January 2021
The Danish Property Federation’s Market Statistics – Consensus Forecast • Expectations of a deficit during the Corona crisis • Retail properties are looking at lower value, rental and lease • Worse expectations hit Aalborg with the extraordinary mink lock down • Despite the Corona crisis, the market rent may increase for office, industry and residential
The Corona crisis affects the property business Although not everybody notices, the current corona crisis is destroying our economy and welfare. In the first three quarters of the year, the GNP has decreased with 4.1 percent compared to the same period last year. In the third quarter, there are improvements compared to the beginning of the year, but the growth is aided by artificial support packages and a, so far, smaller lock down than in the Spring. Right now, the biggest concern is how we are affected in the long run. Will a vaccine allow us to return to normal or will we have to live with limitations in our lives and economy in the future? The property business is expecting a deficit of 2.5 percent, which corresponds to a loss of between DKK 30-40bn. The expected deficit is after interest expenses, inflation and risk. The expected total return (before interest expenses, inflation and risk) is 4.7 percent in 2020. 67 percent of the property business expect a total return of below 5 percent. In the last three quarters, the expectations to the period 20202024 has been just below 5.0 percent which is historically low for a five-year period. Retail properties hit the bottom Retail properties are still protecting the tenants with extensions and arrears which has only caused slightly decreasing occupied space. The historically large uncertainty for retail properties also means that those, who have opportunity to withstand the crisis in the best possible way, will have good opportunities after the corona crisis. This applies to e.g. shops who have been good at developing the right digital platforms which supplement the physical shop.
In 2021, the total return is expected to increase with a modest 0.2 percentage points.
Expectations of a deficit After risk, interest expenses and inflation, there is a deficit of almost 2.5 percent with a total return of 4.7 percent. Currently, there is an efficient interest rate of 1.6 percent, and with an average mortgaging percentage of 55-60 percent, there will be interest expenses of 1.0 percent on average per property. The last couple of years, the inflation has been 0.5 and a normal average risk premium on investment properties is 5-6 percentage points.
A lower total return is expected in 2020 compared to 2019 Table 1
2020
2021
2022
2020-2024
4.7
4.9
5.0
5.0
Quarterly change
0.4
0.3
0.1
0.1
Annual change
-0.5
0.0
New
New
Total return
Historic 2019 7.8
Source: The Danish Property Federation’s Market Statistics. See remarks on page 5..
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The Danish Property Federation’s Market Statistics - Consensus Forecast, January 2021
/ Office is gaining. /
Office, industry and residential are at reasonable levels considering that we are in the middle of a crisis. Compared to last quarter, office has increased slightly in both capital value, occupied space and market rent, but it is still industry which has slightly better overall expectations. Industry has the worst expectations in the period 2011-2016. In October 2020, the occupied space increased for the first time in 2019 and 2020 which coincides with the expected occupied space for residential approaching the positive. The last time, it was in the positive was October 2018. Aalborg is temporarily down After North Denmark closed down on 5 November 2020 for a period due to a new corona variant in mink, Aalborg has received the worst geographical expectation to capital value measured in this survey (since 2014). On the contrary, Aarhus, Odense and the rest of the country have progressed. It is difficult not to link the property business’ expectations together with corona and mink, which have had a lot of focus in the media all over the country. In the next survey, it must be ascertained whether it is a temporary drop or if the business will maintain the historically poor expectations to Aalborg. In 2021, the market rent for office may increase The expectation to the market rent for office is expected by this survey to be slightly in-
Figure 1. The participants’ expectations To 2020
67 %
expect a total yield of 5 percent or below.
Development in total yield from 2020 to 2022
18 %
49 %
expect a total yield of 7 percent or more.
expect an increase in total yield.
20 %
14 %
expect a total yield between 6 and 5 percent.
31 %
expect a decrease in total yield.
expect an unchanged total yield.
The expectations to the market rent for retail is historically low (The indicator values between -100 and 100) Capital value
Table 2
Jan. 2021
Quarterly change
Occupied space Annual change
Jan. 2021
Quarterly change
Market rent Annual change
Jan. 2021
Quarterly change
Annual change
Office
16.0
18.1
-6.1
-4.0
13.7
-12.7
3.0
3.0
-11.4
Retail
-40.0
4.8
-12.1
-37.0
0.5
-11.0
-46.0
-0.2
-18.1
Industry
12.0
1.6
-10.1
10.0
3.8
-2.5
9.0
2.8
-3.5
Residential
16.0
11.8
15.0
-1.0
0.0
11.5
5.0
8.1
12.7
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 16.0 may for example be obtained by 16.0 percent of the participants corresponding ”much higher” and the remaining corresponding ”unchanged”.
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The Danish Property Federation’s Market Statistics - Consensus Forecast, January 2021
creasing next year. The reason is that 22 percent expect an increase, 16 percent expect a decrease while the remaining 62 percent are expecting an unchanged market rent for office. In new survey from Investment Property Forum (IPF), European Consensus Forecast, November 2020, Copenhagen is among only six European locations (Berlin, Frankfurt. Hamburg, Munich, Moscow and Copenhagen) out of a total of 29 locations in the survey, where increases in market rent is expected for office in 2021. In 2020, the market rent is expected to decrease the most in Moscow with 7.5 percent, while Hamburg is expected to have an increase of 0.6 percent. Overall, an annual average decrease of 0.3 percent is expected in 2020-2022 for the European office market, while an annual average increase of 0.5 percent is expected in 2020-2024.
50 percent of the participants expect a total return of between 4.0 and 5.5 percent in 2020 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.
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The Danish Property Federation’s Market Statistics - Consensus Forecast, January 2021
Figure 3. Aalborg is in decline regarding expectations to capital value Regional indicator Least regional growth
Medium regional growth Anholt
Largest regional growth
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 blue, at least 70% of the respondents have agreed that this area is doing better than the others.
The Danish Property Federation’s Market Statistics - Consensus Forecast, January 2021
About the survey These are the expectations for January 2021 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.
50 market players have participated in this survey. 48 percent of the participants are property owners. In addition, 12 percent are property administrators, 20 percent are commercial brokers, 6 percent are banks/mortgage providers and 14 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, Elf Development, EY, Fokus Asset Management, Heimdal Nordic, Heimstaden, Hosta Ejendomme, Jeudan, Jyske Bank, Karberghus, Keystone, 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, Qvortrup Administration, Realdania, Realkredit Danmark, Sampension, Sinding Gruppen, STAD Erhverv, Taurus Ejendomsadministration, Thor Stevnss Real Estate, Thylander Gruppen, TLK, Topdanmark Ejendom, 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 and 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 yield may change slightly in the future when new data is added to the market statistics.
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