The Danish Property Federation’s Market Statistics – Consensus Forecast (April 2020)

April 2020

The Danish Property Federation’s Market Statistics – Consensus Forecast • The property sector expects lower return: 5.1 percent in 2020-2024 • In 2019, properties returned a much lower return than shares - but more than bonds.

• Decreasing capital value, occupied space and market rent.

• More faith in Copenhagen again

The total return on properties is expected to decrease Things are developing quickly at the moment, but already in February, the property business expected a lower total return in the period 2020-2024 than in the last five-year period. Following the Corona events in March 2020, the expectations to the total return may decrease even more. In 2020-2024, the total return is expected to be 5.1 percent.

In 2019, properties in Denmark gave a total return of 7.8 percent which was primarily due to a value increment of 4.2 percent. In the last 20 years, properties have given a total return of 7.4 percent on average. The stable factor in the last 20 years has been the properties’ continuous earnings on the properties, which is called the direct return.

It primarily consists of rental minus operational costs of the properties. On average, the

It was Christopher Elgaard Jensen from Deas, who in 2019 got closest to the total return of 7.8 percent in 2019. Read a small interview on page 5 in this web report.

In 2019, properties gave a total return of 7.8 percent

Table 1

Historic 2019

2020

2021

2022

2020-2024

5.3

5.2

5.1

5.1

Quarterly change

0.1

0.2

Ny

Ny

Annual change

0.2

0.1

Ny

Ny

Total return

7.8

Source: The Danish Property Federation Market Statistics.

See remarks on page 4.

Figure 1. The expectations of the participants For 2020

16 % expect a total return below 5 percent.

53 % expect a total return between 6

Development in total return from 2019 to 2021

7%

18 %

expect a total return of 7 percent or above.

24 % expect a total return between 7 and 6 percent.

38 %

expect an increase in total return.

expect a decrease in total return.

44 % expect unchanged total return.

and 5 percent.

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Danish Property Federation Market Statistics – Consensus Forecast, April 2020

direct return has been 4.2 percent but in 2019, the direct return has decreased to 3.6 percent. The decrease in caused by the fact that the properties have increased in value - primarily due to decreasing interest rates - while the earnings have not been able to follow the value increment. On average, the value increment over the last 20 years has been 3.1 percent, but the value increment fluctuates considerably more than the direct return.

In 2019, shares gave a total return of 27.4 percent.

In 2019, shares gave a total return of 27.4 percent which is almost 20 percentage points more than properties. In return, bonds gave a total return of 1.5 percent in 2019.

The second worst surveyed value for market rent for residential in the last nine years.

Progress for business and decline for residential Compared to last quarter, the expectations to business increased a little. Thereby, there are positive expectations for capital value, occupied space and market rent for office and industry, while more than half of the participants are answering “lower” or “much lower” when asked about the expectations to the capital value, occupied space and market rent for next year.

Regarding residential, the expectations to capital value and market rent are slightly more negative than last quarter. A negative capital value presumably primarily applies to older tenanted property where a new political intervention is going to affect the property prices negatively. Compared to last quarter, the expectations to occupied space is more positive, but it is still expected to decrease.

Best survey in Copenhagen for three years.

Progress for Aarhus, Triangle Area and Copenhagen The property business expects that the capital value develops most positively in Copenhagen yet again. Since 2015, the expectations to Copenhagen were decreasing, but now there is more faith in Copenhagen again. There is also small increases for Aarhus and the Triangle Area, while the expectations to Aalborg and Odense are decreasing.

Expectations to decreasing capital value, occupied space and market rent for residential (indicator values between -100 and 100) Table 2

April 2020

Capital value

Occupied space

Quarterlychange

Annual change

Quarterlychange

April 2020

Annual change

Market rent April 2020

Quarterlychange

Annual change

Office

27.8

5.7

13.6

8.9

0.2

-4.2

18.9

4.5

5.8

Retail

-25.6

2.3

0.5

-25.6

0.4

-0.6

-25.6

2.3

-3.8

Industry

25.6

3.4

8.2

14.4

1.9

2.5

16.7

4.2

-0.7

Residential

-6.7

-7.6

6.4

-6.7

5.8

-1.2

-11.1

-3.4

3.0

Source: The Danish Property Federation’s Market Statistics.

The participants have answered: ”Much lower”, ”lower”, ”unchanged”, ”higher” and ”much higher” on the question: ”What are your expectations to the development of [sector] buildings with prime location in a year compared to today?” The answers are given a value in order to achieve an indicator between -100 and 100. An indicator of 100 means that everybody has answered “much higher”, and -100 means that everybody has answered “much lower”. Indicator zero states expectations to unchanged conditions. An indicator of 27.8 may for example be obtained by 27.8 percent of the participants corresponding ”much higher” and the remaining corresponding ”unchanged”.

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Danish Property Federation Market Statistics – Consensus Forecast, April 2020

Figure 2. 50 percent of the participants expect a total return in 2020 of between 5.0 and 6.0 percent 20 % 18 % 16 % 14 % 12 % 10 % 8% 6% 4% 2% 0 % 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Source: The Danish Property Federation’s Market Statistics.

Total return of investment properties. From 2011 to 2019, the total return from the Danish Property Federation’s market statistics is shown, while 2000 to 2010 is own calculations based on data from the IPD Danish Property Index. 2020 to 2022 shows the average of the answers in the Danish Property Federation’s market statistics - expectations. 50 percent of the answers are within the blue lines.

Figure 3. The capital values are expected to have the most positive development in Copenhagen Regional indicator

Anholt

The map shows the areas in Denmark where the capital value of investment properties are expected to increase the most compared to the other areas.

We have asked about the Triangle area, Copenhagen, Aarhus, Aalborg, Odense and the rest of Denmark. The answers have formed an indicator.

If an area is light blue, at least 70% of the respondents have agreed that this area is doing better than the others.

Rømø

Source: The Danish Property Federation’s Market Statistics.

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Danish Property Federation Market Statistics – Consensus Forecast, April 2020

About the survey These are the expectations for April 2020 from the Danish Property Federation’s market statistics. The aim is to create information for a more transparent property market.

The survey is published every quarter and is completely and utterly dependent on the participating companies being willing to report data every quarter. Without these companies, the survey would never become a reality.

45 market players have participated in this survey. 53 percent of the participants are property owners. In addition, 9 percent are property administrators, 16 percent are commercial brokers, 7 percent are banks/mortgage providers and 16 percent are other players.

The following companies have contributed Aberdeen Asset Management, Agat ejendomme, ATP Ejendomme, BBN Consult, Bertélco Ejendomme A/S, Carlsberg Byen, CBRE, Chr. Hjorth Erhvervsejendomme, Colliers, Copenhagen Capital, Cura Management, DADES, Danbolig erhverv Johnny Hallas, Danica Ejendomme, DEAS, EDC Erhverv Poul Erik Bech, EK-Ejendomsadministration A/S, EY, Fokus Asset Management, Heimdal Nordic, Hosta Ejendomme, Industriens Pension, Jeudan, Jyske Bank, Karberghus, KFI Erhvervsdrivende Fond, KLP ejendomme, Lintrup & Norgart, Lokalebasen.dk A/S, Lundsgaard Erhverv, Lægernes Pensionskasse, M7 Real Estate, M. Goldschmidt Ejendomme, Minova, NCC Construction Danmark A/S, Newsec Advisory, Newsec Property Asset Management Denmark, Niam, Nordea, Nordicals, Nykredit, P+, Patrizia, PBU – Pædagogernes Pension, Pensam, PensionDanmark, PFA Ejendomme, PKA, Probus Ejendom og Investering, Prodomus, PwC, Realdania, Realkredit Danmark, Sampension, Sinding Gruppen, Spar Nord Bank, Taurus Ejendomsadministration, Thor Stevnss Real Estate, Thylander Gruppen, TLK, Topdanmark Ejendom, Valdal Advokatfirma, Wiborg & Partnere, Øens Advokatfirma og Ejendomsadministration.

Further information If you wish to know more about this publication please contact Director in the Danish Property Federation

Morten Marott Larsen mml@ejd.dk ÅPhone +45 28 45 56 51

Remarks for table 1 The table indicates the average total return based on the replies for the years 2020-2024. The total return is in percent and measures the return investment properties in relation to the size of the investment in a given period. The total return includes two types of return: Direct return return on value. The direct return is the period’s ongoing net operating results divided by the investment size in the beginning of the period. Return on value is the value increment in the given period divided by the size of the investment at the beginning of the period. The total return is before any financial costs and inflation. The historic total return in 2019 may change slightly in the future when new data is added to the market statistics.

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Danish Property Federation Market Statistics – Consensus Forecast, April 2020

Interview with Head of Investment Management, Christopher Elgaard Jensen, from DEAS Asset Management How did you succeed in making such precise expectations for 2019? ”In DEAS Asset Management, we are a team of experts who follow the property market very closely, who have insight into the market value drivers and who acquaint themselves with methodology and accounting for the different statistics applying to market return. We do that to ensure that we can deliver outstanding counselling to our clients. It is our clear opinion that it is the team’s thorough and analytical approach to property investments that enables us to estimate the expectations to return with a significant degree of precision.”

What are your expectations to the total return in 2020? ”The corona virus is a bit of a joker, but assuming that it does not end up causing a considerable recession in the global economy, we have positive expectations to the return in 2020, as we currently expect that the return will be marginally over the 2019 level. A qualified guess could therefore be a total return of approx. 8.0 percent. This is our estimate based on a long number of parameters but the most exiting is probably that we see an increasing investor demand from especially Asian investors who can actually utilise the interst rate to take out swap deals with a negative interest rate and thereby lift their rate of return on their equity by hedging their currency risk. We expect this to put pressure on especially core property and thus make a positive impact via valuation adjustment.”

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