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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