July 2020
The Danish Property Federation’s Market Statistics – Consensus Forecast • Historically low expectations to properties. • The business expects decreasing capital value, occupied space and market rent. • In 2021, the growth in market rent is expected to be positive again. • Industrial properties are expected to survive the crisis.
Corona crisis The expectations to the total yield has never been lower in this survey, which started in 2011. A total yield of 3.5 percent shall be part of covering the risk, interest expenses and inflation and as the 3.5 percent is only an average, it can be expected that about a third of the investment properties may have negative total yields in 2020. The many negative total yields are especially expected to affect retail properties. Fortunately, property companies are generally well prepared for the Corona crisis. In 2019, Denmark’s Central Bank concluded that the granting of credit is tighter than it was right before the financial crisis. Therefore, property companies can survive some time, although the total yield minus risk, interest expenses and inflation are negative. The uncertainty of the total yield in 2020 is also historically large and has not been bigger since 2011. Therefore, there is a considerable uncertainty in the business about how 2020 is going to develop. 50 percent of the participants expect that the total yield will be between three and five percent, but there are also some whose expectations are both higher and lower. Read two of the participants’ considerations in connection with answering the survey: ”My expectation at the time was that there will be a small correction in property values together with a reasonable operation profit in 2020. Thereby 0% in total yield. Regarding 2021 and 2022, I have a general expectation that we shall see a standard total yield of 7%, of which the majority is operational profit and a smaller part is inflation-driven value increment. Therefore, I do not expect a significant value increment in the form of yield compression or large decrease as a consequence of yield expansion.” Anonymous participant
The total yield in 2020 cannot cover risk, interest expenses and inflation. A total yield of 3.5 percent means negative total yields for around a third of the properties.
Expectations of a deficit After risk, interest expenses and inflation, there is a deficit of 3-4 percent with a total yield of 3.5 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
Expectations to both 2020 and 2021 have never been lower Table 1
2020
2021
2022
2020-2024
3,5
4,7
5,1
4,9
Quarterly change
-1.9
-0.5
0.1
-0.3
Annual change
-1.7
-0.4
New
New
Total yield
Historic 2019 7,8
Source: The Danish Property Federation’s market statistics. See remarks on page 5.
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Danish Property Federation’s Market Statistics – Consensus Forecast, July 2020
”First of all, there is large uncertainty about the total yield of the year. If we have a rather fast rebound the autumn of 2020 will become acceptable. Retail and hotel are hit hard, office and residential unchanged, while there is still positive expectations to the market’s industrial properties.” Partner, Per Andersen, PwC Corona affects the property expectations Compared to last quarter, the expectations for properties have moved in a considerably negative direction for business properties, while residential initially looks like being let off lightly. The expectations for property rental had already decreased in the last three years and with an unchanged impact of the corona crisis, residential ends with a neutral to slightly negative expectation for capital value, occupied space and market rent.
There have never been more negative indicator values for capital value, occupied space and market rent.
Retail sees the most negative expectations. There has never been a lower negative indicator than the “-52,3”, which is the indicator value for retail. Furthermore, retail also has the most negative expectations for occupied space and market rent. Before the corona crisis, there was optimism regarding office properties, but that has disappeared now. Office has seen the most negative quarterly expectations. Industry has also seen negative quarterly changes, but as the only sector, it maintains positive numbers.
Figure 1. The expectations of the participants For 2020
86 %
Development in total return from 2020 to 2022
9%
5%
expect at total return
expect a total
expect an increase
of 6 percent or above.
return of 5 percent or
81 %
5%
below.
in total return.
14 %
expect a decline in
expect a total return of between
expect unchanged
total return.
total return.
6 and 5 percent.
Most negative expectations for retail (indicator values between -100 og 100) Table 2
Capital value
Occupied space
Market rent
July 2020
Quarterly change
Annual change
July 2020
Quarterly change
Annual change
July 2020
Quarterly change
Annual change
Office
-12.8
-40.6
-33.2
-20.9
-29.8
-41.4
-11.6
-30.5
-30.9
Retail
-52.3
-26.8
-28.5
-31.4
-5.8
-7.5
-44.2
-18.6
-18.0
Industry
3.5
-22.1
-17.0
3.5
-11.0
-15.8
2.3
-14.3
-14.7
Residential
-2.3
4.3
7.9
-2.3
4.3
3.4
-7.0
4.1
-0.2
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 -12.8 may for example be obtained by 12.8 percent of the participants corresponding ”much lower” and the remaining corresponding ”unchanged”.
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Danish Property Federation’s Market Statistics – Consensus Forecast, July 2020
Largest faith in Copenhagen and Aarhus There is still most faith in the best development in capital value in Copenhagen and Aarhus. The corona crisis has almost not changed that. While there are large displacements in the expectations for the total yield and the development in capital value, occupied space and market rent, the geographical distribution is almost unchanged. After Copenhagen and Aarhus comes the Triangle Area, Odense, Aalborg and then the rest of the country. The market rent may increase again in 2021 The market rent for office in Europe in 2020 is expected to decrease with 4.4 percent on average according to a new survey from IPF (Investment Property Forum), European Consensus Forecast, May 2020. In six months, the expectation to 2020 has decreased with 6.2 percentage points, mainly due to the corona crisis. By far the most of the 27 European markets are expected to become positive again in 2021 with 1.8 percent on average. The largest decreases in 2020 are expected in Paris (7.9 percent), Milan (6.3 percent) and London (5.9 percent), while the market rent in Copenhagen is expected to decrease with 3.5 percent. Copenhagen is also expected to do better than the average in 2021, when the market rent is expected to increase with 2.8 percent.
Figure 2. The total yield is expected to be halved 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 yield of investment properties. From 2011 to 2019, the total yield 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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Danish Property Federation’s Market Statistics – Consensus Forecast, July 2020
Figure 3. Capital values are expected to develop the most in Copenhagen and Aarhus. Regional indicator Low regional growth
Medium regional growth Anholt
High 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 percent of the respondents have agreed that this area is doing better than the others.
Danish Property Federation’s Market Statistics – Consensus Forecast, July 2020
About the survey These are the expectations for July 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.
43 market players have participated in this survey. 51 percent of the participants are property owners. In addition, 12 percent property administrators, 16 percent are commercial brokers, 9 percent banks/mortgage providers and 12 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, STAD Erhverv, 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 Table indicates the average total yield based on the replies for the years 2020-2024. The total yield is in percent and measures the return investment properties in relation to the size of the investment in a given period. The total yield includes two types of yield: 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 yield 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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