MARKET Update
Q
3
Office Industrial Rates International Poul Erik Bech
Yield
Market rent
Employment GDP growt Availability
Residential rental
Consumer confidence
2023
Retail
Executive summary – 3nd quarter The economy has performed better than expected, and this indicates that Denmark will avoid a recession. Inflation has fallen significantly, and Denmark now has the second lowest level of inflation in the EU. Employment is still rising, although not as fast as earlier in the year. One of the few negative indicators is consumer confidence, which is still negative, as it has been since the end of 2021. These positive economic conditions support the business activity, and there is still a high level of occupier activity for renting retail, offices, and industrial and logistics properties. Vacancies for all three property types have increased slightly, however. For all property types, it should be noted that the vacancy rate is very low in a historical context, and due to the relatively low expectations for the economy in the second half of 2023, we expect the vacancy rate to rise slightly in the coming quarters. The transaction volume for commercial real estate is significantly lower than last year, which is mainly due to the high interest rates. However, there are signs that a stabilization of interest rates is underway, moreover, the central banks have announced that the peak is about to be reached. The yield requirements for several property types and in multiple geographical areas have increased slightly since last quarter. However, in line with stabilizing interest rates, the expectations for yield requirements in 12 months have changed from increasing to stable in many places.
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The Danish economy Annual GDP growth 8% 7%
6% 4% 3% 2%
2%
1%
2%
2%
1%
1%
1%
2025
3%
2%
2%
2024
3%
2%
0%
0% -2%
-2%
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
-4%
Real growth in BNP compared to previous year (%) Expected real growth in BNP compared to previous year (%)
After two years of strong growth in GDP of 4.9 percent and 3.8 percent in 2021 and 2022, respectively, there are now prospects for a growth slowdown. The preliminary calculation of GDP growth for 2023 is 1.7 percent. The lower GDP growth can be linked to a reduced private consumption due to rising interest rates and a reduced purchasing power from a historical high inflation. The latest forecast from Danmarks Nationalbank shows an expected growth of 1.3 percent in both 2024 and 2025. The forecast for GDP this year is higher than the last forecast indicating that the risk of a mild recession has been averted. This can be linked to a high foreign demand, which is most likely associated with the noticeable production increase in the pharmaceutical industry. The forecast for GDP next year is 0.1 percentage points higher than the last forecast. Source: Statistics Denmark & Nationalbanken
Interest rates In the first half of 2023, the development in interest rates has been more stagnant compared to 2022, where interest rates increased significantly. This is due to a more moderate development in inflation, which has been particularly driven by a decrease in energy costs. The short mortgage rate, which is closely correlated the monetary policy actions of the Federal Reserve (FED) and the European Central Bank (ECB), has undergone a more subdued development and stands at 3.6 percent in September 2023. The long mortgage rate has been more volatile in 2023 and stands at 5.3 percent in September 2023.
6% 5% 4% 3% 2% 1% 0%
Source: Finance Denmark & Statistics Denmark
Short-term mortgage rate
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
-1%
Long-term mortgage rate
Consumer confidence indicator 20 10 0 -10 -20 -30
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-40
Consumer confidence indicates the population’s view of its current and future economic situation and is thus a good indicator of how the general population is affected by Denmark’s economic situation. Consumer confidence in September is at minus 13.0 and has thus fallen since July, when it was at minus 10.1. Prior August, consumer confidence has been steadily increasing since October 2022 when consumer confidence reached its lowest point at minus 37.0. The average for 2023 is minus 16.9. Four out of five indicators that together make up consumer confidence have risen since last month. The judgement of the current situation has become more negative, and the expectation of the future economic situation has fallen, which play a big role in the aggravated consumer confidence.
Source: Statistics Denmark
Employees The latest figures from Statistics Denmark from July 2023 show a slight increase in the number of employees of 229 persons corresponding to an increase of 0.01 percent compared to June. The number of employees increased especially in the sectors Companies and organizations by approx. 800 persons but is counteracted by a fall of 600 persons in the sector Public administration and service. With 41,007 new employees since July 2022, employment remains at peak levels. However, the pressure on the labor market is easing with the growth slowdown in the Danish economy.
3.0 Million
2.9
2.8
2.7
2.6
Source: Statistics Denmark 2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2.5
3
Residential rental newer properties
Area* (see specifications page 14)
Capital of Denmark
Central Copenhagen
Østerbro, Frederiksberg and Gentofte
Harbour areas
Ørestad
Remaining Copenhagen
Western suburbs
Remaining Zealand
Northern suburbs
North Zealand
East Zealand
West Zealand
South Zealand
Lolland, Falster and Møn
Odense
Other Funen
Southern Denmark
Vejle
Kolding
Fredericia
Esbjerg
Sønderborg
Other South Jutland
Central Jutland
Aarhus
Silkeborg
Viborg
Herning
Northern Jutland
West Jutland
Aalborg
Hjørring
Frederikshavn
Prime Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m
4
Secondary
Tertiary
Trend
4.00%
4.25%
4.50%
2,550 DKK
2,200 DKK
2,000 DKK
4.00%
4.25%
4.50%
2,450 DKK
2,100 DKK
1,950 DKK
4.00%
4.25%
4.50%
2,400 DKK
2,000 DKK
1,800 DKK
4.25%
4.50%
5.00%
1,900 DKK
1,800 DKK
1,700 DKK
4.25%
4.50%
5.00%
2,300 DKK
2,000 DKK
1,800 DKK
4.50%
5.00%
5.25%
1,750 DKK
1,600 DKK
1,500 DKK
4.25%
4.75%
5.00%
2,000 DKK
1,750 DKK
1,500 DKK
4.50%
5.00%
6.00%
1,900 DKK
1,650 DKK
1,400 DKK
4.50%
5.00%
6.50%
1,900 DKK
1,600 DKK
1.300 DKK
5.50%
6.75%
8.00%
1,500 DKK
1,300 DKK
1,000 DKK
5.25%
6.25%
7.50%
1,350 DKK
1,100 DKK
950 DKK
5.75%
6.75%
8.00%
1,200 DKK
950 DKK
800 DKK
4.50%
5.00%
5.50%
1,450 DKK
1,275 DKK
1,100 DKK
5.25%
5.75%
6.50%
1,250 DKK
1,100 DKK
950 DKK
5.00%
5.50%
6.25%
1,375 DKK
1,175 DKK
1,000 DKK
5.50%
6.00%
6.75%
1,300 DKK
1,150 DKK
950 DKK
5.50%
6.00%
6.75%
1,250 DKK
1,100 DKK
875 DKK
5.25%
6.00%
7.00%
1,200 DKK
900 DKK
750 DKK
6.00%
7.00%
7.50%
1,150 DKK
900 DKK
750 DKK
6.00%
7.00%
7.50%
1,100 DKK
800 DKK
675 DKK
4.25%
4.75%
5.25%
1,850 DKK
1,600 DKK
1,350 DKK
4.75%
5.75%
7.25%
1,400 DKK
1,050 DKK
950 DKK
5.25%
6.25%
7.25%
1,125 DKK
1,000 DKK
850 DKK
5.00%
5.75%
7.00%
1,200 DKK
1,050 DKK
900 DKK
5.50%
6.50%
8.00%
1,200 DKK
850 DKK
750 DKK
4.50%
5.00%
5.75%
1,400 DKK
1,150 DKK
950 DKK
5.25%
6.50%
7.25%
1,150 DKK
950 DKK
775 DKK
5.75%
6.75%
7.50%
1,050 DKK
850 DKK
650 DKK
Source: EDC International Poul Erik Bech, estimates as of Q3 2023
Yield in %, annual market rent in DKK/sq m incl. operating expenses and trends for the next 12 months
Residential rental fully developed properties
Capital of Denmark
Area* (see specifications page 14) Central Copenhagen
Østerbro, Frederiksberg and Gentofte
Remaining Copenhagen
Western suburbs
Remaining Zealand
Northern suburbs
North Zealand
East Zealand
West Zealand
South Zealand
Lolland, Falster and Møn
Odense
Other Funen
Southern Denmark
Vejle
Kolding
Fredericia
Esbjerg
Sønderborg
Other South Jutland
Central Jutland
Aarhus
Silkeborg
Viborg
Herning
Northern Jutland
West Jutland
Aalborg
Hjørring
Frederikshavn
Prime Yield in % Annual rent in DKK/sq m Yield in % Annual rent in DKK/sq m Yield in % Annual rent in DKK/sq m Yield in % Annual rent in DKK/sq m Yield in % Annual rent in DKK/sq m Yield in % Annual rent in DKK/sq m Yield in % Annual rent in DKK/sq m Yield in % Annual rent in DKK/sq m Yield in % Annual rent in DKK/sq m Yield in % Annual rent in DKK/sq m
Secondary
Tertiary
Trend
4.00%
4.25%
4.50%
1,800 DKK
1,650 DKK
1,500 DKK
4.00%
4.50%
4.75%
1,750 DKK
1,650 DKK
1,550 DKK
4.25%
4.50%
5.00%
1,700 DKK
1,600 DKK
1,500 DKK
4.75%
5.25%
6.00%
1,600 DKK
1,525 DKK
1,225 DKK
4.50%
5.00%
5.75%
1,500 DKK
1,350 DKK
1,225 DKK
4.75%
5.00%
6.00%
1,500 DKK
1,350 DKK
1,250 DKK
4.50%
5.25%
7.00%
1,600 DKK
1,300 DKK
1,000 DKK
5.25%
6.50%
7.50%
1,150 DKK
900 DKK
750 DKK
5.25%
6.25%
7.75%
1,200 DKK
900 DKK
700 DKK
6.00%
7.50%
8.50%
1,000 DKK
825 DKK
725 DKK
Yield in %
4.75%
5.00%
5.75%
Annual rent in DKK/sq m
900 DKK
875 DKK
800 DKK
Yield in %
5.75%
6.25%
7.50%
Annual rent in DKK/sq m
825 DKK
725 DKK
600 DKK
Yield in %
5.25%
6.00%
6.50%
1,125 DKK
975 DKK
800 DKK
Annual rent in DKK/sq m Yield in % Annual rent in DKK/sq m Yield in % Annual rent in DKK/sq m Yield in % Annual rent in DKK/sq m Yield in %
5.75%
6.25%
7.00%
1,175 DKK
1.000 DKK
850 DKK
5.75%
6.25%
7.25%
1,175 DKK
975 DKK
800 DKK
5.00%
6.25%
7.50%
1,050 DKK
725 DKK
550 DKK
5.75%
6.75%
7.75%
1,000 DKK
950 DKK
750 DKK
Yield in %
6.00%
7.25%
8.25%
Annual rent in DKK/sq m
950 DKK
750 DKK
625 DKK
Annual rent in DKK/sq m
Yield in % Annual rent in DKK/sq m Yield in % Annual rent in DKK/sq m Yield in % Annual rent in DKK/sq m Yield in % Annual rent in DKK/sq m Yield in % Annual rent in DKK/sq m Yield in %
4.00%
4.50%
5.00%
1,575 DKK
1,350 DKK
1,200 DKK
4.75%
5.75%
7.25%
1,350 DKK
900 DKK
650 DKK
5.75%
7.00%
8.25%
1,100 DKK
850 DKK
650 DKK
5.25%
6.25%
7.25%
1,150 DKK
925 DKK
750 DKK
6.00%
7.25%
9.00%
1,100 DKK
750 DKK
650 DKK
4.50%
5.25%
6.25%
1,250 DKK
1,100 DKK
900 DKK
Yield in %
5.75%
6.50%
7.75%
Annual rent in DKK/sq m
Annual rent in DKK/sq m
900 DKK
800 DKK
700 DKK
Yield in %
6.25%
7.00%
8.00%
Annual rent in DKK/sq m
850 DKK
750 DKK
625 DKK
5
Source: EDC International Poul Erik Bech, estimates as of Q3 2023
Yield in %, annual rent in DKK/sq m incl. operating expenses and trends for the next 12 months
Residential rental cost determined rental properties
Northern Jutland
Central Jutland
Southern Denmark
Remaining Zealand
Capital of Denmark
Area* (see specifications page 14)
Prime
Secondary
Tertiary
Trend
Central Copenhagen
Yield in %
1.25%
2.00%
2.75%
Østerbro, Frederiksberg and Gentofte
Yield in %
1.50%
2.00%
2.75%
Remaining Copenhagen
Yield in %
2.50%
3.00%
3.50%
Western suburbs
Yield in %
3.00%
3.75%
4.50%
Northern suburbs
Yield in %
2.75%
3.50%
4.25%
North Zealand
Yield in %
4.00%
4.75%
5.75%
East Zealand
Yield in %
4.00%
5.00%
6.50%
West Zealand
Yield in %
5.00%
6.25%
7.00%
South Zealand
Yield in %
5.00%
6.00%
7.25%
Odense
Yield in %
3.50%
4.50%
5.25%
Other Funen
Yield in %
5.25%
5.50%
7.00%
Vejle
Yield in %
5.00%
5.50%
6.00%
Kolding
Yield in %
5.00%
5.50%
6.50%
Fredericia
Yield in %
5.50%
6.00%
7.00%
Esbjerg
Yield in %
5.00%
5.50%
6.50%
Sønderborg
Yield in %
5.50%
6.00%
6.50%
Other South Jutland
Yield in %
5.25%
6.25%
7.25%
Aarhus
Yield in %
2.50%
3.75%
5.25%
Silkeborg
Yield in %
4.50%
5.25%
7.00%
Viborg
Yield in %
5.25%
6.00%
7.75%
Aalborg
Yield in %
3.25%
4.50%
5.75%
Hjørring
Yield in %
5.25%
6.00%
7.00%
Frederikshavn
Yield in %
5.75%
6.75%
7.50%
6
Source: EDC International Poul Erik Bech, estimates as of Q3 2023
Yield in percent and trends for the next 12 months
The development of residential rental properties Rising interest rates, inflation, and, notably, the new property taxes are expected to contribute to declining prices in the owner-occupied housing market in the coming year. Particularly regarding the new property taxes, there will be significant geographical differences. While housing prices are generally expected to fall in the largest cities, especially condominiums, there is expected to be upward pressure on prices from the new property taxes in rural areas, where many places are expected to see significant tax reductions. For homeowners with adjustable-rate mortgages, interest rate increases have already resulted in significantly higher monthly payments. Additionally, it will become more challenging for first-time buyers to enter the housing market due to higher financing requirements that are not offset by corresponding price drops. This development may lead more individuals to choose to rent a home, as it is currently relatively more attractive to rent than to buy.
The demand for rental properties has significantly decreased during 2023, highlighted by a decline in transaction volume of about 80% between the first half of 2022 and the first half of 2023. The decrease in transaction volume has been driven by recent years’ inflation and interest rate increases, as well as general uncertainties. This has led to a considerable increase in yield requirements among buyers, while sellers have been slow to adjust their yield requirements to the new market situation. Overall, yield requirements are still lower in Denmark than in the surrounding countries, partly because Danish property investors have a more robust financing structure, making them less sensitive to interest rate fluctuations compared to investors in the Swedish market. Therefore, many investors have the option to hold onto their properties rather than accepting a significant price drop. Despite significant construction activity in recent years, vacancy rates remain relatively low on a national level. Rising interest rates, combined with higher uncertainty, make it more difficult to achieve the same level of leverage as before. This is expected to lead to a slowdown in the number of new projects in the coming years, which could potentially help keep vacancy rates low, especially in areas that have experienced an oversupply of housing after several years of high construction activity.
The vacancy rate for housing on a national level was 4.2% for the second quarter of 2023, which corresponds to an increase in vacancy of 0.8 percentage points compared to the same quarter the previous year. Market rents are expected to remain stable to slightly increasing in the coming year, while yield requirements are expected to remain stable around current reported levels. The expectation of stable yield requirements is partly due to the prospect of falling interest rates around the end of 2024, which naturally improves the conditions for the transaction market.
7
Office Area* (see specifications page 14)
Capital of Denmark
Central Copenhagen
Østerbro, Frederiksberg and Gentofte
Harbour areas
Ørestad
Remaining Copenhagen
Western suburbs
Remaining Zealand
Northern suburbs
North Zealand
East Zealand
West Zealand
South Zealand
Lolland, Falster and Møn
Odense
Other Funen
Southern Denmark
Vejle
Kolding
Fredericia
Esbjerg
Sønderborg
Other South Jutland
Central Jutland
Aarhus
Silkeborg
Viborg
Herning
Northern Jutland
West Jutland
Aalborg
Hjørring
Frederikshavn
Prime Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in %
Secondary
Tertiary
Trend
3.75%
4.50%
5.25%
2,650 DKK
1,800 DKK
1,450 DKK
4.00%
4.75%
5.75%
2,350 DKK
1,600 DKK
1,350 DKK
3.75%
4.50%
5.75%
2,700 DKK
1,850 DKK
1,600 DKK
4.50%
5.00%
6.25%
2,050 DKK
1,600 DKK
1,450 DKK
4.50%
5.50%
6.50%
1,900 DKK
1,350 DKK
1,000 DKK
5.25%
7.25%
9.75%
1,400 DKK
850 DKK
600 DKK
4.75%
5.75%
8.75%
1,625 DKK
1,350 DKK
750 DKK
5.25%
6.25%
8.75%
1,425 DKK
1,025 DKK
700 DKK
6,25%
7.25%
10.50%
1,400 DKK
900 DKK
450 DKK
6.50%
8.50%
10.50%
1,150 DKK
700 DKK
350 DKK
7.00%
8.25%
10.75%
1,000 DKK
700 DKK
350 DKK
Yield in %
7.25%
9.00%
11.00%
Annual market rent in DKK/sq m
850 DKK
650 DKK
400 DKK
Yield in %
5.50%
6.50%
8.50%
1,550 DKK
1,000 DKK
650 DKK
Annual market rent in DKK/sq m
Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in %
6.50%
8.00%
9.50%
1,200 DKK
800 DKK
400 DKK
6.00%
7.50%
9.50%
1,450 DKK
950 DKK
550 DKK
6.50%
7.75%
9.75%
1,400 DKK
800 DKK
450 DKK
6.50%
8.25%
10.00%
1,350 DKK
900 DKK
500 DKK
7.00%
8.50%
10.00%
1,400 DKK
800 DKK
450 DKK
7.50%
9.00%
10.50%
1,150 DKK
700 DKK
400 DKK
Yield in %
8.00%
9.50%
11.75%
Annual market rent in DKK/sq m
900 DKK
700 DKK
400 DKK
Yield in %
4.75%
5.75%
8.00%
1,950 DKK
1,450 DKK
800 DKK
Annual market rent in DKK/sq m
Annual market rent in DKK/sq m Yield in %
6.25%
7.25%
9.25%
1,300 DKK
700 DKK
450 DKK
Yield in %
6.75%
7.50%
9.25%
Annual market rent in DKK/sq m
975 DKK
600 DKK
400 DKK
Yield in %
6.50%
7.50%
9.25%
Annual market rent in DKK/sq m
1.150 DKK
700 DKK
425 DKK
Yield in %
7.00%
8.25%
10.25%
Annual market rent in DKK/sq m
850 DKK
500 DKK
350 DKK
Yield in %
5.75%
6.50%
7.50%
1,300 DKK
900 DKK
600 DKK
Annual market rent in DKK/sq m
Annual market rent in DKK/sq m Yield in %
7.00%
8.00%
11.00%
1,000 DKK
650 DKK
400 DKK
Yield in %
7.50%
8.50%
11.00%
Annual market rent in DKK/sq m
850 DKK
500 DKK
350 DKK
Annual market rent in DKK/sq m
8
Source: EDC International Poul Erik Bech, estimates as of Q3 2023
Yield in %, annual market rent in DKK/sq m incl. operating expenses and trends for the next 12 months
The development of office properties Demand for attractive office properties has been high during 2022, with several larger transactions taking place at low yield requirements. The high demand has been driven in part by a robust job market characterized by record-high employment. However, several forecasts indicate declining employment by up to 22,000 people in the last half of 2023 and the first half of 2024, making the future outlook less certain. Such a development can result in significant consequences for the segment and, consequently, lower demand for office space. This trend has already had an impact on transaction activity, which has significantly declined this year.
continue to speculate on the implementation timeline of legislation related to energy efficiency standards. In general, it is expected that the value of certified properties, such as those with DGNB certification, will eventually exceed the value of uncertified properties, supported by international research. Whether certified properties should be traded at a lower risk premium or if the risk premium should be greater for uncertified properties is more uncertain. Supporting this trend is the fact that larger companies are increasingly demanding certified spaces due to their ESG profiles, as the building stock has a significant carbon footprint. At the same time, increased regulation at both the national and European levels is expected to have significant consequences for properties that are not certified. The trends are also expected to be reflected in the demand for certifying existing building stock, which will require significant investment in order to reduce the ongoing carbon footprint of existing buildings.
Companies continue to demand flexible office solutions due to increased focus on remote work and scalability. This is primarily the case in Copenhagen, where there is a large supply of flexible concepts, while in Aarhus, for example, there is demand but limited supply, especially in the city center where demand for office space is highest. However, there are also trends pointing in the opposite direction, both internationally and locally, where several companies have established policies regarding the number of remote workdays in order to bring employees back to the office.
The vacancy rate for offices nationwide was 4.95% for the third quarter of 2023. Vacancy has decreased by 0.6 percentage points compared to the same quarter the previous year, and there is currently no trend towards increasing vacancy. Yield requirements are expected to be stable over the coming year, which also applies to market rents.
In addition to flexibility, both tenants and investors increasingly seek modern and sustainable office spaces that are future-proof. The expectation is that the market will
Available office space as a percentage of building stock
Source: Ejendomstorvet-ED Statistikken, estimates as of Q3 2023
14% 12% 10% 8% 6% 4% 2%
Capital Region of Denmark
Region Zealand
Region of Southern Denmark
9
Central Denmark Region
North Denmark Region
Denmark, total
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
0%
Retail Yield in %, annual market rent in DKK/sq m incl. operating expenses and trends for the next 12 months
Strøget
Capital of Denmark
Central Copenhagen
Østerbro, Frederiksberg and Gentofte
Harbour areas
Ørestad
Remaining Copenhagen
Western suburbs
Remaining Zealand
Northern suburbs
North Zealand
East Zealand
West Zealand
South Zealand
Lolland, Falster and Møn
Odense
Other Funen
Southern Denmark
Vejle
Kolding
Fredericia
Esbjerg
Sønderborg
Other South Jutland
Central Jutland
Aarhus
Silkeborg
Viborg
Herning
Northern Jutland
West Jutland
Aalborg
Hjørring
Frederikshavn
Prime Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in %
Secondary
Tertiary
Trend
3.75%
4.50%
5.00%
19,500 DKK
11,000 DKK
6,000 DKK
5.00%
5.75%
6.25%
4,750 DKK
2,500 DKK
1,750 DKK
5.25%
6.00%
7.00%
4,000 DKK
2,250 DKK
1,400 DKK
5.00%
5.75%
6.25%
2,750 DKK
1,800 DKK
1,500 DKK
5.50%
6.25%
7.00%
2,400 DKK
1,750 DKK
1,500 DKK
5.50%
6.25%
7.50%
3,000 DKK
1,750 DKK
1,000 DKK
5.75%
7.25%
9.25%
2,500 DKK
1,500 DKK
800 DKK
5.25%
6.50%
8.00%
4,500 DKK
2,000 DKK
1,000 DKK
5.50%
7.00%
8.75%
3,500 DKK
1,700 DKK
750 DKK
5.75%
7.25%
8.75%
2,900 DKK
1,400 DKK
900 DKK
6.50%
7.75%
9.75%
1,700 DKK
950 DKK
500 DKK
6.50%
7.75%
9.75%
1.600 DKK
900 DKK
500 DKK
Yield in %
8.00%
9.50%
11.00%
Annual market rent in DKK/sq m
900 DKK
700 DKK
400 DKK
Annual market rent in DKK/sq m
Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m Yield in % Annual market rent in DKK/sq m
6.00%
7.00%
8.25%
5,250 DKK
2,500 DKK
650 DKK
6.50%
7.50%
10.25%
2,100 DKK
1,250 DKK
500 DKK
6.25%
7.25%
9.25%
2,900 DKK
1,500 DKK
750 DKK
6.50%
7.50%
9.25%
2,100 DKK
1,200 DKK
600 DKK
7.25%
8.25%
10.00%
1,650 DKK
1.000 DKK
550 DKK
7.25%
8.75%
10.25%
2,400 DKK
1,000 DKK
550 DKK
7.50%
9.00%
10.25%
1,800 DKK
1,200 DKK
400 DKK
8.00%
9.25%
10.50%
1,500 DKK
1,000 DKK
400 DKK
4.75%
5.75%
7.50%
6,000 DKK
2,500 DKK
900 DKK
6.50%
7.50%
9.00%
2,400 DKK
1,050 DKK
550 DKK
6.75%
7.75%
10.25%
2,500 DKK
1,050 DKK
500 DKK
7.00%
8.00%
10.00%
1,750 DKK
900 DKK
500 DKK
7.50%
8.75%
11.00%
2,300 DKK
750 DKK
500 DKK
5.50%
6.75%
8.50%
4,000 DKK
1,800 DKK
900 DKK
7.00%
8.00%
10.00%
1,400 DKK
750 DKK
400 DKK
7.50%
8.50%
10.00%
1,200 DKK
700 DKK
375 DKK
Source: EDC International Poul Erik Bech, estimates as of Q3 2023
Area* (see specifications page 14)
The development of retail properties The economic turmoil that occurred during 2022 due to rising interest rates and inflation has eroded consumers’ real income and purchasing power, leading to increased uncertainty in the retail segment and an increased risk of rising vacancy. This is particularly true for smaller tenants with less robust financial situations who do not sell essential consumer goods, making them more sensitive to economic fluctuations.
Consumer confidence has been negative since November 2021, potentially explaining some of the uncertainties in the retail segment. In addition to these uncertainties, there has been demand in recent years for portfolios of grocery stores with a natural geographic spread, driven by an attractive risk-adjusted return, as grocery stores are considered resilient to economic fluctuations, while also providing relatively high returns. Furthermore, grocery store chains often lease under long-term, non-cancelable contracts. For these reasons, the grocery store segment is highly attractive to investors and has seen reasonable activity in recent years.
Higher rent increases due to NPI regulations have also pressured tenants. However, it is believed that not all landlords have fully implemented NPI regulation, as some have considered the tenants’ resilience or the risk of lease termination and the risk of Section 13 rent regulation due to the potential for regulated rent to exceed market rent. The risk of high NPI regulations has increased tenant awareness of clauses related to rent regulation in lease contracts. This means that there will be higher demands for maximum regulation in the future.
Vacancy rates for retail have been slightly increasing over the past year, with vacancy rising by 0.26 percentage points to 3.04% in the third quarter of 2023. Yield requirements are expected to be generally stable over the next year, as is the case for market rents.
Available retail space as a percentage of building stock
Source: Ejendomstorvet-ED Statistikken, estimates as of Q3 2023
5%
4%
3%
2%
1%
Capital Region of Denmark
Region Zealand
Region of Southern Denmark
11
Central Denmark Region
North Denmark Region
Denmark, total
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
0%
Industrial Area* (see specifications page 14) Remaining Copenhagen
Western suburbs
Remaining Zealand
Northern suburbs
North Zealand
East Zealand
West Zealand
South Zealand
Lolland, Falster and Møn
Odense
Other Funen
Southern Denmark
Vejle
Kolding
Fredericia
Esbjerg
Sønderborg
Other South Jutland
Central Jutland
Aarhus
Silkeborg
Viborg
Herning
Northern Jutland
West Jutland
Aalborg
Hjørring
Frederikshavn
Prime Yield in %
Secondary
Tertiary
Trend
4.75%
5.25%
6.25%
1,000 DKK
800 DKK
600 DKK
Yield in %
5.50%
7.25%
9.00%
Annual market rent in DKK/sq m
750 DKK
600 DKK
450 DKK
Annual market rent in DKK/sq m
Yield in %
5.75%
6.75%
8.00%
Annual market rent in DKK/sq m
800 DKK
550 DKK
400 DKK
Yield in %
6.00%
7.25%
9.00%
Annual market rent in DKK/sq m
800 DKK
550 DKK
375 DKK
Yield in %
5.00%
6.25%
9.00%
Annual market rent in DKK/sq m
750 DKK
500 DKK
300 DKK
Yield in %
6.50%
8.50%
10.50%
Annual market rent in DKK/sq m
550 DKK
350 DKK
200 DKK
Yield in %
7.00%
8.75%
10.75%
Annual market rent in DKK/sq m
475 DKK
300 DKK
200 DKK
Yield in %
8.00%
9.50%
12.00%
Annual market rent in DKK/sq m
550 DKK
300 DKK
200 DKK
Yield in %
5.50%
6.75%
8.50%
Annual market rent in DKK/sq m
550 DKK
400 DKK
250 DKK
Yield in %
5.75%
8.25%
10.00%
Annual market rent in DKK/sq m
500 DKK
350 DKK
200 DKK
Yield in %
5.50%
7.25%
9.50%
Annual market rent in DKK/sq m
600 DKK
375 DKK
250 DKK
Yield in %
5.50%
7.50%
9.75%
Annual market rent in DKK/sq m
575 DKK
375 DKK
250 DKK
Yield in %
5.00%
7.00%
8.50%
Annual market rent in DKK/sq m
600 DKK
400 DKK
250 DKK
Yield in %
6.50%
8.50%
10.00%
Annual market rent in DKK/sq m
450 DKK
300 DKK
225 DKK
Yield in %
6.75%
9.25%
11.25%
Annual market rent in DKK/sq m
500 DKK
275 DKK
200 DKK
Yield in %
6.75%
9.25%
11.25%
Annual market rent in DKK/sq m
500 DKK
275 DKK
200 DKK
Yield in %
5.25%
7.00%
9.00%
Annual market rent in DKK/sq m
575 DKK
450 DKK
300 DKK
Yield in %
7.00%
8.50%
10.50%
Annual market rent in DKK/sq m
450 DKK
350 DKK
200 DKK
Yield in %
7.25%
8.75%
10.75%
Annual market rent in DKK/sq m
450 DKK
350 DKK
250 DKK
Yield in %
7.00%
8.50%
10.50%
Annual market rent in DKK/sq m
400 DKK
300 DKK
200 DKK
Yield in %
7.50%
9.25%
12.00%
Annual market rent in DKK/sq m
350 DKK
225 DKK
150 DKK
Yield in %
6.00%
7.25%
9.00%
Annual market rent in DKK/sq m
525 DKK
375 DKK
250 DKK
Yield in %
7.25%
9.25%
11.00%
Annual market rent in DKK/sq m
400 DKK
300 DKK
200 DKK
Yield in %
7.50%
9.50%
11.75%
Annual market rent in DKK/sq m
400 DKK
275 DKK
150 DKK
12
Source: EDC International Poul Erik Bech, estimates as of Q3 2023
Yield in %, annual market rent in DKK/sq m incl. operating expenses and trends for the next 12 months
The development of industrial properties The logistics segment has experienced high demand in recent years, evidenced by the fact that the segment in the first 6 months of 2023 experienced the smallest decline compared to the same period the previous year. The demand is primarily focused on newer and modern logistics properties located close to essential infrastructure such as highways. In addition, an increased focus on supply chains has led several companies to move away from just-in-time principles, further increasing demand for last-mile logistics properties. Last-mile logistics properties are expected to continue experiencing increased demand, partly due to range limitations on electric trucks, but also due to the lack of charging infrastructure.
cellation periods with solid tenants also significantly reduce buyer yield requirements. Finally, there is a trend toward triple-net contracts, where the tenant covers all operating expenses except for administrative costs.
High-ceiling warehouse spaces with good access and ramps are particularly sought after and meet current needs. There is also a growing interest in sustainable and energy-efficient properties, preferably certified. Additionally, there is increased demand for sale-and-lease-back agreements with long lease terms, which reduces the risk for investors and provides predictability for companies while allowing them to focus on their core competencies. Long non-can-
The industrial segment has also experienced high demand in recent years, primarily driven by users. Vacancy rates for industrial and logistics properties have been slightly increasing over the past year, with vacancy rising by 0.40 percentage points to 1.73% in the third quarter of 2023. Yield requirements are generally considered stable, as is market rent.
However, the supply of the sought-after properties has not kept pace, partly due to urban industrial and logistics areas being converted into residential areas. At the same time, it is becoming increasingly difficult to find suitable areas, especially for logistics properties in prime locations. Increased construction costs and rising interest rates have also affected the outlook for new construction, potentially increasing the gap between supply and demand.
Available industrial space as a percentage of building stock
Source: Ejendomstorvet-ED Statistikken, estimates as of Q3 2023
8% 7% 6% 5% 4% 3% 2% 1%
Capital Region of Denmark
Region Zealand
Region of Southern Denmark
13
Central Denmark Region
North Denmark Region
Denmark, total
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
0%
Definitions Location and condition Yield and rent levels estimates are based on primary, secondary and tertiary categories, where primary is the best and tertiary is the worst. Various variables for each property type have been taken into consideration with regards to determine the facility classes, such as: size, floor plan structure, year of construction, lifts, climate control, cabling infrastructure, staff facilities, customer facilities, parking facilities, building energy rating, ceiling height, general accessibility, general condition of the property, etc. Primary: A property with prime location and class A facilities has the best possible location in an area, the highest standard when it comes to facilities, is modern and ready to move into. This type of property will typically be sold at the lowest yield in the area, have the highest market rent and have a short reletting process. Secondary: Average in terms of location and condition. Yield and rent levels also reflect the average levels for the area. The re-rental options are market compliant and reflect the general market conditions. Tertiary: Poor location for the area, low standard, and outdated. This type of property is expected to be able to be sold at a relatively high yield level, and the rent level is low for the defined area. Similarly, vacancy rates can be expected to be higher than the market average. Yield All yields are initial net yields and are defined as the annualized rent generated by the property after the deduction of estimated annual irrecoverable property outgoings, expressed as a percentage of the property valuation (property valuation is adjusted for the value of rental deposits and prepaid rent). For comparison purposes, it is assumed that all properties are fully let at market-conform conditions.
Residential rental properties 1) Newer residential rental properties are properties that have been occupied after 31.12.1991 and thus covered by the rules on free/market rent according to the Danish Residential Rent Regulation Act section 54 (1, 1). 2) Cost determined rental properties are older residential rental properties that have been occupied before 31.12.1991 and are regulated in accordance with the provisions of the Danish Residential Rent Regulation Act on cost-determined rent. 3) Fully developed older residential rental properties are older home rental properties without further potential for rent increases through modernization pursuant to section 19 (2) of the Danish Residential Rent Regulation Act. Data for available commercial premises The source of available commercial premises is the latest available supply statistics from Ejendomstorvet. Further information about these statistics can be found at ejendomstorvet.dk/statistik/udbudsstatistik. Trends All trends reflect our expectations to the level in 12 months time. The figure is expected to increase The figure is expected to remain unchanged The figure is expected to decrease Note on estimates The valuation of a property depends on many specific factors, including conditions of the lease, the tenant, and the property condition. The estimates cannot be used uncritically in the valuation of one specific property but can serve as input related to the valuation. Reproduction or citation only with acknowledgment of source. While every effort has been made to ensure that the information provided is accurate, EDC International Poul Erik accepts no liability for errors.
Market Rent All rents are headline rents, in other words, the contracted gross rent receivable, which becomes payable after any tenant incentives have expired. Market rent estimates are expressed in DKK/sq m/year. It is assumed that all properties are let at market-conform conditions.
* Area specifications Copenhagen City = Copenhagen K ex. harbour areas. Østerbro, Frederiksberg og Gentofte = Østerbro, Frederiksberg and Gentofte municipalities. Harbour area (Nordhavn, Kalvebodbrygge & Tuborg Havn) = Areas located along Copenhagen’s harbour. Remaining Copenhagen = Vesterbro, Nørrebro, Nordvest, Valby, Sydhavn (ex. harbour areas), Brønshøj, Husum, Vanløse, København S (ex. Ørestad and harbour areas), Kastrup and Dragør municipalities. Western suburbs = Hvidovre, Rødovre, Glostrup, Brøndby, Albertslund, Vallensbæk, Ishøj, Høje Taastrup, Ballerup and Herlev municipalities. Northern suburbs = Lyngby, Holte, Farum, Birkerød, Gladsaxe, Rudersdal and Furesø municipalities.
North Zealand = Gribskov, Helsingør, Allerød, Hillerød, Egedal, Fredensborg, Halsnæs and Hørsholm municipalities. East Zealand = Greve, Køge, Lejre, Roskilde and Solrød municipalities. West Zealand = Holbæk, Kalundborg, Odsherred, Ringsted, Slagelse and Sorø municipalities. South Zealand = Faxe, Næstved, Stevns and Vordingborg municipalities. Lolland, Falster and Møn = Guldborgssund and Lolland municipalities. Other Funen = All municipalities at Funen ex. Odense. Other South Jutland = Billund, Fanø, Haderslev, Tønder, Varde, Vejen and Aabenraa municipalities. West Jutland = Skive, Stuer, Holsterbro, Thisted, Morsø and Ringløbing-Skjern 14 municipalities.
Improve your decisions by using data-based analyses As an investor, it is crucial to approach an investment objectively. With analyses from EDC Poul Erik Bech, we provide you with the opportunity to do just that by ensuring that your investment is based on a solid data foundation. EDC Poul Erik Bech Research offers area-specific analyses for the entire country that can be tailored to your specific needs. Additionally, we provide in-depth analyses of population trends, housing supply, transaction volume, and more, which can help you as an investor to make the right decisions based on a solid knowledge foundation. If you have questions, you are more than welcome to contact us:
Joseph Alberti Head of Research
Niclas Holm Senior Research Analyst
joal@edc.dk +45 5858 7467
niho@edc.dk +45 5858 8784
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