January 2020
The Danish Property Federation’s Market Statistics – Consensus Forecast • The property business expects a total return on investment properties of 5.4 percent in 2019 – lower than in 2018 • Good expectations to office, especially the capital value • Historically low expectations to retail property • Copenhagen, Aarhus and Aalborg gain a little lost ground
The total return decreases In the last 19 years, the average return on properties has been 6.7 percent. Thereby, the total return in 2018 was right above average with 7.1 percent. In the next five years, the property business expects that total return decreases to 5.0 percent in average for the period of 2019-2023. This is a decrease of 0.1 percentage points compared to the expectations in the last quarter. From 2019, the business expects that the total return decreases from 5.4 in 2019, 5.2 in 2020, 5.0 in 2021 and thus below 5.0 percent in 2022-2023. In 2019, a majority of 69 percent of the participants expect that the total return is below 6 percent. If we look at the expectations for 2021, a total of 79 percent share this evaluation. 58 percent of the participants expect that the total return is decreasing from 2019 to 2021, and only 15 percent believe in an increasing total return in the same period.
The total return is expected to decrease to below 5 percent in 2022-2023
Table 1 Total return
Historic 2018
2019
2020
2021
2019-2023
7.1
5.4
5.2
5.0
5.0
Quarterly change
0.0
0.0
-0.2
-0.1
Annual change
0.3
0.1
New
New
Source: The Danish Property Federation’s market statistics. See remarks on page 5.
Figure 1. The expectations of the participants For 2019
13 % expect a total return below
Development in total return from 2019 to 2021
8% of 7 percent or above.
5 percent.
56 % expect a total return between 6
15 %
expect a total return
23 % expect a total return between 7 and 6 percent.
58 %
expect an increase in total return.
expect a decrease in total return.
27 % expect unchanged total return.
and 5 percent.
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Danish Property Federation’s Market Statistics – Consensus Forecast, January 2020
The expectations to the total return of a future five year period is historically low: 5.0 percent.
In 2021, half of the participants expect a total return of between 4.8 and 5.5 percent.
Uncertainty in relation to the overall economy and a decreasing direct return may be two of the explanations to the somewhat low expectations. Right now, the Danish economy is doing well, but there are decreasing expectations to the countries with which we are normally trading. The decreasing direct return may be due to the fact that the earnings on the properties have not been able to keep up with the larger demand for owning property. The latter is due to the low interests. Office is doing well There are positive expectations to office properties next year. The property business expect that capital value, lease percentage and market rent may increase. If we look back, office has given a total return of 5.8 percent in 2018. It is partly due to an increase in capital value for office of 1.8 percent, decreasing requirements to payment of interest of 18 basis points and increasing rent of 1.5 percent in 2018. Before the last quarter of 2019, the office rent has increased with 2.3 percent over three quarters. The reason that office is doing well overall is that there is high demand for office spaces. Office occupation has grown constantly for more than seven years which contributes to increasing rent. Occupied space has increased since 2014, however interrupted by a decrease in July and October 2019. Occupied space is also the factor with the lowest expectations. Finally, it may also be of importance to the requirements to payment of interest and the capital value that the expectations for residential and especially retail are not positive. It may cause investors to choose more office over residential and retail.
Office means a lot to the investment property market as nearly 40 percent of the values are in office properties.
Retail sees a historically poor survey for capital value and the participants also expect a lower occupied space and rent next year. In 2019, occupied space has decreased with 1.7 percentage points to 92.6 in October 2019, while the retail rent decreased slightly in 2019. However, it is a consolation that the retail turnover has increased in 2019, and if the digital readjustment of the retail sector is in control, there may be opportunities in the future. Large cities gain a little lost ground Faith in capital value has decreased in the last quarters in relation to Copenhagen, Aarhus and Aalborg. Compared to the last quarter, however, the three cities gain a little lost
”-27.9” is a historically poor survey for retail properties’ capital value (indicator values between -100 og 100) Capital value
Table 2
January 2020
Quarterly change
Occupied space
Annual change
January 2020
Quarterly change
Annual change
Market rent January 2020
Quarterly change
Annual change
Office
22.1
2.7
5.4
8.7
0.5
-6.8
14.4
-1.9
-7.0
Retail
-27.9
-3.4
-19.6
-26.0
2.6
-16.4
-27.9
0.7
-17.2
Industry
22.1
-3.4
-6.5
12.5
0.3
-1.8
12.5
-8.9
-8.9
Residential
1.0
6.1
5.7
-12.5
4.8
0.6
-7.7
5.6
-0.5
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 for 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 of unchanged conditions. An indicator of 22.1 may for example be obtained by 22.1 percent of the participants corresponding ”much higher” and the remaining corresponding ”unchanged”.
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Danish Property Federation’s Market Statistics – Consensus Forecast, January 2020
ground. Faith in capital value outside Copenhagen, Aarhus and Aalborg is thus put slightly on hold at the threshold of 2020. It may be slightly larger uncertainty of the overall economic development which drive this tendency. In times of uncertainty and decline, the investors will normally seek towards the larger cities. Faith in the capital value in Odense, the Triangle Area and the rest of the country is, however, significantly higher than two years ago.
After seven quarters in a row with decrease, the expectations to Aalborg increased slightly in this quarter.
The office rent is expected to increase more in Stockholm, Oslo and Helsinki than in Copenhagen. The market rent for office in Copenhagen is expected to have increased with 1.8 percent in 2019 according to a new survey from IPF (Investment Property Forum), European Consensus Forecast, November 2019. It should be possible as the office rent in Denmark has increased with 2.3 percent in the first three quarters of the year. But the market rent for office is expected to increase more in 2019 in the other Nordic capitals: Stockholm, Oslo and Helsinki. In 2019, Helsinki expects an increase in office rent of 2.8 percent, Stockholm 3.9 percent and Oslo 5.9 percent. The office rent in Copenhagen usually develops rather steadily. In 2021, the office rent in Copenhagen is expected to increase with 1.7 percent, which is higher than the expectations to both Helsinki (1.4 percent) and Stockholm (1.4 percent). Only Oslo still has higher expectations to the market rent development in 2021 with 1.9 percent.
Figure 2. 50 percent of the participants expect a total return in 2019 of 5.0-6.0 percent 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
Source: The Danish Property Federation’s market statistics. Total return of investment properties. From 2011 to 2018, 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. 2019 to 2021 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.
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Danish Property Federation’s Market Statistics – Consensus Forecast, January 2020
Figure 3. Largest faith in the capital value in Copenhagen and Aarhus Regional indicator
Anholt
Rømø
Source: The Danish Property Federation’s market statistics.
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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 green, at least 70% of the respondents have agreed that this area is doing better than the others.
Danish Property Federation’s Market Statistics – Consensus Forecast, January 2020
About the survey These are the expectations for January 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. 52 market players have participated in this survey. 52 percent of the participants are property owners. In addition, 8 percent are property administrators, 19 percent are commercial brokers, 8 percent are banks/mortgage providers and 13 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 Phone +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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