Transaction activity in the Danish market for commercial and investment property is traditionally weak in Q3, as activity is characterised by the Danish summer holiday in July, and the fact that the summer holidays in many foreign markets are in August. This was also the case in Q3 2019, where the transaction volume reached some DKK 8bn.
In return Colliers International expects that Q4 will be very busy, and we believe that the transaction activity will reach above DKK 25bn, in such a way that the total transaction volume for 2019 will end just short of DKK 60bn.
The registered property transactions however do not reflect the actual amounts, which de facto are allocated to property investments. For instance, PFA Pension has entered into an agreement with By & Havn in Q3 in relation to a collaboration regarding the development of some 72,000 sq m for residential use, PensionDanmark is together with By & Havn planning to develop 2,000 sq m for residential use in Vejlandskvarteret, which is a new development area next to Ørestad, and By & Havn has sold areas for development of residential and commercial use.
Transaction activity in relation to existing properties is increasingly dominated by foreign investors
Danish pension funds are increasingly focusing on development activities, and as a consequence hereof the transaction market for existing properties is dominated by foreign capital.
Transaction volume, domestic and foreign investors
According to the figure above, in Q3 2019 foreign investors took up no less than 66% of the total transaction activity, which is the highest share in the last seven quarters. Colliers believes that this picture will repeat itself in Q4, and we estimate that foreign capital in total will account for some 60% of total investments in existing properties in 2019.
Increasing investments in office properties, while transaction activity in relation to residential properties and projects decreases
Transaction volume by segment
In recent years, transactions of residential properties and projects have in general accounted for about half of the total transaction volume.
This picture changed in Q3 2019, as for the first time in many years the transaction volume for office properties was higher than for the residential segment.
The sale of Copenhagen Towers to NIAM in Q3 has obviously been a significant factor in this regard. Colliers however believes that we also in Q4 will register a very high transaction volume in the office segment.
There are several explanations in relation to the falling activity in the residential market: The supply of existing residential properties is relatively low, and due to an uncertainty regarding the future of the residential letting market, investors have taken up a reserved attitude to invest in projects where rent expectations, and thereby also the price, are high.
At the same time, it should not be belittled that the discussion regarding the possibility of carrying out modernisation schemes according to section 5(2) in the Danish Residential Rent Regulation Act – modernisation of vacant residential leases in old housing stock – has had a negative influence on the transaction volume.
Investment activity is still highest in Greater Copenhagen
Expectations of a somewhat weaker economic development have reduced investors’ willingness to take risks, which all other things being equal means that investment activity is concentrated in the largest and most liquid markets. At the same time the drop in interest rates during the last six months implies that investors increasingly accept lower direct yields, if they in return are provided with a higher security in relation to both future cash flow and value creation.
Transaction volume in Denmark
The fact that foreign investors now account for a larger part of the total transaction volume, it is perfectly natural that transactions during the last quarter have been concentrated in Greater Copenhagen, with no fewer than 79% of the total transaction volume.
Capital will continue to roll into the reliable segments in the property market
At the beginning of 2019, 15% of all bonds in the world carried a negative yield. This share has now almost doubled.
The development will inevitably mean that institutional investors, Sovereign Wealth Funds, family offices and wealthy private investors will re-allocate from the bond market to other asset classes. The most secure segments within property investments will be an obvious choice, which we believe will lead to a continuously strong property investment market. With Denmark’s AAA-rating and with the attractive financing possibilities from the Danish mortgage banks, we will also experience good activity from both Danish and foreign investors in the market in the coming quarters.
CEO, Partner, MRICS
+45 28 19 66 76