The Danish property market

The impact of rising inflation, surging interest rates, plunging business and consumer confidence, and massive reductions in asset values, from the stock market to house prices, has taken its toll. Despite these challenges, the Danish economy remained surprisingly resilient in 2022, growing at an annual rate of 2.5–3%. This growth was sustained by persistent employment, investment, and export growth, leading to strong demand for office and industrial facilities.

In 2023, economic growth is expected to slow and may even contract, due to numerous downside risks. Inflation is forecast to decrease from 7.7% in 2022 to 3.5–5.0% in 2023.

The Danish Central Bank, while closely monitoring inflation, raised its policy rate by 235 basis points in 2022 and more rate hikes are expected this year. Market interest rates have risen more than monetary policy rates, with the 10-year government bond yield rising from -0.2% in 2022 to 2.7% by the end of the year.

The Danish commercial property market was impacted by higher interest rates, uncertainty about the global economy, and a shift in asset pricing. Investment activity dropped 21% from its peak in 2021, leading to a noticeable slowdown in transactions. In 2023, weaker economic growth, higher interest rates, tighter credit standards, and low risk tolerance are expected to cause further decreases in transaction volume, potentially leading to a shift from leveraged buyers to equity buyers, such as international funds and institutional investors.

The long period of yield compression on the property market ended in 2022, leading to higher yields at the start of 2023. The extent of this change varied, but the market has adjusted to the new economic and financial reality. Transactions slowed as buyers and sellers adopted a wait-and-see approach, but yield shifts became stronger in Q4 of 2022. Further shifts are expected in 2023, depending on the economic and financial environment.

Contact:

Robin Rich robin.rich @newsec.dk