The Danish Property Federation’s Market Statistics – Consensus Forecast
• The expectation to the total return in 2022 is a record low
• Negative measurement for the value of office property
• Aalborg advances in the expectations
• The total return in 2021 was 8.7 percent.
The expectations for total return are still decreasing
The expectations to the total return still decreases after the historical decrease last quarter. However, the expectations have decreased less than in the last quarter. Yet, there is an expected total return of 4.5 percent in 2022, which is the lowest that has been measured in the last three years, where 11 surveys have been asking about the expectations to 2022. The decrease in expectations to 2022 is at 0.3 percentage points compared to last quarter and 0.6 percentage points compared to the same time last year. In 2021, the total return was 8.7 percent, so a decrease in the total return of almost 50% is expected, corresponding to a decrease in the total return of approx. DKK 45bn.
It appears from figure 1 that it is especially the expectations to the capital value that has decreased in the last two quarters, while there is a smaller decrease in the expectations to occupied space and market rent. The latter is still slightly positive. Thus, there is still faith in the properties’ finances through rental and leasing, whereas the payment of interest requirement on the properties is under pressure.
Largest decrease in expectations to office
6 months ago, the largest faith was in the largest sector i.e. office. But especially the expectations to capital value for office has gone from positive to negative. For the last 7 years, office has had a positive value increment, but the participants in this survey expect that contrary to today, they will experience a negative development in one year from now. The expectations to occupied space for office are almost neutral after office, in July 2022, was measured at the highest occupied space in 13 years. The market rent for office is expected to be slightly positive.
/ The total return must cover inflation, financing costs and the risk of investing in properties. /
/ In 2023, the total return is expected to decrease to 4.4 percent. /
The Danish Property Federation’s Market Statistics - Consensus Forecast, October 2022
/ Best expectations to residential. /
The decrease in the last two quarters has affected residential the least, where there is still an expectation of a slightly increasing occupied space and market rent. The expectations to industrial are almost neutral, while retail once again experience negative expectations after increases after the corona crisis.
The expectations to Aalborg increases
We have to go 5 years back in order to find the best measurement for Aalborg in the mutual measurement of the areas. Compared to last quarter, the areas Aalborg, Odense and the rest of the country advances at the expense of Aarhus, the Triangle Area and Copenhagen. The expectations to capital value are overall negative, so areas are ranked by where the best development in capital value is expected. It is expected to be negative in the rest of the country - but compared to the other areas, the rest of the country is ranked better in this survey than last quarter.
Historical returns 2021
In 2021, the total return was 8.7 percent which was just under 3 percentage points higher than the participants expected in the beginning of 2021. From 2000-2021, properties have yielded 7.1 percent in total return on average, while the average in the last 10 years is 6.0 percent. The total return must cover inflation, financing costs and the risk of investing in properties.
The total return consists of the direct return and value increment. The direct return, which is the properties’ income minus costs compared to the capital value has been decreasing 6 years in a row. In 2021, the average direct return is 3.6 percent. The value increment in 2021 was 5.1 percent.
In 2021, office had a total return of 7.5 percentage points, which was a decrease of 0.3 percentage points compared to 2020. The average total return for office in the last 10 years is 5.6 percent.
Retail had a total return of 5.2 percent in 2021 due to a positive value increment of 0.7 percent. In 2020, retail had a negative value increment on average. In the last 10 years, retail has had an average total return of 3.7 percent.
As the smallest sector, industrial had the largest total return of 15.0 percent in 2021. In the last 10 years, industry has had an average total return of 5.2 percent.
In 2021, residential had a total return of 9.7 percent consisting of a direct return of 2.6 percent and a value increment of 7.1 percent. Residential properties a low vacancy rate (3.3 percent in January 2022), which is good for the direct return.
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 11.5 may for example be obtained by 11.5 percent of the participants corresponding ”much higher” and the remaining corresponding ”unchanged”.
The indicator value for office (-13,5) has not been measured lower before (The indicator values between -100 and 100)
The Danish Property Federation’s Market Statistics - Consensus Forecast, October 2022
There is an expectation of 5.1 percent in total return in 2022-2026
Source: The Danish Property Federation’s Market Statistics. See remarks on page 5.
Figure 2. Half of the participants expect a total return in 2022 between 4.0 and 5.5 percent
Source: The Danish Property Federation’s Market Statistics.
Total return of investment properties. From 2011 to 2022, 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. 2022 to 2024 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.
Figure 3. Still the highest expectations for the development in capital value in Copenhagen and Aarhus.
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.
Source: The Danish Property Federation’s Market Statistics.
The Danish Property Federation’s Market Statistics - Consensus Forecast, October 2022
About the survey
These are the expectations for October 2022 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.
48 market players have participated in this survey. 60 percent of the participants are property owners. In addition, 8 percent are property administrators, 13 percent are commercial brokers, 6 percent are banks/mortgage providers and 13 percent are other players.
Agat ejendomme, ATP Ejendomme, Bertélco Ejendomme, BNK Invest, CBRE, Chr. Hjorth Erhvervsejendomme, Colliers, Copenhagen Capital, Core Property Management, Corem, Cura Management, Cushman & Wakefield | RED, Dades, Danbolig erhverv Johnny Hallas, Danica Ejendomme, DEAS, EDC Erhverv Poul Erik Bech, Ejendomsselskabet Norden, EK-Ejendomsadministration, Elf Development, EY, Fokus Asset Management, Fortunen , Gefion Group, Heimdal Nordic, Heimstaden, Hosta Ejendomme, Industriens Pension, Jeudan, Jorcks Ejendomsselskab, Jyske Bank, Karberghus, Keystone, KFI Erhvervsdrivende Fond, KLP ejendomme, Lintrup & Norgart, Lokalebasen.dk, Lundsgaard Erhverv, Lægernes Pensionskasse, M7 Real Estate, M. Goldschmidt Ejendomme, NCC Construction Danmark, 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, Rosenkæret, Sampension, Sinding Gruppen, STAD Erhverv, Taurus Ejendomsadministration, Thor Stevnss Real Estate, Thylander Gruppen, TLK ejendomsadministration, Topdanmark Ejendom, Wihlborgs, Wiborg & Partnere, Øens Advokatfirma og Ejendomsadministration.
Remarks for table 1
The table indicates the average total return based on the replies for the years 2022-2026. The total return is in percent and measures the return on investment on 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 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.
The following companies have contributed