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Cushwake Investor Confidence Index for Denmark and the Nordics Q1 2018


68% of all investors in Denmark have an objective to be net buyers in the coming six months


The Cushwake Investor Confidence Index

for Denmark includes responses from 40 out of the 80 most active investors in Denmark in the years 2016 and 2017. The index monitors expectations from highly active investors in the

Danish market for the next six months.

The broad coverage reflects the interest for non-biased objective analyses and increased transparency. Furthermore, the coverage ensures that the findings are representative reflections of the current investor

confidence in the Danish CRE market.

We will continue conducting the survey on a biannual basis allowing us to track changes and interpret what they mean for the market and how to best respond when making investment decisions.

Thanks to all participants!


Strong investor demand in Denmark Majority wants to be net buyers Investors in the Danish market were asked about their objective with regards to the size of their portfolio during the next six months. Their answers suggest that the demand for real estate will continue to increase, as 68 percent of all investors have an objective to be net buyers in the coming six months. This is partly driven by investors’ optimism regarding the occupier demand in the different segments. Furthermore, it shows their strong belief in the Danish real estate market as only 5 percent of investors have an objective of reducing their portfolio.

What is your objective with regards to the size of your portfolio during the next six months?

5%

27%

“The pace of growth appears to have moderated globally but the Nordics are holding up with yet a high Wall of Money available for the region” – Great Wall of Money, Nordic edition -

68%

Q1 2018 Decrease: more disposal than acquisition Stable: as much disposal as acquisition Increase: more acquisition than disposal Cushwake Investor Confidence Index for Denmark

3


Danish transaction volume 2017 Record high transaction volume in Denmark

Cushwake Investor Confidence Index for Denmark

4


Positivism in occupier demand for office and logistics in Denmark Retail and residential is moving side ways There is great optimism regarding the future of office and industrial/logistic occupier demand as 78 percent and 89 percent, respectively, of all investors expects an improvement in these two markets. The majority of investors believe that the residential occupier demand will either show little or no change, while 38 percent support the opinion of an improvement.

However, there is a shared opinion that no segment’s occupier demand will worsen, except for the retail segment, where five percent predict a worsened occupier demand. These investors could be of the belief that e-commerce will have a negative effect on retail occupier demand. However, the majority of the investors believe that the retail occupier demand will show little or no change in the next six months.

As regards the occupier market during the next six months, the demand will:

Office

Retail

Residential

Industrial/ Logistic

28% 38%

78% 89%

67% 62%

22% 11%

5% Q1 2018

Q1 2018

Worsen Cushwake Investor Confidence Index for Denmark

Q1 2018

Show little or no change

Q1 2018 Improve 5


Stable yield expectations in Denmark ‌but 73% of investors believe in declining industrial/logistic yield Investors who invest in the specific segments were asked to express their opinion regarding the development of market yields during the next six months. The majority of the investors asked agreed that yields in the office, retail and residential segments have levelled out and will remain stable in the short run. However, there are some investors who expect yields in the same markets to depreciate even further as

seen in the graph below. The opinions of investors who invest in industrial/logistic properties are very much aligned as 73 percent believe yields will depreciate during the next six months. However, 18 percent of the investors believe that the market yields for industrial/logistic properties will remain stable, whereas 9 percent expect the yields to increase.

As regards the development of market yields during the next six months, they will:

Office

Retail

Residential 9%

Industrial/ Logistic 9% 18%

69%

72% 64%

73%

31%

28%

27%

Q1 2018

Q1 2018

Q1 2018

Decline Cushwake Investor Confidence Index for Denmark

Remain stable

Q1 2018 Increase 6


Owner-occupied condominiums Prices are expected to increase in Denmark Development of the Danish residential prices (owner-occupied flats, in Danish: ejerlejligheder) from 2010 - 2017 190 180 170 160 150 140 130 120 110 100 90

2010 Q1 2010 Q3 2011 Q1 2011 Q3 2012 Q1 2012 Q3 2013 Q1 2013 Q3 2014 Q1 2014 Q3 2015 Q1 2015 Q3 2016 Q1 2016 Q3 2017 Q1 2017 Q3

The prices of owner-occupied flats have increased significantly since 2010. 67% of investors believe prices will continue to increase between 0.1% and 4.9% in the coming six months. An unchanged development in prices is expected by 15 percent of the investors, whereas a decrease between 0.1% and 4.9% is expected by 5% of the investors. This further enhances the confidence in the Danish real estate market from investors, as the majority expects increases in residential prices.

Denmark

Copenhagen

What is your opinion on the development of the Danish residential prices (owner-occupied flats, in Danish: ejerlejligheder) in the next six months?

67%

15% 3% Prices to go up Prices to go up by at least 5% by between 0.14.9%

5% Unchanged

Cushwake Investor Confidence Index for Denmark

3%

Prices to go Prices to go down by between down by at least 0.1-4.9% 5%

7% No opinion

7


Positive view on own portfolio in Denmark Increasing rents are the biggest contributor Financing Denmark is known for having one of the best mortgage finance systems in the world. Investors were asked to give their assessment regarding the future outlook for their financing terms compared with their current financing terms.

What is the future outlook for your financing compared with your current financing?

12%

Worsened conditions

54%

The majority of investors believe conditions for property financing will stay unchanged, whereas 30 percent place confidence in improved conditions. Only 10 percent of investors think conditions will worsen, which shows an overall positive view on property financing.

Unchanged conditions Improved conditions

34% Q1 2018

How do you see the value of your portfolio developing during the next six months (excluding any acquisition/disposal)?

Portfolio outlook An overwhelming 75 percent of investors are of the opinion that the value of their respective portfolios will improve during the coming six months (excluding any acquisitions/disposals). The key driver for value improvements is expected to be rental growth followed by a drop in vacancy rates.

Unchanged

24%

Improving

76%

Which is the most important influencing factor for the development of value in your portfolio?

Q1 2018

38% 26% 18% 3% Vacancy to be reduced

Rental growth

Improving financial conditions

Cushwake Investor Confidence Index for Denmark

5% Expected lower Lower operating market yields and maintenance (yield cost compression)

10% Other

8


Cushwake Investor Confidence Index for the Nordics Q1 2018


The Cushwake Nordic Investor Confidence Index

includes survey responses from 170 investment professionals across the Nordic region. The index monitors expectations for the next six months.

The survey’s broad coverage reflects the interest for non-biased analyses and increased transparency. Furthermore, the degree of coverage ensures that the findings are representative reflections of current investor confidence in the Nordic CRE market.

To reflect the difference in investment market size Sweden has received a higher weighting (40 percent) compared to Denmark, Finland and Norway (20 percent each) when presenting the combined Nordic results. For more details on the methodology or details on individual markets, please contact your Cushman & Wakefield contact or consult www.cushmanwakefield.com


Occupier Market Office, Retail and Industrial/Logistics


Strong boost for the office occupiers’ market in Denmark, Finland and Norway… … but Sweden shows signs of a matured cycle More than half of all Nordic investors expect improved demand from office occupiers in the coming six months, particularly driven by an optimistic view of strengthening demand in the Copenhagen, Helsinki and Oslo rental markets. This is in line with the Q3 2017 view, and represents a persistent positive view on the economic outlook for the Nordic countries. Economic growth, increased occupier demand, limited development and the conversion of buildings into residential use all support the positive short to medium-term outlook. However, forecasters have a more mixed

view, as we get closer to 2020, given a combination of development catch-up, greater adoption of agile- and co-working, the switch from manpower to technology and increased utilisation of office space. Look up our report Nordic Office - a preview of the future to get an overview of expected trends impacting the sector. Also, the ongoing residential repricing in Norway and Sweden, if it continues in strength, will impact conversion rates and may dampen the broader economy, in turn impacting occupier demand.

As regards the office occupier market during the next six months, the demand will:

Office

22%

19% 38%

38%

33% 49% 68%

78%

75%

81% 62%

62%

67% 51% 32%

Q1 2018

Q3 2017 Q1 2018

Improve

Q3 2017 Q1 2018

Show little or no change

Cushwake Investor Confidence Index for the Nordics

25%

Q3 2017 Q1 2018

Q1 2018 NORDIC

Worsen

12


Rising scepticism around retail rents E-commerce challenges bricks-and-mortar retail In Finland and Denmark, we still see a healthy minority expecting improved retail occupier demand, but most investors believe retail will move sideways. However, in Norway and particularly in Sweden, ecommerce has started to spook investors, resulting in a larger number foreseeing a decline in retail occupier demand. Looking behind and beyond the numbers, investors views on the sector are split in terms of geography, micro locations and assets, although there is a general view that the sector will require specialist attention going forward, resulting in a likely concentration

of assets among sector specialists. Changing behaviour, most prominently by the younger generation, and new technologies vastly transforming consumers' shopping experience are the two most important factors that will shake up retailing. For the Nordic region, it is important to recognize these changes as the region has one of Europe's highest shopping centre densities. Look up our report Nordic Shopping Centre - a preview of the future to get an overview of expected trends impacting the sector.

As regards the retail occupier market during the next six months, the demand will:

Retail 5%

15%

8%

14%

18% 28%

31% 52% 48%

67% 60%

80%

69%

56% 67%

28%

48%

38% 25% 12%

Q1 2018

Q3 2017 Q1 2018

Improve

Q3 2017 Q1 2018

Show little or no changes

Cushwake Investor Confidence Index for the Nordics

16%

13% 2% Q3 2017 Q1 2018

Q1 2018 NORDIC

Worsen

13


The occupier market for the industrial/logistics sector continues to strengthen its run Positive outlook for the industrial/logistic sector As e-commerce fears bricks-and-mortar retail, industrial and logistics assets present a credible diversification alternative for institutional investors. Nordic investors in general are positive about the outlook for the industrial sector, even though one might suspect the results to be biased towards logistics rather than industrial.

Even here we see significant differences between countries, with again, Denmark, Finland and Norway representing the most convincing consensus, but also for Sweden we see doubling of the minority between Q3 2017 and Q1 2018 believing in improved occupier demand.

As regards the industrial/logistics occupier market during the next six months, the demand will:

Industrial/ Logistic

11%

2%

11%

26%

26%

33%

39% 58% 82% 89%

89%

74%

74%

67%

59% 42% 18% Q1 2018

Q3 2017 Q1 2018

Improve

Q3 2017 Q1 2018

Show little or no change

Cushwake Investor Confidence Index for the Nordics

Q3 2017 Q1 2018

Q1 2018 NORDIC

Worsen 14


Investment Market Office, Retail and Industrial/Logistics


Persistent strong investor demand Majority wants to be net buyers This cycle continues to see an extraordinary level of capital targeting real estate. 62 percent of all investors, within and into the Nordics, have an objective to be net buyers during H1 2018, partly driven by expectations of a further increase in occupier demand and a consequent rise in asset values. However, there are huge differences between countries. In Sweden, where the rental cycle is expected to have matured more than in the rest of the region, we have also started to see a slight decrease in net buyers with a corresponding increase in profit takers. In Denmark, Norway and Finland roughly 70 80 percent are net buyers and net sellers are largely absent in these markets. While core real estate strategies remain attractive, demand outstrips supply. This continues to keep yields under pressure

and challenges investors to deploy capital and achieve their desired returns. Unable to source core assets, many investors in Denmark, Finland and Norway are increasingly accepting additional risk, leading to converging yields, in terms of secondary locations or assets, letting risk, development risk and/or redevelopment projects that create core assets in top markets. However, Sweden appears to be ahead of the rest of the Nordics, and most of Europe, in the cycle and yields are bottoming out for offices while we again see increased spreads for retail. Converging yields mirror the broader European view with lower prime yields and a narrowing gap between tier 1 and tier 2, but we can also here register significant differences between countries.

What is your objective with regards to the size of your portfolio:

5%

10%

4%

11%

6%

16%

24%

17% 27% 32%

6%

16%

10% 28%

41% 35%

68%

Q1 2018

79%

73%

58%

Q3 2017 Q1 2018

70% 53%

Q3 2017 Q1 2018

Increase: more acquisition than disposal

62% 49%

Q3 2017 Q1 2018

Q1 2018 NORDIC

Stable: as much disposal as acquisition

Decrease: more disposal than acquisition Cushwake Investor Confidence Index for the Nordics

16


Stable yield expectations for office in the Nordic region‌ ‌ but investors recognize significant sector and country differences The majority of Nordic investors believe CRE yields have levelled out and will stay that way in the near future.

sideways movement in the short term. In fact, for Norway and Sweden there is a stable minority of around 10 percent expecting yields to start to rise in the short term. The split in views between investors is likely to impact profit takers and we expect to see more investors securing profit in an inevitably strong investment market in the second half of 2018.

For the office sector, a minority of 18 percent led by Danish and Finnish investors believe in further yield compression, which we suspect might derive from yield convergence of secondary assets. In Norway and Sweden, which currently see marginally sharper prime yields, the vast majority believe in a

As regards the development of office market yields during the next six months, they will:

Office

69%

67%

9%

11%

83%

80%

84%

8%

9%

6%

10%

10%

6%

58% 76%

31%

Q1 2018

33%

86%

42%

Q3 2017 Q1 2018

Decline

Cushwake Investor Confidence Index for the Nordics

Q3 2017 Q1 2018

Remain stable

18% 4%

Q3 2017 Q1 2018

Q1 2018 NORDIC

Increase

17


The Nordic countries expect stable yields for retail in the short run ‌ however, a minority is expecting further depreciations We have seen a dramatic shift in retail where the number of investors expecting an increase in retail yields has quadrupled since Q3 2017 for Norway, and also risen significantly for Finland and Sweden. In Sweden, 4 out of 10 investors expect increased retail yields. But again, as noted in the rental section, we see split views from investors concerning assets. In the same month as we registered record low

yields for secondary retail assets other assets struggled to line up investors altogether. There are virtually no Danish investors believing in increased retail yields in the short term, which might be a result of a well-functioning high street and a lack of generic shopping centres compared to the rest of the region.

With regards to the development of retail market yields during the next 6 months, they will:

Retail 7%

9% 24%

30%

37%

27% 41%

72% 67% 52%

85% 61% 68%

28%

24%

57%

24% 8%

Q1 2018

63%

Q3 2017 Q1 2018

Decline

Cushwake Investor Confidence Index for the Nordics

2%

2%

Q3 2017 Q1 2018

Remain stable

Q3 2017 Q1 2018

12% Q1 2018 NORDIC

Increase

18


Further yield compression is expected for industrial/logistics in Denmark and Finland ‌ but Norway expects stable yields in the short run In terms of asset pricing Danish and Finnish investors are sending a strong message to the sector with approx. 60-70 percent of investors expecting further yield compression in the industrial/logistic market.

As regards the development of industrial/logistics market yields during the next 6 months, they will:

Industrial/ Logistic

5%

9% 18%

10%

3%

35% 58% 71%

78%

73% 60% 42%

Q1 2018

Q3 2017

Decline

Cushwake Investor Confidence Index for the Nordics

Q1 2018

Remain stable

19%

19%

Q3 2017

Q1 2018

Increase

19


Stable financing conditions A minority is expecting improved conditions The expectations for financing split the region again and Denmark, Finland and Norway have a steady minority of roughly 1 out of 3 expecting improved financing conditions on new deals or when refinancing current positions, whereas Sweden has a growing minority of around 1 out of 5 expecting worsened financing conditions. However, the large majority across the region expect unchanged financing conditions.

The unchanged view is supported by the Nordic central banks which largely expect a sideways movement in policy rates for 2018 with a stepped increase starting from 2019. Also for long interest rates (10-year government bond), we need to look beyond 2018 to see expectations of significant increases (Oxford Economics).

What is the outlook for your financing compared with your current financing?

5%

12%

13%

2% 18%

22%

12%

58% 68%

54%

68% 62%

67%

59% 72%

34%

42% 27%

25%

30%

23%

21% 6%

Q1 2018

Q3 2017 Q1 2018

Improved conditions

Cushwake Investor Confidence Index for the Nordics

Q3 2017 Q1 2018

Unchanged conditions

Q3 2017 Q1 2018

Q1 2018 NORDIC

Worsened conditions

20


(Over) Optimistic view on own portfolio might restrict liquidity A minority is expecting improved conditions 62 percent of investors believe their portfolio will improve in value (excluding acquisitions & disposals). The key drivers for value improvements are expected to be rental growth and a drop in vacancy rates. However, more than 1 out of 4 also believes yield compression to be a key driver of their portfolio value, even though we do not find the same significant views mirrored in the market expectations reported above.

Which is the most important influencing factor for the development of value in your portfolio?

Rental growth

Vacancy development

Understandably, investors are more optimistic about their own portfolio than the market in general, as a different strategy would otherwise be pursued. But an overly optimistic view on own portfolios will generate a gap between buyers and sellers and adversely affect liquidity. The optimistic views held by investors on their own portfolios might also to some extent explain the lack of net sellers in this survey. Consequently, this may lead to an extended holding period and lack of profit-taking in an undoubtedly competitive investment environment.

Development of initial market yields Financing conditions Development of operating and maintenance cost

How do you see the value of your portfolio developing during the next six months? (excluding any acquisitions/disposals)

2%

2%

36%

31%

62%

67%

11% 24%

33%

26% 49%

38%

89% 76%

Q1 2018

67%

Q3 2017 Q1 2018

Improving Cushwake Investor Confidence Index for the Nordics

Q3 2017 Q1 2018

Unchanged

74% 51%

Q3 2017 Q1 2018

62%

Q1 2018 NORDIC

Worsening 21


Nicholas Thurø Managing Partner Phone: +45 33 13 13 99 nt@cw-red.dk

Christian Metellus Junior Associate Phone: +45 33 13 13 99 cm@cw-red.dk

Jakob Føgh-Larsen Junior Associate Phone: +45 33 13 13 99 jfl@cw-red.dk

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Cushman & Wakefield Investor Confidence Index Q1 2018  

Cushman & Wakefield Investor Confidence Index Q1 2018  

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