April 2021
The Danish Property Federation’s Market Statistics – Consensus Forecast • Decreasing total return • Record market rent in industrial properties. • Retail rent has decreased the last seven years • Uncertainty about capital values in 2023
The expectations for business rent in 2020 were met In most of the later quarters, the expectations to market rent have been slightly increasing for office and industry, while there have been expectation about a decrease in market rent for retail. But how did it actually turn out? According to the Danish Property Federation’s market statistics, the market rent in 2020 has increased with 3.0 percent for office and 1.8 percent for industrial, while the retail rent has decreased with 0.5 percent. Thereby, the expectations for 2020 were met. When looking at the development over the last seven years, office has increased an average of 1.9 percent per year, industrial has been an even 0.0 percent per year, while retail has decreased with averagely 0.3 percent per year over the last seven years. In the same period, the inflation has increased with 0.6 percent per year, so only office has been able to keep up with the inflation. Decreasing payment for the property risk The total return is expected to be 5.4 percent in 2021, which is an improvement of 0.4 percentage points compared to the expectations last quarter and 0.2 percentage points compared to last year. 5.4 percent in total return must cover the property’s interest expenses, inflation and risk. The total returns are expected to decrease to 4.6 percent towards 2023.
The retail rent has decreased with 0.3 percent in average per year in the last seven years.
Stable risk but decreasing return.
Risk belongs with return and investment There has always been risk when investing in property and right now, the requirements for payment of interest are still decreasing as there is still a lot of money around, looking for alternatives to bonds due to the low interest rate. This means that the property values are still increasing, but it also means that the continuous direct return on properties are decreasing in the future. The risk on properties does not and in the long run, it may cause challenges to more and more
In the period from 2021-2025, we expect an annual total return of 5.1 percent Table 1 Total return
Historic 2019
2020
2021
2022
2020-2024
6*
5.4
5.2
4.6
5.1
Quarterly change
0.4
0.2
New
New
Annual change
0.2
0.3
New
New
Source: The Danish Property Federation’s Market Statistics. See remarks on page 5..
1