OUTLOOK FOR 2019 Market survey among Danish investors and businesses
Erhverv Poul Erik Bech
EDC ERHVERV OUTLOOK SURVEY 2019
PA G E 3 FA C T S ABOU T THE SU RVE Y PA G E 6 MA IN C ON C LU SION S PA G E 8 INVES TME N T - Introd u ction - Volume
RESIDENTIAL RENTAL PROPERTIES ARE STILL NUMBER ONE P20
- G eo g ra p h y - Sub - con clu s ion s - Pr op erty ty p e - Fina n cin g PA G E 2 4 B US IN E SSE S - R elo ca tion - Lo ca tion - C os ts of p remis es
MORE PEOPLE BELIEVE IN INCREASING INTEREST RATES AND REDUCING FINANCING OPTIONS P22
- R en tin g v s . ow n in g
PUBLISHED BY — EDC Erhverv Poul Erik Bech PROJECT MANAGEMENT – Maria Lindbjerg Hansen DESIGN/LAYOUT — Trine Natskår TEXTS — Nils-Ole Heggland PRINTED BY — TrykNet CONTACT — Jørgen Jørgensen, CEO, EDC Erhverv Poul Erik Bech - Tel.: +4533301025
BUSINESSES WANT TO RELOCATE, BUT STAY IN THE SAME AREA P30
FACTS ABOUT THE SURVEY
1,443 respondents 3
EDC ERHVERV OUTLOOK SURVEY 2019
Breakdown of participants Responses were collected through EDC Erhvervâ€™s database where 17,000 businesses were selected. Moreover, responses were collected through campaigns targeted at business people at CEO level and people interested in or with a professional profile within property investment.
1 EMPLOYEE: 9%
26-100 EMPLOYEES: 15%
2-25 EMPLOYEES: 54%
500+ EMPLOYEES: 12%
101-500 EMPLOYEES: 10%
NORTH JUTLAND ABROAD 6% 1%
CENTRAL JUTLAND 13%
ODENSE 4% SOUTH/WEST JUTLAND 12%
WEST/SOUTH ZEALAND 7%
COPENHAGEN/ FREDERIKSBERG 17%
Do you own or rent your primary premises?
Do you invest in properties not for your own use?
EDC ERHVERV OUTLOOK SURVEY 2019
56% of investors expect the interest rate to remain unchanged
79% of investors want to invest in residential rental properties
35% of the businesses located in Copenhagen/ Frederiksberg want to relocate within the coming years
36% of investors expect the market prices of office properties to increase
43% of the businesses that want to relocate would consider selling their premises and rent premises instead
29% of businesses expect to relocate within the coming years
GREAT APPETITE FOR RESIDENTIAL PROPERTIES AND CONFIDENCE IN PRICE RISES Interest in investing in bricks and mortar remains keen. In fact, interest is so great that 47% of investors will allocate more funds to property investments in 2019 than they have done so far. The low interest rate level still makes it affordable to finance properties and also means that bonds are not an attractive alternative for investors looking for a return. Moreover, 2018 clearly proved that the return on shares may fluctuate significantly. The attractive investment climate makes more investors broaden their geographical investment criteria to more areas of the country and the areas outside Copenhagen are now experiencing the greatest interest from investors. For the first time in several years, Copenhagen is overtaken by other areas. Just as last year, interest in buying residential rental properties is great â€“ almost four in five of the respondent investors want to do that. The almost insatiable appetite for residential properties can probably be ascribed to very low vacancy rates, massive interest from investors abroad and increasing population in Copenhagen and Aarhus â€“ which are clearly the largest residential rental property markets. Also Odense, Aalborg, Esbjerg and towns and cities in the Triangle Area expect more residents over the next years. Residential rental properties are also the type of properties where most investors expect price increases. Prices have been increasing and the return has been declining in this segment, particularly in the large cities, yet still more than one in two investors expect new value increases for residential property next year. EDC Erhverv does not share the
expectation for continued high price increases on residential properties. The return on properties in the large cities is getting so low that most investors can no longer join. However, it should be mentioned that international investors are still willing to buy properties at high prices as the price level in the large Danish cities are still low compared to our neighbouring countries. Overall, EDC Erhverv expects a more stable price level in the time ahead, supported by the low interest rate and increasing population. Therefore, investors should expect the current yield to be the return on their investment. However, price increases can still be expected for properties outside the city centres and properties with renovation potential which would allow for rent adjustment. Much fewer investors in the survey want to invest in other types of commercial properties. This reflects the actual market where properties used for office, retail and industrial purposes require a much higher degree of specialisation, equity and higher risk â€“ and a higher return. In recent years, we have seen several players moving into the market for mainly storage and logistics properties, but this is still a small share compared to the total market. The respondent investors expect to see price increases for office and industrial properties in the coming year, but not to the same extent as residential properties. Investors still show some interest in retail properties, but the expectations for price increases are more sceptical. EDC Erhverv believes that price increases will be seen for storage, logistics and office properties due to record-low unemployment within those segments.
52% OF INVESTORS EXPECT THE PRICES OF RESIDENTIAL RENTAL PROPERTIES TO INCREASE
OF INVESTORS EXPECT THE PRICES OF INDUSTRIAL PROPERTIES TO INCREASE
OF INVESTORS EXPECT TO ALLOCATE MORE FUNDS TO PROPERTY INVESTMENTS
STILL SIGNIFICANT FUNDS FOR BRICKS AND MORTAR Based on the responses from the investors, it seems that we will see a large number of property investments next year. 47 per cent of the investors participating in the survey expect to increase their investments in real estate in 2019. This is slightly more than last year, and at the same time, the amount of investors who does not expect to invest in bricks and mortar at all has increased from nearly 22 per cent to 15 per cent.
Do you plan to allocate more/less funds for property investments in 2019?
15% 8% 30%
WE DO NOT EXPECT TO INVEST IN 2019
COPENHAGEN IS NO LONGER NUMBER ONE In what areas do you expect to invest, in 2019?
18% 14% CENTRAL JUTLAND
17% 10% SOUTH/WEST JUTLAND
15% 20% AARHUS
This year, the Copenhagen suburbs have overtaken Copenhagen and Frederiksberg as the investors’ favourite. The popularity of the suburbs has increased from 21 to 27 per cent, whereas interest in Copenhagen, including Frederiksberg, Tårnby and Dragør, remain almost unchanged with 21 percent against 22 per cent noted in our previous survey. Aarhus is similarly enjoying strong investor interest of 20 per cent, however, here, this is an increase of 5 per cent when compared with last year’s survey result. The survey also note an increased demand for North Zealand. Last year, 11 per cent intended to invest in the area whereas now, the figure is 16 per cent. Investor interest for the rest of the country remains stable compared to last year. Only a few fluctuations are seen in Jutland where investment interest in South and West Jutland has reduced from 17 to 10 per cent and in Central Jutland where investor interest has reduced from 18 to 14 per cent over the past twelve months.
21% 27% COPENHAGEN SUBURBS
12% 8% ABROAD
11% 10% 2018
SOUTH/WEST ZEALAND 15
OPTIMISM IN THE INVESTMENT MARKET
61% of those who want to invest in Copenhagen/Frederiksberg will allocate more funds to property investments
74% of those who invest in Central Jutland today also expect to invest in Central Jutland in 2019
60% of those who want to invest on Fuenen expect the price level of residential rental property to increase
81% of those who currently invest in Copenhagen/Frederiksberg also expect to invest in these areas in 2019
18% of those who want to invest in residential rental properties, expect that obtaining financing will be harder
39% of those who want to invest in the Copenhagen suburbs expect the prices of industrial properties to increase
57% OF THOSE WHO WANT TO INVEST IN RESIDENTIAL RENTAL PROPERTIES INTEND TO ALLOCATE MORE FUNDS TO PROPERTY INVESTMENTS
INCREASING INVESTMENT VOLUME THROUGHOUT THE COUNTRY Do you plan to allocate more/less funds for property investments? In what areas do you expect to invest, in 2019? More funds
58% 51% 61%
62% COPENHAGEN SUBURBS
38% 69% 44%
38% 64% AARHUS
HAVE PRICE LEVELS PEAKED? Residential rental properties are still an investor favourite and where most investors expect price increases. However, less investors than last year believe in increasing property prices next year. For the popular residential properties, three in four expected price increases during 2018. One year later, this figure has dropped to one in two who believe in price increases in 2019. However, many investors still expect increasing prices in a market where the rates of return in the large cities can probably not go down much further. For retail properties, a more stable price level is expected. Nearly one in five expect increasing prices next year – almost half of last year’s survey. For office and industrial buildings, just over 35 per cent expect increasing prices over the next 12 months – against 40 per cent a year ago. 17 per cent expect declining prices on industrial properties.
What property types are potential investments for you in 2019? (You are welcome to choose more than one)
RESIDENTIAL RENTAL PROPERTIES
What are your expectations for market price developments in 2019 for:
RESIDENTIAL RENTAL PROPERTIES
HARDER TO OBTAIN FINANCING
How do you see the possibilities of obtaining financing for property investments in 2019?
EASIER THAN TODAY
SAME LEVEL AS TODAY
The vast majority of investors â€“ 70 per cent â€“ expect more or less unchanged borrowing terms next year, whereas 20 per cent of the respondent investors predict that it will be harder to borrow finds for property investments. This is an increase from 15 per cent a year ago. Compared to last year, the respondent investors state that property financing will be harder to obtain. However, it should be emphasised that the majority expect unchanged conditions. With regard to interest levels, just over half of the investors expect an unchanged interest rate level, against seven in ten a year ago. Almost one in four predicted higher interest rates a year ago. Now almost twice as many expect interest rates to increase.
How do you expect the interest rate level to develop in 2019?
BUSINESSES GROW RAPIDLY
Business growth plans will characterize 2019. Almost a third of the respondents plan to relocate their business either in 2019 or within the next couple of years. Lack of space is stated by one in two respondents as the main reason for the plan to relocate. With the financial crisis firmly in the rear view, many businesses have increased their sales and hired more people. Expansion requires more space along with the economic upturn, there is reduced focus on the cost of occupation. Businesses that consider relocating mainly look towards the local area. In Copenhagen and Frederiksberg, just over one third expect to relocate within the next couple of years and nine in ten of these respondents intend to remain in the capital. Only one in ten search for premises outside Copenhagen. This trend is equally noted in other regions and one, EDC considers to be based on the availability of employees. Lack of space is not the only reason why businesses want to relocate. 14 per cent of the businesses are looking for more exclusive premises, whereas 30 per cent state that their current premises do not have the desired profile
for their business. The current upturn has resulted in a battle for customers and employees, where a companyâ€™s premises plays an important part of the businessesâ€™ public image. Office users are increasingly demanding modern and sustainable environments, whereas, retail users weigh location and profile higher. Storage, logistics and manufacturing businesses generally tend to find a highly visible location close to the motorway to be essential. With the upturn and desire for new and preferably more exclusive premises, the will to pay a higher rent has equally increased. 37 per cent are now willing to spend more money on premises in 2019, up from 26 per cent last year. While the cost of occupancy is becoming less of a priority in businessesâ€™ relocation decision making process, letting as opposed to owning their premises is once again proving an attractive option. This EDC expect is down to increased flexibility and improved growth possibilities. As a tenant, it is easier to increase (or reduce) the size of your premises to suit your business needs. Moreover, renting space may free up capital to use for operating the business and fund business growth whereas owner-occupiers tend to have large sums tied up in bricks.
29% OF BUSINESSES EXPECT TO RELOCATE WITHIN THE NEXT COUPLE OF YEARS
37% EXPECT TO INCREASE SPENDING ON COMMERCIAL PREMISES.
48% WANT TO RELOCATE BECAUSE THEY NEED MORE SPACE
NEED MORE SPACE Almost 30 per cent consider relocating, and the most common reason is lack of space, this being an issue for almost half of these respondents. At the same time, the desire to locate premises that match their business profile is high on the list of priorities, up from 25 per cent to 32 per cent since last year. The costs of premises have become less important. Despite many businesses wanting to relocate, finding cheaper accommodation is less of a priority. The respondents prioritizing cost have reduced from 16 to 13 percent over the past year. The survey also illustrates that businesses located in cities tend to be tenants as opposed to owner occupiers. Whereas owner-occupiers have the added task and increased risk inherent in disposing of their existing premises, tenants enjoy greater flexibility when needing to up or down size.
Do you plan to relocate?
YES, IN 2019
YES, WITHIN THE NEXT COUPLE OF YEARS
DUE TO CONTRACTUAL ISSUES
OUR CURRENT LOCATION DOES NOT HAVE THE RIGHT PROFILE FOR THE BUSINESS
DUE TO ENERGY COSTS/ENVIRONMENTAL ASPECTS
DUE TO TRAFFIC CONDITIONS
WE WANT TO FIND SOMETHING MORE EXCLUSIVE
WE WANT TO FIND SOMETHING CHEAPER
WE HAVE TOO MUCH SPACE
WE NEED MORE SPACE
Why do you want to move?
BUSINESSES STAY IN THE REGION Although almost 30 per cent of the businesses are considering relocating, they do not want too move to far. For example, most businesses on Fuenen want to stay on Fuenen, just as the majority of businesses in Jutland want to stay in Jutland. The Copenhagen area still experiences great interest in running a business. 30 per cent of the respondent businesses want to relocate to the capital region in 2019 or within the coming years. The second most popular destination for businesses is Central Jutland with 17 per cent. While the Copenhagen suburbs have become increasingly popular among investors, fewer businesses expect to move there compared to last year.
Where do you want to move? (You are welcome to choose more than one) NORTH JUTLAND ABROAD 5% 2%
ODENSE 5% SOUTH/WEST JUTLAND 10%
WEST/ SOUTH ZEALAND 4%
COPENHAGEN/ FREDERIKSBERG 30%
of the businesses located in Copenhagen/Frederiksberg, and that want to relocate, want to stay in the same area
of the businesses that want to relocate are industrial/manufacturing businesses
of the businesses that want to relocate from North Zealand want to move to the Copenhagen suburbs
of the businesses located in the Copenhagen suburbs want to relocate to Copenhagen/Frederiksberg
of the businesses located in Central Jutland and that want to relocate, want to stay inÂ the same area
BUSINESSES/COSTS OF PREMISES
MORE EXCLUSIVE AND EXPENSIVE PREMISES Almost 40 per cent expect to spend more money on premises. This reflects a widespread desire for growth and premises with a better signalling value for the business. As much as 30 per cent state that they want to relocate because their current premises do not have the desired profile for their business. 14 per cent are looking for more exclusive premises as well.
Do you expect to spend more/less money on commercial premises in future?
MORE MONEY TOTAL: 133
38% OF THE BUSINESSES THAT RENT THEIR PREMISES EXPECT TO SPEND MORE MONEY ON PREMISES
BUSINESSES/RENTING VS. OWNING
RENTING RATHER THAN OWNING We are seeing an increased focus on renting rather than owning. The survey shows that 43 per cent of the respondent businesses that own their premises today and plan to relocate would consider selling their premises and renting premises instead. It is mainly businesses located in the cities that want to rent, whereas outside city centres, businesses would generally rather own. The desire to rent is not only to save money. 38 per cent of the businesses renting their premises expect to spend more money on premises in 2019 against 35 per cent of the owner-occupiers.
Would you consider selling your premises in 2019 and rent premises instead?
NO YES TOTAL: 47
Would you consider buying your own premises in 2019?
NO YES TOTAL: 98
33% OF THE BUSINESSES THAT OWN AN OFFICE PROPERTY AND WANT TO RELOCATE WOULD LIKE TO SELL THEIR PROPERTY AND RENT PREMISES INSTEAD
DO YOU WANT TO STAY UP-TO-DATE WITH THE COMMERCIAL PROPERTY MARKET? Sign up for our news at edc.dk/erhverv/tilmeld
NORTH DENMARK REGION Frank Jensen – Partner Tel: +4558587572
CENTRAL DENMARK REGION Søren Leth Pedersen – Partner Tel: +4558587876
SOUTH JUTLAND Claus Fenger – Partner Tel: 58587404
COPENHAGEN AREA Jørgen Jørgensen – CEO Tel: +4533301025
FUENEN Morten Nielsen – Partner Tel: +4521543015
NORTH ZEALAND Stephen Wielje Berthelsen – Partner Tel: +4548269910
REGION ZEALAND John Borrisholt – Partner Tel: +4558587939
Market survey among more than 1.400 Danish investors and business.