THE DANISH PROPERTY FEDERATION MARKET STATISTICS – CONSENSUS FORECAST COVERING THE PROFESSIONAL INVESTMENT PROPERTY MARKET IN DENMARK October 2016
Decreasing expectations compared to last quarter
Results • The expected total return in 2016 diminished by 0.2 percentage points. • The past five quarters, apart from this quarter, the expected total return in 2016 has increased. • Prosperity is retained regarding expected increasing capital value, occupied space and market rent. • … and the development applies both to office, retail, industry and residential.
Source: The Danish Property Federation Market Statistics. The average total return based on the replies is presented in the table. Total return is in percentage and shows return on investment property compared to the size of the investment in a given period. Total return consists of two types of returns: Direct return and return on value. Direct return is current net operating profit of the period divided by investments size at the beginning of the period. Return on value is the value added in the given period divided by the size of investment at beginning of period.
50 percent expects a total return of between 5.5 and 6.25 percent in 2016
Have we reached the peak? It would be an exaggeration to conclude that the investment property market has reached the top based on this consensus forecast alone. The expected total return has increased the past five quarters. However, this quarter expectations are lowered. In 2016, a total return of 5.9 percent is expected. This is still a solid return even though it includes risk, possible funding and inflation. Further, expectations have decreased by 0.2 percentage points compared to last quarter, but increased by 0.3 percentage points compared to last year. In 2017 and 2018 the total return is expected to be 5.8 percent, which is a decrease of 0.1 percentage points compared to last quarter. The expected development of total return in the years to come still does not have consensus. Behind the figures, 30 percent of
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
Source: IPD Denmark Annual Property Index and the Danish Property Federation Market Statistics. Total return for investment properties. 2000 to 2015 shows the total return of IPD Denmark Annual Property Index. 2016 to 2018 shows the average of the replies from the Consensus Forecast. 50 percent of the replies lie within the blue lines.
Still only positive indicator values (indicator values between -100 og 100)
Capital Value October 2016
Source: The Danish Property Federation Market Statistics. The participants have answered: ‘very low’, ‘lower’, ‘unchanged’, ‘higher’, ‘much higher’. The answers give a value in order to obtain an indicator between -100 and 100. An indicator of 100 is identical to everyone having answered ‘much higher’, and -100 is identical to everyone having answered ‘very low’. An indicator of 0 indicates unchanged expectations. For example, an indicator of 28.7 is feasible by 28.7 percent of the participants answering ‘much higher’ and the remaining answers are ‘unchanged’.
Published by the Danish Property Federation
THE DANISH PROPERTY FEDERATION MARKET STATISTICS – CONSENSUS FORECAST COVERING THE PROFESSIONAL INVESTMENT PROPERTY MARKET IN DENMARK
the participants believe we have reached the peak leading the total return to decrease again. 36 percent of the participants believe in a future increase in total return, while 34 percent expect a stable total return. Most owners of investment property and banks and mortgage providers expect a decrease in total return, while commercial brokers and other actors expect total return to increase in the years to come.
Still highest expectations for office Expectations for both capital value, occupied space and market rent in the four sectors office, retail, industry and residential are positive in general. However, the expectations are a little less positive compared to last quarter and compared to last year. Office still has the highest expectations. The occupied space rate for office still has potential as the general economic vacancy rate of 12.7 percent must be assumed to decrease over time. Also, expectations to occupied space for residential leases are high, which is why the participants are expecting relatively more from capital value and market rent. Covering all four sectors, the consensus forecast concludes the highest expectations to development in capital value increase and minor increases for occupied space and market rent.
Brexit Prosperity remains regarding investment properties in Denmark. However, since the latest consensus forecast the investors have had to relate to the British farewell to the EU (Brexit). It has been pointed out that the Brexit could lead to increasing prices on investment properties in Denmark as some investors would prefer Denmark to England. Another possible effect could be higher risk and lower economic growth leading to a decrease in capital value. The lower expectations compared to last quarter could also indicate that the professional property market regards higher risk and lower expected economic growth to have the greatest impact.
Highest expectations for increased capital value in the financial centres Regional indicator Low regional growth Medium regional growth
High regional growth
No change in expectations geographically Capital value is almost unchanged compared to last quarter when considering expectations across the country. The ranking remains: Copenhagen, Aarhus, Aalborg, the Triangle Area, Odense and the rest of the country. The relocation of public jobs has not had any noticeable effect on this. Source: The Danish Property Federation Market Statistics.
About the forecast
The map shows which regions in Denmark that have the highest capital growth compared to other regions. We have asked about the Triangle Region in Jutland (Fredericia, Kolding, and Vejle), Copenhagen, Odense, Aalborg, Aarhus, and all other regions as the rest of the country. From the replies, we have created an indicator. If the area is the lightest colour, at least 70 percent of the participants have agreed that this region is doing best compared to other regions.
These are the expectations for October 2016 from the Danish Property Federation Consensus Forecast. The objective is to create a more transparent property market. The Consensus Forecast is published on a quarterly basis and is very dependent on the participating companies’ good will to report data every quarter. Without these companies, the Consensus Forecast would never have been possible. 47 market players participated in this forecast. 45 percent of the participants are property owners. Furthermore 21 percent are commercial brokers, 11 percent are banks/mortgage providers, and 23 percent are other players. Please find below the names of some of the companies, which have contributed: Aareal Bank, Aberdeen Asset Management, ATP Ejendomme, Bertélco Ejendomme A/S, BBN Consult, BRF Kredit, Carlsberg Byen, CBRE, Chr. Hjorth Erhvervsejendomme, Colliers international Danmark, Cura Management, DADES, Danbolig erhverv Johnny Hallas, DTZ, EDC Erhverv Poul Erik Bech, EY, Focus Asset Management, Jeudan, Karberghus, Lindhardt Erhverv, Lokalebasen.dk A/S, NCC Construction Danmark A/S, Nordea, Nordea Ejendomme, Nykredit, PensionDanmark, PFA Ejendomme, PKA, PostNord Real Estate, Prodomus, PwC, Realkredit Danmark, RICS Nordic, Sadolin & Albæk, Sampension, SEB Pension, Sinding Gruppen, Situs, Spar Nord Bank, Taurus Ejendomsadministration, Thylander Gruppen, TLK, Wiborg & Partnere.
Published Udgivet byafthe Ejendomsforeningen Danish Property Federation Danmark