth is the largest in the world. In 2017, total private pensions savings equalled approximately 155% of Danish GDP. Traditionally, domestic pension funds have allocated between 5-10% of capital to property investments, albeit pursuing different approaches and strategies. In recent years, we have seen a shift in the risk preferences of major pension funds. Recent years’ stock market turbulence and low returns on low-risk liquid assets such as bonds have incentivised investors in general and pension funds in particular to allocate more capital to alternative investments, including investment properties as such assets are considered to offer long-term attractive risk-ad- justed returns.

Core assets head the field

3% Opportunistic 5% User 32% Value-add 60% Core

Note: Breakdown of transaction volume by investment type. Rounded figures. Transaction volume, Denmark. Source: Colliers International

Residential assets remain the most coveted

12% Retail 27% O ce 47% Residential

2% Hotel 3% Other 9% Industrial/logistics

Note: Breakdown of transaction volume by asset type. Rounded figures. Transaction volume, Denmark. Source: Colliers International