The Danish Property Market

THE DANISH ECONOMY AND PROPERTY MARKET IS BACK ON TRACK

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The Danish economy is back on track. Activity picked up in Q2 2021 as restrictions were gradually eased, and the economy has now regained what it lost since the onset of the COVID-19 crisis in Q1 2020. Employment rose significantly in Q2 and unemployment dropped to 3.8% in June, approaching pre-crisis levels. An increasing number of businesses report that they cannot find the necessary manpower, and shortage of labour is now the main impediment to growth in many industries. The Danish Central Bank expects GDP to grow by 3.3% in 2021. This is a significant upward adjustment compared to the previous forecast. Economic growth rates are expected to remain high in the coming years and, most likely, we will see a continuation of the current sizable employment growth and further decline in unemployment numbers. Inflation has been rising since March and is expected to reach 1.3% in 2021, up from 0.4% in 2020. Interest rates are also rising, although from low levels. The yield on a 10-year Danish government bond has risen from -0.5% at the beginning of 2021 to -0.3% in July. Most forecasts predict that Danish interest rates will only be moderately higher by the end of 2021.

Strong macroeconomic fundamentals, low interest rates and ample capital chasing property provide beneficial conditions for the Danish real estate market. The transaction volume reached DKK 40 billion in H1, up by 54% compared to H1 2020. Foreign investors have been very active on the investment market acquiring property for DKK 22 billion in H1. Foreign players have increased their presence on the Danish market with a market share of 55% so far this year. Investors from the UK, USA and Sweden have been especially active acquiring property in 2021. In light of the high investment activity during H1 and the positive sentiment, Newsec has made an upward adjustment of our expectations to the total transaction volume in 2021 from DKK 75 billion to DKK 80 billion.

Contact: Robin Rich robin.rich @newsec.dk

»Foreign players have increased their presence on the Danish market with a market share of 55% so far this year«

Interesting trends on the Danish property market in 2021

THE GENERAL SOCIETAL DEVELOPMENT AFFECTS THE PROPERTY MARKET

The market for residential rental properties continues to benefit from stable demographic demand and favourable household income growth. The market for industrial and logistics properties is characterised by high demand for, and limited supply of, modern, wellsituated facilities. Renewed employment growth boosts the need for office properties, and new offices in the major cities are particularly attractive to prospective tenants. The difficult situation in many service industries continues to affect the retail segment.

DKK 72 BILLION

Total investment volume in 2020

DKK 80 BILLION

Total investment volume expected in 2021

THE RESIDENTIAL MARKET KEEPS BOOMING

The COVID-19 crisis did not curb the – already hot – Danish housing market. Prices on owner-occupied homes grew by 15% from Q1 2020 to Q1 2021 – almost three times faster than the EU average. Rapidly increasing prices on owner-occupied housing mean that rental housing is often seen as an attractive alternative. Investors are attracted by the positive long-term outlook for demand and rental growth in this segment. Residential properties are – by far – the most popular asset amongst investors. Residential property transactions amounted to DKK 19 billion in H1 2021. Investor interest in this segment was particularly high in Q2 2021 where residential acquisitions accounted for 68% of the total transaction volume. An unquenchable demand from investors and a shortage of investment products is driving yields down for both new properties with unregulated rent as well as for older properties with rent regulations.

+3.3%

GDP growth expected in 2021

INDUSTRIAL & LOGISTIC INVESTMENTS ARE BECOMING INCREASINGLY POPULAR

Industrial and logistics properties accounted for 9% of the total transaction value in 2020. This was a relatively high share and so far the trend has continued in 2021, with this type of property constituting 12% of the total transaction volume. There has been a sustained decline in the availability of industrial and logistics facilities. High demand for modern, well-situated warehouse and logistics properties, combined with a limited supply of these types of buildings, has led to rental growth and yield compression.

THE IMPACT OF HIGHER INTEREST RATES – WHEN, HOW FAST AND HOW MUCH?

That is the question. Rising interest rates, reflecting higher inflation and growth expectations, are a natural development in a phase of increasing economic activity. For the property market, growth with steady and moderately increasing interest rates is desirable. As the current level of interest rates is so low, interest rate increases may have relatively large price effects on owner-occupied housing and commercial properties. A scenario of sharply increasing interest rates constitutes a potential risk for a general price decline in the property market. However, as described above, there are no expectations of such development in 2021.