Colliers Copenhagen Property Market Report 2019

Residential – Market Report 2019

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New residential areas reserved for the few The largest Copenhagen development areas are currently earmarked for a high propor- tion of residential construction, which will serve to reduce the substantial supply and demand imbalance that still prevails due to long-standing housing shortage. Although we see an increase in housing supply today, the added supply is predominantly new housing reserved for specific demographic groups rather than the general population due to high price levels, partly attributable to large average unit sizes. Evaluating all Copenhagen development areas 1 , the average selling price was DKK 42,500 per sqm in 2018. Based on a minimum unit size of 95 sqm, the average selling price of residential units may be calculated at DKK 4m per unit. Leaving aside Ørestad, which is characterised by a very strong housing availability these years, the average selling price in the remaining development areas reached DKK 44,400 per sqm, exacerbating afforda- bility constraints even further. First-time homebuyers in particular bear the brunt of high housing prices and stricter loan regulations as they usually lack the necessary wealth or income basis to qualify for a home mortgage. This is reflected in the demographic composition of the develop- ment areas, where the proportion of high-income households (annual income of DKK 700,000+) is 39% relative to 22% in Copenhagen overall. Housing burden under continued pressure in central locations Copenhagen is known as a relatively expensive city in terms of housing burden, expressing housing cost as a share of disposable income. Broadly speaking, Denmark is characterised by high urbanisation rates and strong demand for housing in central loca- tions, giving rise to widespread affordability concerns. Rental housing in particular is associated with a high housing burden. This is due to multiple factors: For instance, tenants are typically willing to pay more for the flexibility offered by rental housing. In addition, the tenant segment has a predominance of low-in- come households unable to procure financing to buy their first home and thereby enter the ownership housing market. Recent years have seen a favourable uptrend in the purchasing power of Copenhagen households. Since 2010, it has increased by 26%, corresponding to a CAGR of 2.9%. In comparison, prime rents have seen a CAGR of 4.1% in the same period. As a result, many households settle for smaller units and lower disposable income after housing cost just to be able to live in central Copenhagen districts. This trend supports the need for a more diversified supply of unit sizes in Copenhagen, calling for a relaxation of existing unit size restrictions.

Residential investment volume: DKK 33bn Residential share: 47% Foreign investor share: 63% Prime yield: 3.75%

Note: Figures for Denmark overall. Source: Colliers International

HOUSING BURDEN 2018 60% Rental market 54% Ownership market, fixed interest rate 39% Ownership market, floating interest rate

Note: Housing burden denotes housing cost as share of disposable income

1 Nordhavn, Islands Brygge, Teglholm/Sluseholm, Ørestad, Amager Strandvej, Grønttorvet and Carlsberg City District.