Newsletter Q3 2017 UK

Newsletter Q3 2017

Breakdown of property investments by segment

4% 2%

2%

12%

2016

H1 2017

13%

72%

47%

49%

Core User Source: Sadolin & Albæk. Based on aggregate transaction volume of commercial and investment property, Denmark Value-add Opportunistic

The commercial letting market is strong, the vacancy risk is diminishing, and rental prices are uptrending.

to account for a negligible share of the aggregate investment volume.

Due to the favourable development investors are ready to assume higher risk.

The stronger risk tolerance is seen in the domestic institutional sector too: An increasing number of pension funds are investing heavily in the value-add segment. To a certain extent, the appetite for risk is driven by the decline in returns on investments in the core segment as recent years have seen downtrending net initial yield requirements in this segment. Investors in pursuit of higher returns may therefore be tempted to accept higher risk. Stronger growth momentum and letting market recovery support higher risk tolerance Nevertheless, it is important to emphasise that the fundamental drivers of the property market are fairly strong. Economic momentum is strong, inflation is edging up, and the commercial letting market is recovering. Measured in terms of sqm space, office vacancies have been reduced at a steady pace in recent years, and in the Copenhagen CBD (Central Business District), the office vacancy rate is at an 8-year low.

Consequently, the appetite for risk is not driven by an unthinking pursuit of high returns in a low interest rate environment, but by fundamental analyses of the risk profile of property investments in an improved market.

O ce vacancy rates

16.00%

14.00%

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%

03 04 05 06 07 08 09 10 11

12 13 14 15 16 17

Greater Copenhagen, ex CBD

CBD

Greater Copenhagen

Source: Ejendomstorvet.dk

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