Investment

Still considerable investment appetite despite coronavirus

Residential property investments still the most popular

49% expect to invest more in real property than last year, while just under 30% intend to invest about the same, and 24% will invest less than in 2020. Overall, the figures reflect an investment appetite on a par with last year. In other words, the economic downturn in the wake of the coronavirus crisis has overall not put a brake on investors’ appetite for bricks, even though the COVID-19 virus is impacting property valuations of, in particular, retail premises.

About one in four investors focuses on the core or core+ segment, i.e. properties that are more or less fully let and generate a stable return from day one. However, nearly two out of three investors prefer the value-add segment or properties with a certain development potential, for example in the form of vacancies or a potential for conversions or improvements. Finally, a little more than one in ten is looking for opportunistic investments, which comprise more extensive property development.

As in previous years, residential rental properties remain by far most popular property type, in which eight out of ten would like to invest. This is followed by mixed properties – with every third respondent expressing an interest – while one in six investors has their sights on warehouse/production properties, which have for some time been characterised by very low vacancy rates.

In our survey, investors can tick more than one type of preferred property. This means that just under 15% will invest in office premises, while only one in ten is interested in shop premises. The reason for the low figures may be twofold: firstly that retail premises are currently marked by historically high vacancy rates, and secondly that the coronavirus crisis has been costly for many branches of the retail trade, for example eateries, which had otherwise seen high growth in recent years.

More investors expect higher prices

In the 2020 survey, fewer investors believed in increasing property prices, but this year the picture has changed for three of the four property segments: For offices, residential properties and warehouse/production properties, more respondents expect higher prices, and, correspondingly, fewer believe in lower prices for the retail segment.

For residential rental properties, the picture is the opposite: Here, fewer respondents expect rising prices – 34% against 42% last year. There are two possible explanations: firstly the amendments to the Housing Regulation Act, which limit opportunities for returns on investments in modernising older housing stock, and, secondly, the very high demand for residential properties in the period up to the intervention with resulting price increases.

When it comes to vacancy, every third respondent expects longer vacancy periods in 2021, while two in three do not expect any increase in vacant square metres.

Intervention dampens interest in older housing stock

In July 2020, the amended section 5(2) of the Danish Housing Regulation Act entered into force, making the new and highly controversial interventions against so-called shortterm property speculators a reality. This has made it more difficult to refurbish dwellings in newly acquired rental properties built before 1992. Overall, as mentioned earlier, investors still have a strong interest in residential properties, but we have also asked how the intervention affects investors who have bought older residential properties in the past. Roughly speaking, one half will continue to buy older residential properties, even though the intervention has reduced the return on these investments.

The other half of investors have instead adjusted their strategy: 42% have become more reluctant to buy older residential properties, while 8% have completely dropped the older properties and will only invest in newer residential properties where rentals can still be set freely.

Steady interest rates – perhaps harder to borrow

A very large majority expect more or less unchanged interest rates next year – this is predicted by 80% against 63% in 2020 and 56% two years ago. The rest of the respondents expect either lower or higher interest rates (10% and just under 11%, respectively). Last year, one in four expected lower interest rates, while 11% predicted higher interest rates.

Although interest rates are expected by most respondents to remain very low, it may become harder to borrow money for bricks. This is estimated by nearly 37% – an increase from 30% in 2020 and 20% in 2019. Just 4% predict that it will be easier to borrow funds for property investments – down from 8% in the previous two years. However, a large majority of six out of ten believe that borrowing facilities will remain largely unchanged.

If some investors find it harder to borrow money, the parties involved will probably have to work harder to conclude deals, and new creative sources of financing may gain ground. For example, seller financing may become more popular again, just as mortgages can make a certain comeback. In addition, small-scale crowdfunding has gained a foothold in the real property industry.