The market for investment properties has increased slightly compared to last year, despite a slower start to the year, mainly due to the high interest rates. The preliminary estimate for the transaction volume for the first 8 months or 2/3 of the year is DKK 22.8 billion, which is DKK 1.1 billion or 5% more than last year. The first signs of an increasing transaction volume are already showing themselves, as the central banks lower interest rates. Yields are mostly moving sideways at the moment, and forecasts for 12-month levels in many places are for yields to be roughly unchanged from today’s levels.
Denmark’s GDP has been positively affected by Novo Nordisk’s growth rate, while much of the rest of the economy has been in near stagnation – a stagnation which is expected to gradually shift towards modest growth. Consumers in Denmark currently spend a relatively small portion of their income, so given the prospect of rising real wages and lower interest rates, it is expected that
consumption will increase. Inflation has fallen drastically in Denmark, but is expected to be slightly higher going forward, partly due to significant wage increases. Employment continues to grow, and productivity in e.g. pharma seems to have slowed down quite noticeably. However, job growth is expected to slow down and productivity to recover, but there is some uncertainty.
All these conditions help to support activity among firms, and activity on the market for leasing offices and industrial and logistics properties is decreasing, albeit from a high level of activity. This has resulted in the vacancy rate for both property types increasing slightly. However, it should be noted that the vacancy rate is coming from a very low level in a historical context. Due to the relatively weak expectations for the economy in 2024, we expect that the vacancy rate will continue to rise slightly in the coming quarters.
The Danish economy
Annual GDP growth
The Danish economy grew by 2.5% in 2023, according to the latest national accounts report. The new calculation also shows that the economy increased by 9.8% over the period from 2020 to 2023. This suggests that the economy is stabilizing after the downturn in 2020. The growth in GDP has been primarily driven by contributions from the pharmaceutical industry.
The latest forecast from the Economic Council shows an expected growth of 1.9% in 2024 and 2.2% in 2025. The estimate for growth in the Danish economy has been significantly revised upwards. At the same time, inflation and housing prices are assessed to have stabilized, and employment is expected to remain high.
Source: Statistics Denmark & Ministry of Economic Affairs
In 2023 and the first half of 2024, the development of interest rates has been more subdued and stagnant compared to 2022, when interest rates rose significantly. This is due to a downward trend in inflation up until mid-2024, primarily driven by a decline in energy costs. The short-term interest rate, which is closely correlated with the monetary policies of the American and European central banks, the FED and ECB, has followed a steady trend and stands at 2.52% at the beginning of September 2024 after two rate cuts by the ECB. The long-term mortgage rate has been more volatile, with a decline since October 2023. As of early September 2024, the long-term mortgage rate stands at 4.18%.
20,076
Source: Finance Denmark & Statistics Denmark
Consumer confidence reflects the population’s view of their current and future economic situation and is therefore a good indicator of how the general population is affected by Denmark’s economic situation. The Consumer confidence for August 2024 stands at -7.4, a slight decline from July, where it was at -5.4. All five of the indicators that make up consumer confidence have decreased since last month. The average for 2022 was -22.2 and for 2023 it was -15.6, indicating that the current consumer confidence is a significant improvement.
Source: Statistics Denmark
The recent figures from Statistics Denmark show an increase in the number of employees. From May to June, the number of employees increased by 1,600, bringing the total employment of employees to 3,025,200 people.
In June 2024, there were 28,300 more employees compared to June 2023. The increase is due to growth in the number of employees in several sectors, with the largest increase of 6,700 people observed in the industrial sector compared to June 2023, corresponding to a rise of 2%.
Yield in percent and trends for the next 12 months
Development in residential rental properties
Continued strong investor interest
Investment activity in the residential rental property market, like the rest of the investment market, remains low due to high interest rates. With a transaction volume of DKK 10 billion in the first 8 months of the year, residential rental properties are still the most attractive segment for investors.
The decline in transaction volume is driven by elevated interest rates and uncertainty in general. This has led to significantly higher return requirements from buyers, while sellers have been slow to adjust their expectations to the new market situation.
Overall, yield requirements remain lower in Denmark compared to neighboring countries. This is partly explained by the fact that Danish property investors generally have a more robust financing structure, making them less sensitive
to interest rate fluctuations than for example, investors in the Swedish market. As a result, many investors have the ability to hold onto their properties rather than accept a lower sale price.
The combination of high interest rates and rising taxes may lead more private individuals to choose, or be forced, to rent rather than buy, as renting is currently relatively more attractive in many areas.
Market rents are expected to remain stable to slightly increasing in the coming year, while yield requirements are expected to stay stable at current levels. This is partly due to the expectation of continued declines in interest rates over the next year, which will naturally improve conditions in the transaction market.
Hortensiahaven, Gartnerbyen in Odense, Funen.
Lolland, Falster and Møn
Development in office properties
Demand for flexible and modern conditions
The demand for attractive office properties remains strong, while secondary office properties are experiencing lower demand. In 2024, we have seen several major transactions, particularly among institutional investors. Despite this, transaction volume has still dropped by around 25%. In contrast to many other European countries, this is relatively positive, as activity has declined more sharply in other markets with significant increases in yield requirements, even for the most attractive properties.
In Denmark, demand is supported by a continuously growing labour market with record-high employment, as well as more limited work-from-home practices compared to larger European metropolises.
Many companies continue to seek flexible office solutions due to increased focus on remote work, better space uti-
Available office space as a percentage of building stock
lization, and scaling opportunities. This is especially the case in Copenhagen, where the supply of flexible office concepts is large, while in cities such as Aarhus, demand for such spaces is high, but supply is limited—particularly in the city center, where demand for office space is greatest. However, there are also trends in the opposite direction, with some companies establishing policies around the number of remote workdays to limit work-from-home possibilities.
The national office vacancy rate was 5.7% in Q3 2024, up 0.7 percentage points from the same quarter the previous year. Yield requirements are generally expected to remain stable over the coming year, as is the market rent. However, the future course of interest rates will be a major factor, as a continued high rate environment could lead to further increases in return requirements—particularly for prime office properties.
Source: Ejendomstorvet-ED Statistikken, estimates as of Q3 2024
Østerbro, Frederiksberg and Gentofte
Sønderborg
Development in retail properties
Focus on grocery anchored real estate & retail parks
The high uncertainty of recent years has led to a sharp decline in transaction volume, with retail transaction volume in 2024 year-to-date at only DKK 1.5 billion, representing 6% of total transaction volume. The decline is widespread, leading to significantly increased yield requirements.
There is still demand for grocery portfolios with geographic diversity, as grocery stores are seen as resilient to economic fluctuations. Additionally, grocery chains often lease on long-term contracts with long non-termination periods.
Consumer confidence remains negative but has generally improved since the low point in October 2022, reaching -7 in August 2024. Higher rent increases due to NPI (Net Price
Index) adjustments have put pressure on tenants. However, not all landlords have implemented full NPI adjustments. Some landlords have taken into account tenants’ financial robustness or the risk of termination, as well as the risk of a Section 13 rent adjustment, which could lead to regulated rent exceeding market rent. The risk of high NPI adjustments has also raised tenants’ awareness of clauses in lease agreements regarding rent regulation, leading to increasing demands for maximum adjustment clauses in the future.
Retail vacancy has slightly increased over the past year, rising by 0.1 percentage points to 3.1% in Q3 2024. Yield requirements are generally expected to remain stable to slightly increase over the coming year, while there is some risk of declining market rents in certain areas.
Source: Ejendomstorvet-ED Statistikken, estimates as of Q3 2024
Lolland, Falster and Møn
Development in industrial properties
High investor demand, but rising vacancy
The logistics segment has seen continued strong investor demand in recent years, as highlighted by a transaction volume of DKK 6.5 billion year-to-date in 2024, accounting for 28% of total transaction volume.
Demand is primarily focused on newer, modern logistics properties located near essential infrastructure such as highways. Increased focus on supply chains is a contributing factor to the healthy activity, as demand among users for warehouse and logistics properties is rising.
High-ceilinged warehouses with good access and ramps are particularly sought after, meeting current needs. There is also growing interest in sustainable and energy-efficient properties, preferably certified.
However, the supply of the most sought-after properties has not kept pace, partly because industrial and logistics
Available industrial space as a percentage of building stock
areas close to cities are increasingly being converted into residential areas. At the same time, it is becoming increasingly difficult to secure suitable land for logistics properties in prime locations, partly due to a lack of municipal willingness to designate land for warehouses and logistics properties.
The industrial segment has also experienced high demand in recent years, primarily driven by users rather than investors, although a larger portfolio of industrial properties has been traded in recent years.
The vacancy rate for industrial and logistics properties has risen sharply over the past year, with the national rate increasing by 67% to 2.9% in Q3 2024. Yield requirements are expected to remain stable in the coming year, as is the case for market rents.
Source: Ejendomstorvet-ED Statistikken, estimates as of Q3 2024
Definitions
Location and condition
Yield and rent levels estimates are based on primary, secondary and tertiary categories, where primary is the best and tertiary is the worst. Various variables for each property type have been taken into consideration with regards to determine the facility classes, such as: size, floor plan structure, year of construction, lifts, climate control, cabling infrastructure, staff facilities, customer facilities, parking facilities, building energy rating, ceiling height, general accessibility, general condition of the property, etc.
Primary: A property with prime location and class A facilities has the best possible location in an area, the highest standard when it comes to facilities, is modern and ready to move into. This type of property will typically be sold at the lowest yield in the area, have the highest market rent and have a short reletting process.
Secondary: Average in terms of location and condition. Yield and rent levels also reflect the average levels for the area. The re-rental options are market compliant and reflect the general market conditions.
Tertiary: Poor location for the area, low standard, and outdated. This type of property is expected to be able to be sold at a relatively high yield level, and the rent level is low for the defined area. Similarly, vacancy rates can be expected to be higher than the market average.
Yield
All yields are initial net yields and are defined as the annualized rent generated by the property after the deduction of estimated annual irrecoverable property outgoings, expressed as a percentage of the property valuation (property valuation is adjusted for the value of rental deposits and prepaid rent). For comparison purposes, it is assumed that all properties are fully let at market-conform conditions.
Market Rent
All rents are headline rents, in other words, the contracted gross rent receivable, which becomes payable after any tenant incentives have expired. Market rent estimates are expressed in DKK/sq m/year. It is assumed that all properties are let at market-conform conditions.
* Area specifications
Copenhagen City = Copenhagen K ex. harbour areas.
Østerbro, Frederiksberg og Gentofte = Østerbro, Frederiksberg and Gentofte municipalities.
Harbour area (Nordhavn, Kalvebod Brygge & Tuborg Havn) = Areas located along Copenhagen’s harbour.
Remaining Copenhagen = Vesterbro, Nørrebro, Nordvest, Valby, Sydhavn (ex. harbour areas), Brønshøj, Husum, Vanløse, København S (ex. Ørestad and harbour areas), Kastrup and Dragør municipalities.
Western suburbs = Hvidovre, Rødovre, Glostrup, Brøndby, Albertslund, Vallensbæk, Ishøj, Høje Taastrup, Ballerup and Herlev municipalities. Northern suburbs = Lyngby, Holte, Farum, Birkerød, Gladsaxe, Rudersdal and Furesø municipalities.
Residential rental properties
1) Newer residential rental properties are properties that have been occupied after 31.12.1991 and thus covered by the rules on free/market rent according to the Danish Residential Rent Regulation Act section 54 (1, 1).
2) Cost determined rental properties are older residential rental properties that have been occupied before 31.12.1991 and are regulated in accordance with the provisions of the Danish Residential Rent Regulation Act on cost-determined rent.
3) Fully developed older residential rental properties are older home rental properties without further potential for rent increases through modernization pursuant to section 19 (2) of the Danish Residential Rent Regulation Act.
Data for available commercial premises
The source of available commercial premises is the latest available supply statistics from Ejendomstorvet. Further information about these statistics can be found at ejendomstorvet.dk/statistik/udbudsstatistik.
Trends
All trends reflect our expectations to the level in 12 months time.
The figure is expected to increase
The figure is expected to remain unchanged
The figure is expected to decrease
Note on estimates
The valuation of a property depends on many specific factors, including conditions of the lease, the tenant, and the property condition. The estimates cannot be used uncritically in the valuation of one specific property but can serve as input related to the valuation. Reproduction or citation only with acknowledgment of source. While every effort has been made to ensure that the information provided is accurate, EDC International Poul Erik accepts no liability for errors.
North Zealand = Gribskov, Helsingør, Allerød, Hillerød, Egedal, Fredensborg, Halsnæs and Hørsholm municipalities.
East Zealand = Greve, Køge, Lejre, Roskilde and Solrød municipalities.
West Zealand = Holbæk, Kalundborg, Odsherred, Ringsted, Slagelse and Sorø municipalities.
South Zealand = Faxe, Næstved, Stevns and Vordingborg municipalities. Lolland, Falster and Møn = Guldborgsund and Lolland municipalities.
Other Funen = All municipalities at Funen ex. Odense.
Other South Jutland = Billund, Fanø, Haderslev, Tønder, Varde, Vejen and Aabenraa municipalities.
West Jutland = Skive, Struer, Holstebro, Thisted, Morsø and Ringkøbing-Skjern municipalities.
As an investor, it is crucial to approach an investment objectively. With analyses from EDC Poul Erik Bech, we provide you with the opportunity to do just that by ensuring that your investment is based on a solid data foundation. EDC Poul Erik Bech Research offers area-specific analyses for the entire country that can be tailored to your specific needs. Additionally, we provide in-depth analyses of population trends, housing supply, transaction volume, and more, which can help you as an investor to make the right decisions based on a solid knowledge foundation.
If you have questions, you are more than welcome to contact us:
Joseph Alberti Head of Research
joal@edc.dk
CONTACT
EDC Poul Erik Bech
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Jutland
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