Colliers Copenhagen Property Market Report 2019

Residential – Market Report 2019

46

Strong demand for well-located old-stock properties 2018 saw a surge in investor demand for old-stock residential properties comprised by the rules of cost-regulated rent control. This is reflected in historically low prime yield require- ments of 3.25% on fully modernised old-stock properties without any rent potential. The business plan for old-stock properties typically aims at tapping into rent reserves by carrying out comprehensive modernisation of units when tenants vacate. This means that it is not unusual to see net initial yield requirements around the 1.0-1.5% mark due to low cost-based rent levels. Utility values have seen a sharp increase over the past decade, steadily closing the gap to free market rent levels. Investors factor this in when under- writing yield requirements in this segment. In other words, utility values still leave room for further rental increases without causing affordability constraints in most parts of the tenant community. In addition, many old-stock properties offer unit sizes that are consid- erably smaller than 95 sqm. As previously argued, this is a highly welcome feature in a market where newbuilding fails to meet the demand for small unit sizes. This category includes also co-operative housing societies converted into residen- tial rental properties after voluntary or involuntary liquidation. Because of favourable market dynamics, many co-op members stand to make substantial tax-exempt profits in a post-liquidation sale, while at the same time achieving the flexibility associated with their new status as tenants at fixed cost-based rents that are often somewhat lower than the housing charges formerly levied by the co-operative housing society. International market players still in the lead International investors continued to predominate the Danish residential property invest- ment market in 2018, accounting for all of 63% of transaction volume in this segment. The most active foreign market players were Swedish Heimstaden (estimated investment volume of DKK 8.2bn) ahead of Blackstone (estimated investment volume DKK 3.7bn). International investors zoom in on the Danish market mainly because of the availability of favourable mortgage financing and risk-adjusted returns that have long exceeded those offered in our neighbouring countries. The investment preferences of domestic institutionals focus mainly on development schemes, with some pension funds still investing in turnkey residential properties irre- spective of record-low returns. An increasing number of investors are becoming more risk tolerant, looking further afield than Greater Copenhagen and Aarhus where capital values are historically high. We expect investor demand to remain strong in provincial markets offering high occupancy rates, with the pipeline of supply being limited by high replacement costs.

KEY TRANSACTIONS

Swedish Heimstaden’s acquisition of a portfolio of 25 properties situated in Greater Copenhagen, on Funen and in Jutland in late 2018 reflected mounting investor appetite for locations outside Copenhagen. The purchase price totalled DKK 1.52bn. In Copenhagen, located in the Grønttorvet area of Valby and in the district of Sydhavnen (south harbour), respectively, three turnkey residential properties, including one designated for student housing, were sold in a single transaction to Heimstaden. The purchase price totalled DKK 1.19bn. a total volume of DKK 1.13bn. All properties were relatively newly-built, including the Aarhus landmark property called Isbjerget (‘The Iceberg’). Blackstone acquired a portfolio of nine properties from Thylander Gruppen in early 2018. The transaction volume totalled DKK 798m. The portfolio included properties comprised by the rules of cost-regulated rent control, har- bouring substantial rent reserves. In another transaction, Heimstaden acquired the Nordic Living portfolio of eight properties with

 PETER KAALUND HØJLAND PETERSEN, peter.kaalund@colliers.com

For an introduction to main residential areas, including new development areas, please refer to the extended online edition of this Market Report, www.colliers.dk

WWW