Colliers Copenhagen Property Market Report 2019

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Copenhagen Property Market Report 2019

Prime yields have stabilised

0% 1% 2% 3% 4% 5% 6%

+320 bps

09

10

11

12

13

14

15

16

17

18

E19

Residential properties

10-year Danish government bond yield

Sources: Danmarks Nationalbank and Colliers International

Ownership housing continues to benefit from a favourable low-interest rate environ- ment, which serves to keep the ownership housing burden low relative to the rental housing burden irrespective of recent years’ rallying ownership housing prices. However, the historically low interest rates are not expected to prevail longer term against the backdrop of global economic growth and prospects of rising inflation rates, although continued geopolitical unrest has persistently caused concerns about the sustainability of the upturn. Higher price expectations dampen transaction activity In the Danish investment property market, the residential segment continues to be the main driver of transaction activity, accounting for 47% of aggregate transaction volume in 2018, equivalent to an estimated investment volume of DKK 33bn. Transaction activity has centred mainly on the largest towns and cities, with the Capital Region of Denmark accounting for 56% of transaction volume. Relative to 2017, investment activity has seen a decline of 21%. One of the reasons for the decline is believed to be the fact that many properties were offered at seemingly excessive asking prices, with sell-side price expec- tations inflated by recent years’ sustained price hikes as well as a shortage of alternative placement options offering equivalent risk-adjusted returns. Like 2017, 2018 was characterised by high market liquidity and intense competition among leading market players. Although residential rents have stabilised, the rental market continues to be strong and offer low vacancy risk, which has retained strong investor demand for this segment. This is supported by favourable demographic develop- ments in major towns and cities. Following years of yield compression, the prime yield on new residential rental property has stabilised, currently standing at 3.75%.