Investment activity in Q4 2024 has been lower than last year. The activity has primarily been driven by transactions within residential rental properties as well as industrial and logistics properties. The preliminary estimate for transaction volume for the first eleven months of 2024 is DKK 40 billion, which is DKK 1.5 billion more than last year. This indicates that transaction volume is likely to end up higher this year compared to last year. Yield requirements are mostly moving sideways at the moment, and forecasts for levels 12 months ahead in many areas suggest that yield requirements will remain roughly unchanged from today’s levels.
The Danish economy is strong compared to our neighbors, and this is not only due to Novo Nordisk and the pharmaceutical industry. However, there are still significant areas where growth rates remain low. Consumers have drawn
on their savings over the past few years during a period of high inflation and are now hesitant to convert wage increases into higher consumption. Exports and industrial production are rising sharply due to pharmaceuticals and medical equipment but also in other areas. Despite the high level of wage growth in 2024, inflation remains low. Wage growth is now slowing, while inflation is expected to stabilize around 2%.
All these factors help support activity among businesses, although activity in the market for renting office and industrial/logistics properties is declining, albeit from a high level. This has resulted in a slight increase in vacancy rates for both property types. However, the vacancy rates remain very low in a historical context. Given the relatively positive economic outlook for 2025, we expect vacancy rates to stabilize in the coming quarters.
The Danish economy
Annual GDP growth
The Danish economy is considered to be in a high-growth phase, following an extended period of employment growth. The Gross Domestic Product (GDP) rose by 1.2% in the third quarter of 2024. The recent progress in the Danish economy has largely been driven by growth, particularly in the pharmaceutical sector. Additionally, growth in Danish export markets and improved household purchasing power have led to signs of mild improvement in several sectors of the economy. According to various forecasts, key economic indicators in Denmark are expected to continue improving, with notable progress in employment, production, and exports.
According to the latest revised figures from the Central Bank of Denmark, GDP is expected to grow by 2.1% in 2024, 2.3% in 2025, and 1.5% in 2026. In comparison, the government, in its August economic report, anticipated GDP growth of 1.9% in 2024 and 2.2% in 2025.
Source: Statistics Demark and The Central Bank of Denmark
20,076
Lower inflation has led both the ECB and the FED to ease monetary policy. Over the fall, the ECB lowered interest rates by 0.75 percentage points, and the Central Bank of Denmark followed suit with corresponding rate cuts. In September, the FED reduced its rate by 0.5 percentage points. The longterm mortgage rate was 4.08% in week 47, while the short-term rate, which is more closely correlated with the monetary policy measures from the ECB and FED, was 2.15%. In connection with the interest rate hikes leading up to 2024, the spread between short and long-term rates has been significantly reduced. The persistently high-interest rate level has resulted in a notable increase in costs when taking out loans for housing, which, combined with the new property valuations, dampens activity in the housing market. The forecast from the Economic Council’s report from October 2024 indicates that the 30-year Danish mortgage rate is expected to be 4.3% for both 2024 and 2025, and 4.4% in 2030.
Source: Finance Denmark & Statistics Denmark
The consumer confidence indicator, which reflects the public’s view of the current and future economic situation, stands at minus 9.3% in November, which is roughly the same as in September, when it stood at minus 8.9%. This is also slightly below the average for the past six months, which has been minus 7%. Consumer confidence has generally been improving since October 2022, when it was at minus 37%, the lowest level in the indicator’s 48-year history. The continued low level of consumer confidence can be attributed to a sharp drop in indicators related to consumers’ assessment of Denmark’s current economic situation and a limited willingness to spend. This is largely due to high interest rates, which have reduced the Danish consumer’s disposable incomes.
Source: Statistics Denmark
The latest data from Statistics Denmark shows that the number of employees increased by 4,300 people from August to September 2024, corresponding to a 0.1% rise. Since September 2023, the number of employees has grown by 27,000, equivalent to a 0.9% increase. Employment thus remains at a historically high level and still exceeds the structural level. According to the government’s economic report, higher wages and weaker productivity growth are expected to dampen labor demand, which will cause a slight drop in employment in the coming years. This is expected to become apparent as early as 2025, with employment projected to fall by 5,000 people.
Yield in percent and trends for the next 12 months
Development in residential rental properties
More activity causes stable Rates of return
After a long period of low activity, there are still signs of increased activity in the residential segment. The transaction volume for the first 10 months of 2024 totaled DKK 14.5 billion, representing an approximately 5% increase compared to the same period last year. This is primarily due to several significant deals, including Hørkær Have, acquired by NREP, and Velkomn’s purchase of 667 townhouses across the country. These two transactions alone account for approximately 2 billion DKK.
In general, there are signs that professional investors have become more Asset and that we have reached a level where both buyers and sellers are more satisfied. Therefore, it is expected that Rates of return will remain at the current level and that a further fall in interest rates will lead to increased activity.
Construction activity has declined significantly in recent years as a result of rising interest rates combined with higher uncertainty, making it more difficult to achieve Valuation in projects. The declining construction activity is
expected to contribute to a continued low vacancy level in the coming years.
The new Property taxes lead to increased uncertainty in the Valuation of Residential rental properties. An increase limitation has been adopted that follows sold properties, which means that the impact of the increasing land values is limited.
High interest rates and rising taxes may mean that more people need to rent a Dwelling, which is more attractive than owning a home. Therefore, Demand for rental housing is expected to continue to increase in the coming years. Conversely, vacancy rates are expected to continue to fall, as has been the case over the past year, with vacancy rates falling by 0.8 percentage points to a total vacancy rate of 3.4%. Vacancy rates are lowest in the metropolitan area and highest in Central Jutland and Aalborg.
The rack rent is expected to be stable to slightly increasing in the coming year.
Lolland, Falster and Møn
Development in office properties
Continued Demand for Flexible and Certified Office Properties
Demand for attractive office properties is still intact, with Location and correct pricing remaining high priorities, as in recent years. In 2024, several major transactions have taken place, driven by competitive locations and pricing.
Demand for office properties in Denmark is supported by a robust labor market with record-high employment. At the same time, working from home is significantly more limited than in other major European metropolises due to shorter commuting times. However, some companies - especially large organizations - are implementing flexible office solutions. As a result, companies are looking for modern office concepts, such as office space in larger shared offices or the ability to scale up or down office capacity at short notice. Supply of flexible concepts is high in Copenhagen and the
Available office space as a percentage of building stock
surrounding area, while in Aarhus there is limited supply despite high Demand.
In addition to flexible office solutions, Tenants and investors alike are increasingly demanding modern and sustainable office space that is future-proof. The increasing ESG requirements play a major role in the office segment and the trend is expected to continue. It is expected that the Total Property Value of certified properties, such as DGNB-certified properties, will eventually exceed the value of non-certified properties.
The Vacancy rate for Office nationwide is 6.0% in Q4 2024, up 0.9 percentage points since the same quarter last year. Rates of return are generally expected to remain stable over the coming year, which is also true for Rack rent.
Source: Ejendomstorvet-ED Statistikken, estimates as of Q4 2024
Frederiksberg and Gentofte
in %
Sønderborg
9.00%10.25%
market rent in DKK/sq m 1,800 DKK 1,200 DKK
Development in retail properties
Continued tug-of-war between Online and Retail
The Danish retail sector is still struggling with the aftermath of 2022, which was characterized by the highest Inflation in 40 years, significantly rising interest rates and falling real wages. As a result, consumer confidence was at a very low level at the beginning of 2023 and has been rising slightly since. Consumer confidence continues to rise slightly, although there are some fluctuations, and in October 2024 is -8.9, which is about the same as the average for the past six months.
Low consumer confidence and interest rate uncertainty have created uncertainty in the retail market. Despite this, the transaction volume was DKK 2.5 billion in the first 10 months of 2024, which represents an increase of approximately DKK 0.25 billion or 10% compared to the same period in 2023.
Demand is still particularly strong for grocery portfolios with geographical diversification, as grocery stores are
considered to be resilient to economic fluctuations and therefore have a relatively low risk profile, while grocery chains often enter into Leases with long non-terminable periods.
Since 2017, online shopping in Denmark has seen an increasing trend, especially during the coronavirus lockdown in 2021, when it increased significantly. The level during the corona lockdowns looks set to continue, with online shopping increasing 3.33% from H1 2023 to H1 2024. At the same time, online shopping continues to account for an increasing share of total transactions, emphasizing the expected pressure on physical stores.
Vacancy rates for Retail have been stable, increasing by 0.2 percentage points between Q4 2023 and Q4 2024 to 3.2%. Rates of return are broadly assessed as stable to slightly increasing over the coming year, while there is some risk of decreasing Rack rent in some locations.
Source: Ejendomstorvet-ED Statistikken, estimates as of Q4 2024
Lolland, Falster and Møn
Development in industrial properties
Supply of desirable properties is not keeping up with Demand
The logistics segment has been characterized by continued reasonable Demand in recent years. In the first 10 months of 2024, the transaction volume was DKK 10.7 billion, which is the same as last year. It is important to note that this is even though Denmark’s largest logistics center has been sold for DKK 3.3 billion by DSV to Catena.
Demand remains high for newer and modern logistics properties located near to essential infrastructure such as motorways. However, there is also a significant Demand for light industrial properties, where there have been major transactions in the metropolitan area in recent years. There is also a growing focus on sustainable and energy-efficient properties - preferably certified. Demand for sale & lease-back agreements with long Leases that reduce the risk for investors and allow companies to release liquidity while
Available industrial space as a percentage of building stock
allowing them to focus on their core competences. Demand is also broadly anchored across the country.
Supply of the most desirable properties has not kept up with Demand. One of the reasons for this is that industrial and logistics areas close to the city center are increasingly being converted into residential areas. At the same time, it is becoming increasingly difficult to find suitable land for logistics properties in the best locations, as there is a lack of municipal willingness to allocate suitable land for Storage and logistics properties.
Vacancy rates for industrial and logistics properties nationwide have been rising sharply over the past year, increasing from 1.9% in Q4 2023 to 2.9% in Q4 2024. Rates of return are expected to remain stable in the coming year, and the same is true for Rack rent.
Source: Ejendomstorvet-ED Statistikken, estimates as of Q4 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 +45 5858 7467
Niclas Holm
niho@edc.dk +45 5858 8784
CONTACT
EDC Poul Erik Bech
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