Colliers Copenhagen Property Market Report 2019

Retail – Market Report 2019

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The high-street retail district is typically split into an upper and a lower end, with the upper end comprising the pedestrian streets of Østergade and Amagertorv as well as the top end of Købmagergade, stretching from Amagertorv to Skindergade. The remaining part of Strøget, running towards Rådhuspladsen, the bottom end of Købmagergade, from Skindergade to Kultorvet, and Frederiksborggade constitute the lower-end high street

It is also worth mentioning that retail shops and shopping centres without a clearly defined concept seem to find it difficult to position themselves in the current market. We therefore see indications of customer experience becoming an increasingly weighty competition parameter in Denmark, with successful retail and shopping centre concepts today focusing on the shopping experience by offering a varied mix of articles and leisure activities. This applies to the shopping centre segment in particular, where the one-stop principle is gaining ground and causing a shift in the market. Has the Copenhagen high-street market already peaked? In recent years, the Copenhagen high-street market has transformed due to the increase in tourism and a shift in consumer patterns, with international luxury brands in particular, including Prada and Moncler, strengthening their position with a string of shop openings in 2015-2018. This has accelerated the segmentation process in the pedestrian district. As a result, the upper end of the high street today has a predominance of domestic and international brands with a strong focus on quality and the shopping experience. Consequently, the upper high street has seen substantial rental growth, in particular in 2015 and 2016, as well as a general downtrend in vacancy rates. Nevertheless, as 2018 wore on, we started to see an increase in the number of retail vacancies in the city centre, including the high street, as well as longer reletting periods, in particular in the lower-end high street. In our opinion, this trend may be due to a variety of factors: Over the past 12 months, demand has largely shifted to smaller and regular retail units, whereas lettability has deteriorated for large units, including multi- ple-floor units with escalators, etc. This is believed to tie in with the fact that growth in online sales has forced fashion shops and other retailers with large area requirements out of business in central locations. Once these retailers cannot afford these large-scale units, the list of prospective tenants is getting very short. Moreover, rent levels in the lower high street are deemed higher than actually warranted by the exposure, customer catchment area and synergies offered here. We believe that this has weakened the appeal of lower-end high-street locations in particular, which are likely to bear the brunt of the anticipated downward pressure on retail rents in the Copenhagen high street in the next 12 months. Further yield compression not sustainable Activity in the Copenhagen retail investment property market continues to be driven by transactions in the high-street market, which has seen substantial yield compression in recent years. In 2018, some properties traded at yields around – a few even below – the 3.00% mark. Nevertheless, we have seen a dramatic slowdown in transaction activity over the past 12 months relative to 2012-2017. One reason for this is that yield require- ments have now become so low as to weaken investor demand, because yield compres- sion and high rent levels have driven up property prices. Another reason may be that yield compression in the Copenhagen market has served to narrow the yield gap rela- tive to other prominent European high-street markets, in some cases standing at a mere 25-50 bps.

The number of retail vacancies in the city centre increased in 2018