Interesting trends on the Danish property market

Residential downturn, likely to be temporary

Residential property remained the most traded asset class in Denmark with transactions worth nearly DKK 36 billion in 2022. The segment accounted for 47% of total transaction volume last year, but a sharp decline from mid-2022 led to investment in residential assets reaching a low level in H2. Transactions in Q4 dropped 84% YoY, with residential being dethroned as the most traded asset class in that quarter. Higher interest rates and tighter credit standards had a significant impact, as yields had declined to low levels due to plentiful access to cheap financing. This new reality will likely dampen residential investment in 2023, but the downturn is likely to be temporary and underlying fundamentals e.g. demographic and economic growth, will renew investor interest.

Will retail finally come back?

Retail property has struggled for several years, with rents under pressure and yields not declining as quickly as other property types, reflecting modest investor interest. Retail transactions reached DKK 14.6 billion in 2022, making it the second most traded asset type, its best performance in five years. This was largely due to a few large deals involving department stores, shopping centres, and supermarket portfolios. Retail transactions reached DKK 7 billion in Q4, representing 43% of total transaction volume. It remains to be seen if this represents renewed interest in retail assets or a one-off quarter. When evaluating 2023, key factors such as retail sales, earnings, vacancy, and rental growth should be carefully weighed against risks and opportunities.

Will logistics maintain the interest of international investors?

Logistics properties have recently attracted much attention from international investors due to potential for healthy rental growth and yield compression. In 2022, international investors accounted for 72% of industrial and logistics properties transaction volume. Investment in this segment also saw a substantial decline in H2. Although both local and international investors reduced their purchases, there is no evidence yet that foreign buyers are backing away, and in fact, the share of international investment in this property segment rose to 75% in Q4.

New government ditches proposed tax on notional gain

In December 2022, Denmark elected a new government. One of its first acts was to abandon a tax proposal put forward under the previous government. The bill (commented on in “Newsec Property Outlook Spring 2021”) aimed at changing the taxation of large commercial properties from a tax on actual capital gain to a tax on notional gain. As the implementation of a notional tax was expected to increase the effective taxation, the political reversal has been welcomed by the Danish Property Federation.