DENMARK Q MARKET REPORT COMMERCIAL REAL ESTATE MARKET NEW NORMAL COPENHAGEN AND FREDERIKSBERG RESIDENTIAL MARKET. Market rents and yields

Transcription

1 DENMARK MARKET REPORT MARKET UPDATE: NEW NORMAL COPENHAGEN AND FREDERIKSBERG RESIDENTIAL MARKET COMMERCIAL REAL ESTATE MARKET Q Market rents and yields

2 COMMERCIAL REAL ESTATE MARKET Q2 / 2018 PAGE 2 MARKET UPDATE Q NEW NORMAL Economic indicators have generally shown a slightly weaker development than in the past year, nationally and internationally. This suggests that the economy will develop positively, but at a lower level than previous economic upswings, which many economists denote as new normal, or the new normal for economic upswing. The European Central Bank, ECB, will phase out the bank s bond repurchasing program at the end of the year as there are more signs that the economy is strengthened, and inflation is closer to the bank s goals. Threats of a trade war between the United States and several countries have lowered the market s expectations for the global economy in the near future. JOSEPH ALBERTI Research Analyst MSc. Econ. Cell phone joseph.alberti@colliers.com Increasing growth and employment 2,300, ,250, ,200, ,150, ,100, Full time employees Quarterly GDP Source: Statistics Denmark Oxford Economics og Collliers International Re-printing only allowed with indication of source. Contact: Lisbeth Kempel, marketing director / Cell phone / lisbeth.kempel@colliers.com

3 COMMERCIAL REAL ESTATE MARKET Q2 / 2018 PAGE 3 Vacancy for office and industrial and logistics properties has reached the lowest point since 2009, creating more incentives for speculative construction. The first signs of speculative logistics construction are already underway in Greve Distribution Center, and speculative office construction is underway in Ørestad City, due to rising employment and falling vacancy, among other things. Conversely, the retail sector is experiencing considerable competition and an ongoing disruption. Retail vacancy has increased in all regions except Central Denmark Region, where it has remained unchanged. The grocery industry is characterized by major competition, where chains have been forced to close stores with poor locations or concepts that have not been modernized, and either renovate stores with new concepts or build new stores in areas of population growth. The almost explosive increase in e-commerce and changed shopping patterns has resulted in greater demand for warehouses, which is why the vacancy rate is very low. At one point, it was hard to imagine that there would be a need for all the older warehouses and industrial buildings. But this has happened now. In Denmark, there are not many large modern logistics buildings for rent with a free ceiling height of meters and a total open area of 10,000 square meters. This is, among other things, justified by strict Danish fire requirements, including requirements for sprinkling. MG Real Estate is now building this speculatively at the Greve Distribution Center and it makes sense, because many decision makers want to see a physical building with ramps and outdoor areas, etc. It makes sense to build the modern and high-ceilinged logistics facilities, in particular as Transaction volume / Q Mia. kr '08 Transaction volume by segment / Q % '09 '10 5% '11 '12 12% 15% '13 Estimated transaction volume '14 '15 '16 Source: Colliers International Residence Office Retail '17 '18 22% Industry and logistics Other Source: Colliers International Real estate vacancy levels / Q many growing companies must constantly seek to maximize building capacity in terms of pallet space and inventory management. New high-ceilinged modern facilities will, all else being equal, be significantly more effective and thus could affect the bottom line positively. Tina Iburg, Commercial Real Estate Advisor. TRANSACTION VOLUME Year to date (YTD) transaction volume nearing the end of Q is 24.7 billion. This is slightly lower than the level seen in the record-breaking year Given that the transaction volume continues at the same pace adjusting for the usual seasonal development, we expect to reach a total volume of approximately DKK billion for 2018, which is below the transaction volume in 2017, but still significantly above the transaction volume in '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 OFFICE RETAIL INDUSTRY AND LOGISTICS Source: Ejendomstorvet

4 COMMERCIAL REAL ESTATE MARKET Q2 / 2018 PAGE 4 The population in Copenhagen and Frederiksberg has grown by approximately 1,000 people a month in the years since the financial crisis. People tend to think that the present = the future. However, the reality is that population growth is dynamic and always changing, so population growth is not guaranteed. COPENHAGEN AND FREDERIKSBERG RESIDENTIAL MARKET The Copenhagen and Frederiksberg residential market is constantly evolving, and it is exciting to follow regardless of where you live in Denmark, because the capital is most often the first mover in terms of pricing and other developments. It cannot be assumed that the current population growth or the residential construction boom will continue in the future. In this quarterly report, we take a deep dive into the residential market, focusing on the fundamental economic factors: supply and demand, and give our take on the future of the residential market. Demand for residential real estate is primarily driven by population growth. The population in Copenhagen and Frederiksberg has grown by approximately 1,000 people a month in the years since the financial crisis. People tend to think that the present = the future. However, the reality is that population growth is dynamic and always changing, so population growth is not guaranteed. One does not need look further back than 2005 to see a decline in population. Historically, it can be seen from the graph below that there was a decline in population every year from 1979 to The graph not only shows the population growth (the yellow line), but also the population growth components which have changed considerably throughout the time period. PETER LASSEN Partner Cell phone peter.lassen@colliers.com JOSEPH ALBERTI Research Analyst MSc. Econ. Cell phone joseph.alberti@colliers.com

5 COMMERCIAL REAL ESTATE MARKET Q2 / 2018 PAGE 5 Population development 15,000 10,000 5, ,000-10, The graph shows that the natural increase (defined as the difference between the number of births and deaths) was negative until 1997, and positive thereafter. As a rough measurement, one can say that the natural increase has grown throughout the time period. This is due to two factors: First, Copenhagen has increasingly been successful at retaining citizens of childbearing age. In the past, there were a larger proportion of families who moved out of the city to the suburbs, when they had children. Second, life expectancy has risen, which has resulted in lower mortality for all age groups. Net internal migration is a term for domestic migration, ie. moving from one municipality to another. In Copenhagen, Frederiksberg and in others university towns, there is typically a substantial immigration when people are in their early 20 s, when they begin start their postsecondary education. These cities also typically have an emigration of approximately the same amount when people are at the end of their 20 s or their early 30 s, found a family and move out of the city again Additionally, the general economic situation and the difference in pricing per square meter between apartments in the city and houses in the suburbs are also important: This can be seen by an decrease in net internal migration during the good years leading up to the financial crisis something which is also prevalent now. This happens because condominium prices in the city increase more than the price of detached or terraced houses in the surrounding municipalities, thereby making it more attractive for people to move out of the city. Finally, net external migration, calculated as immigrants minus emigrants, has contributed considerably to the population growth in recent years. RESIDENTIAL REAL ESTATE SUPPLY Residential real estate supply has recently reached a new maximum, surpassing the previous record which occurred just before the financial crisis in In the years subsequent to the financial crisis, the level of completed residential real estate construction fell to around 100,000 m² annually Natural increase Net internal migration Net external migration Corrections Population increase 2 Source: Statistics Denmark Residential real estate supply offerings in Copenhagen has been characterized by significant construction, especially in the high-end portion of the market, for example in the areas of Sydhavn, Nordhavn and Islands Brygge. Demand for large and expensive apartments risk stagnant price and rent levels due to the significantly increased supply. Yields for newer residential real estate properties have now fallen to 3.75% and for the old housing stock to 3.50%. The market rent for prime residential real estate is DKK 2,000 per m² per year, which corresponds to rent of DKK 15,000 per month plus utilities for a 90 m² apartment. An alternative to renting an apartment is to purchase a condominium. According to boligsiden.dk, the average price per m² condominium in the municipality of Copenhagen was DKK 40,606 as of July m². For a 90m² condominium, this corresponds to a price of 3,654,540 kr. At these levels, there is limited demand. At the same time, the high sales prices mean that supply increases, which also affects prices.

6 COMMERCIAL REAL ESTATE MARKET Q2 / 2018 PAGE 6 m 2 Residential real estate construction in Copenhagen and Frederiksberg 700, , , ,000 COMPLETED RESIDENTIAL REAL ESTATE CONSTRUCTION 300, , , STARTED RESIDENTIAL REAL ESTATE CONSTRUCTION Source: Statistics Denmark Note: Moving 4-quarter average. In the years following the financial crisis, residential construction almost stopped, while population development was increasing. Last year, for the first time since 2007, annual residential real estate supply exceeded annual residential real estate demand. On average, completed residential real estate construction has been approximately 250,000 m² during the time period. Annual residential real estate demand, which is calculated as the annual growth in population multiplied by the average residential real estate consumption per person, has been approximately 440,000 m². This mismatch has meant that there is a pent-up demand of approximately 2,250,000 m² of residential real estate in Copenhagen and Frederiksberg. Naturally, there are several factors which contribute to rising residential real estate prices and falling yields for residential real estate, but the fundamental imbalance between supply and demand is one of the crucial factors. m 2 Residential real estate supply and demand 700, , , , ,595 m 2 300, , , Fuldført nybyggeri & tilbygning Gennemsnitlig DEMAND efterspørgsel Gennemsnitlig udbud Årlige efterspørgsel SUPPLY COMPLETED NEW CONSTRUCTION AND EXTENSIONS ANNUAL DEMAND Source: Statistics Denmark and Colliers International

7 COMMERCIAL REAL ESTATE MARKET Q2 / 2018 PAGE 7 Population growth by type 12,000 10,000 8,000 6,000 4,000 2, ,000-4, POPULATION INCREASE NATURAL INCREASE NET MIGRATION Source: Statistics Denmark and Colliers International WHAT ABOUT THE FUTURE? On the supply side, it is difficult to make predictions, as Statistics Denmark s figures for construction starts are notoriously inaccurate. This is because reporting often happens with a delay of 2-6 quarters. It should therefore be pointed out that started residential real estate construction is not a sufficiently reliable indicator for future residential real estate completed construction. Nonetheless, the figures show a clear trend that there has been a sharp decline in residential real estate construction in Copenhagen and Frederiksberg - whether this is due to an actual decline or delayed reporting is still too early to say. On the demand side, a slowdown is also expected. Population growth will continue, but with diminished force. The yellow line in the graph above shows the population growth projections for Frederiksberg and Copenhagen. Population growth is expected to fall steadily from almost 1,000 people a month to about 600 a month in Statistics Denmark does not calculate net internal and external immigration separately in their population projections, but gathers the two categories into one: net migration. Net migration is expected to contribute positively to population growth over the next five years, but with a falling trend. Net migration is expected to have a negative impact from 2023 and onwards. Conversly, the natural increase is expected to grow steadily from almost 8,000 people annually to almost 10,000 people annually in The greatest population growth is expected to be in the urban development areas Ørestad, Nordhavn, Carlsberg

8 COMMERCIAL REAL ESTATE MARKET Q2 / 2018 PAGE 8 Population growth by area 120, , ,000 60,000 40,000 20,000 0 Indre By Østerbro* Nørrebro Vesterbro** Valby Vanløse Brønshøj-Husum Bispebjerg Amager Øst Amager Vest*** Frederiksberg Source: Statistics Denmark, Copenhagen Municipality and Colliers International Note: * incl. Nordhavn ** incl. Kongens Enghave and Carlsberg area *** incl. Ørestad and Islands Brygge Byen and Amager Strand. Amager Vest is expected to grow by approximately 30,000 people, Vesterbro with approximately 25,000 people and Østerbro with approximately 15,000 people, over a 15 year time period. On the political front, several initiatives are underway: Copenhagen Municipality is currently working on new guidelines that will make it easier to establish attic apartments in Copenhagen, which could accommodate up to 22,000 residents. Additionally, Copenhagen Municipality is investigating the possibility of changing the regulation which stipulates that new homes must be 95 m² on average (however, 25% of the floor area may be exempted from the calculation). Specifically, the municipality is examining the following 5 models to promote construction of smaller homes: / Cancellation of housing size provisions. / Allowing a larger part of the floor area to be excluded from the calculation of the average. / Increased flexibility coupled with requirements for minimum share of larger homes and maximum proportion of smaller homes. / Reducing the average size from 95 m² to 85 m². / Reducing the smallest residential size in the existing city from 65 m² to 50 m². Finally, Ole Birk Olesen, the Minister for Transport, Building and Housing, has recently invited all municipalities in the metropolitan area to a housing summit to discuss and accommodate the need for new, smaller homes. This year, we expect residential real estate supply to exceed residential real estate demand, and it appears that the increases in price will be more subdued in the coming years, which should be viewed as a healthy sign.

9 COMMERCIAL REAL ESTATE MARKET Q2 / 2018 PAGE 9 From an investors point of view, the residential market will continue to be the most attractive investment object, as the vacancy level is insignificant, and security or risk balancing is a key factor for property investors. From an investors point of view, the residential market will continue to be the most attractive investment segment, as the vacancy level is insignificant, and security or risk balancing is a key factor for property investors. Price increases may slow down, and less favourable times may come, but urbanization is a mega trend that will not stop any time soon. More people will move to the largest cities, so in the long term, prices and returns will increase over time.

10 COLLIERS PULS Q2 / 2018 PAGE 10 COLLIERS PULS Q JOSEPH ALBERTI Research Analyst MSc. Econ. Cell phone joseph.alberti@colliers.com Overview of market rent and yield The information in this document is regarded as coming from reputable sources. Even though everything has been done to ensure its accuracy, this cannot be guaranteed. We are not liable for any inaccuracies. The reader is encouraged to consult with professionals before acting on the basis of the material in this report. You may quote the market report Colliers PULS by providing a full source of reference. MARKET RENT The market rent is defined as the rent that a qualified tenant and a qualified landlord would agree at the evaluation date for the respective property, taking into account, among other things, the location, size, use, flexibility, quality, equipment and state of maintenance. The specified market rent is indicated in DKK per m² per year and is exclusive of operating costs. Operating costs consist of elements such as property tax, street and road contributions, insurance, shared electricity, stair washing, etc. that would normally be paid by the tenant. The landlord normally pays expenses for external maintenance and administration. The market rent is determined based on the normal operating expenses, consistent with the market, in the respective area. NET INITIAL YIELD The yield is defined as the initial net operating income, which is the gross rental income and other income less any ground rent and after deduction of expenses and operating costs, at the date of valuation expressed as a percentage of the purchase price or gross capital value. The gross capital value is the total that a purchaser would have to pay, including property transfer taxes and other costs such as legal fees and agents. The property is assumed to be rented on market consistent terms with no vacancy. CONDITION AND LOCATION The individual property types and geographic areas are divided into the categories Best, Standard and Below average. The division refers both to the location and to the condition of the property, however for new constructions it is mainly location. Note that the division is associated with the individual property category, so that a good location for one property may be poor for another. CATEGORY DEFINITIONS: = The number is expected to increase in a year = The number is expected to be unchanged in a year = The number is expected to be lower in a year BEST // Prime location and quality. Either a new, modern building, or refurbished so that it is up-to-date and configured to meet future requirements. Low vacancy risk relative to market conditions. STANDARD // Good location and condition. The vacancy risk is moderate and reflects current market conditions. // The location or condition is below average. High vacancy risk relative to market conditions.

11 COLLIERS PULS Q2 / 2018 PAGE 11 OFFICE PROPERTIES Concerning the required rate of return, it is assumed that office properties are leased at terms consistent with the market. MARKET RENT DKK per m 2 per year excluding operation NET INITIAL YIELD (%) BEST STANDARD PROGNOSIS BEST STANDARD PROGNOSIS ZEALAND Copenhagen City Brokvarterer and Frederiksberg Waterfront Ørestaden Other Copenhagen* Suburbs north Suburbs south/west Roskilde Slagelse Ringsted Næstved Holbæk CENTRAL JUTLAND Aarhus City 1,400 1, Greater Aarhus 1, Horsens 1, Randers NORTHERN JUTLAND Aalborg City Other Aalborg Nørresundby Hjørring Frederikshavn TRIANGLE REGION AND SOUTHERN JUTLAND Vejle 1, Kolding 1, Fredericia 1, Esbjerg 1, FUNEN Odense City Other Odense Svendborg Middelfart Nyborg *Other Copenhagen consists of Vanløse, Valby, Brønshøj, Nordvest, Amager, etc.

12 COLLIERS PULS Q2 / 2018 PAGE 12 INDUSTRY AND LOGISTICS PROPERTIES Properties are located in an industrial zone with several properties of the same type. There is assumed to be a suitable administrative function on the property, in relation to its use. Concerning the required rate of return, it is assumed that the properties are rented to good lessees with leases that conform to the market. MARKET RENT DKK per m 2 per year excluding operation NET INITIAL YIELD (%) BEST STANDARD PROGNOSIS BEST STANDARD PROGNOSIS ZEALAND Other Copenhagen* Suburbs north Suburbs south/west Roskilde Slagelse Ringsted Næstved Holbæk Køge** Greve/Tåstrup** CENTRAL JUTLAND Greater Aarhus Horsens Randers Herning area NORTHERN JUTLAND Other Aalborg Nørresundby Hjørring Frederikshavn TRIANGLE REGION AND SOUTHERN JUTLAND Vejle Kolding Fredericia Esbjerg FUNEN Other Odense Svendborg Middelfart Nyborg *Other Copenhagen consists of Vanløse, Valby, Brønshøj, Nordvest, Amager, etc. **Modern logistics.

13 COLLIERS PULS Q2 / 2018 PAGE 13 RETAIL PROPERTIES Properties in, for example, pedestrian streets with rental premises that are targeted towards shopping goods stores. The rental premises are regular and with a suitable façade width, and their size is between m². MARKET RENT DKK per m 2 per year excluding operation NET INITIAL YIELD (%) BEST STANDARD PROGNOSIS BEST STANDARD PROGNOSIS ZEALAND Copenhagen City 25,000 10,000 2, Brokvarterer and Frederiksberg 3,700 2,250 1, Waterfront 3,500 2,500 1, Ørestaden 2,200 1,500 1, Other Copenhagen* 2,500 1,750 1, Suburbs north 3,500 2,500 1, Suburbs south/west 3,000 1, CENTRAL JUTLAND Aarhus City 7,000 2,600 1, Horsens 3,000 2,350 1, Randers 1,800 1, NORTHERN JUTLAND Aalborg City 4,600 2,500 1, Other Aalborg 1,400 1, Nørresundby 1, Hjørring 1,600 1, Frederikshavn 1,500 1, TRIANGLE REGION AND SOUTHERN JUTLAND Vejle 3,400 2, Kolding 2,500 1, Fredericia 1,800 1, Esbjerg 3,200 2,500 1, FUNEN Odense City 5,300 3,200 1, Other Odense 1, Svendborg 2,450 1, Middelfart 1, Nyborg 1, *Other Copenhagen consists of Vanløse, Valby, Brønshøj, Nordvest, Amager, etc.

14 COLLIERS PULS Q2 / 2018 PAGE 14 PROPERTIES WITH CONVENIENCE STORES Supermarkets/discount supermarkets. NET INITIAL YIELD (%) SUPERMARKETS DISCOUNT SUPERMARKETS PROGNOSIS ZEALAND Copenhagen City Brokvarterer and Frederiksberg Other Copenhagen* Suburbs north Suburbs south/west CENTRAL JUTLAND Aarhus City Horsens Randers NORTHERN JUTLAND Aalborg City Other Aalborg Nørresundby Hjørring Frederikshavn TRIANGLE REGION AND SOUTHERN JUTLAND Vejle Kolding Fredericia Esbjerg FUNEN Odense City Other Odense Svendborg Middelfart Nyborg *Other Copenhagen consists of Vanløse, Valby, Brønshøj, Nordvest, Amager, etc.

15 COLLIERS PULS Q2 / 2018 PAGE 15 BIG BOX STORES WITH SHOPPING GOODS The property is located in external commercial areas, which targets businesses with shopping goods. Therefore, it does not include properties used for the sale of product categories that take up a lot of space, in accordance with the relevant provisions of the Danish Planning Act. Concerning the required rate of return, it is assumed that the shops are rented out with leases that conform to the market. MARKET RENT DKK per m 2 per year excluding operation NET INITIAL YIELD (%) BEST STANDARD PROGNOSIS BEST STANDARD PROGNOSIS ZEALAND Other Copenhagen* 1, Suburbs north 1, Suburbs south/west 1, CENTRAL JUTLAND Greater Aarhus 1, Horsens 1, Randers NORTHERN JUTLAND Aalborg Nørresundby Hjørring Frederikshavn TRIANGLE REGION AND SOUTHERN JUTLAND Vejle 1, Kolding 1, Fredericia 1, Esbjerg 1, FUNEN Odense City 1, Svendborg *Other Copenhagen consists of Vanløse, Valby, Brønshøj, Nordvest, Amager, etc.

16 COLLIERS PULS Q2 / 2018 PAGE 16 NEW/NEWER RESIDENTIAL RENT PROPERTIES Properties occupied after December 31st 1991, and therefore subject to market rent according to s section 15a of the Housing Regulation Act, among others. MARKET RENT DKK per m 2 per year excluding operation NET INITIAL YIELD (%) BEST STANDARD PROGNOSIS BEST STANDARD PROGNOSIS ZEALAND Copenhagen City 2,000 1,650 1, Brokvarterer and Frederiksberg 2,000 1,650 1, Waterfront 2,000 1,600 1, Ørestaden 1,750 1,500 1, Other Copenhagen* 1,750 1,500 1, Suburbs north 2,000 1,500 1, Suburbs south/west 1,500 1,400 1, CENTRAL JUTLAND Aarhus City 1,750 1,650 1, Greater Aarhus 1,600 1,400 1, Horsens 1, NORTHERN JUTLAND Aalborg City 1,350 1,150 1, Other Aalborg 1,250 1, Nørresundby 1,250 1, Hjørring 1, Frederikshavn TRIANGLE REGION AND SOUTHERN JUTLAND Vejle 1,250 1, Kolding 1, Fredericia Esbjerg 1, FUNEN Odense City 1,500 1,250 1, Other Odense 1,150 1, Svendborg 1, Middelfart 1, Nyborg 1, *Other Copenhagen consists of Vanløse, Valby, Brønshøj, Nordvest, Amager, etc.

17 COLLIERS PULS Q2 / 2018 PAGE 17 OLDER RESIDENTIAL RENTAL PROPERTIES It is assumed that the properties are fully developed, such that there is no further potential for increasing rent through renovation, in accordance with section 5, subsection 2. Similarly, it is assumed that resources have been allocated for operation, pursuant to applicable rules. NET INITIAL YIELD (%) BEST STANDARD PROGNOSIS ZEALAND Copenhagen City Brokvarterer and Frederiksberg Waterfront Other Copenhagen* Suburbs north Suburbs south/west CENTRAL JUTLAND Aarhus City Greater Aarhus Horsens NORTHERN JUTLAND Aalborg City Other Aalborg Nørresundby Hjørring Frederikshavn TRIANGLE REGION AND SOUTHERN JUTLAND Vejle Kolding Fredericia Esbjerg FUNEN Odense City Other Odense Svendborg Middelfart Nyborg *Other Copenhagen consists of Vanløse, Valby, Brønshøj, Nordvest, Amager, etc.

18 Colliers International Group Inc. (NASDAQ: CIGI) (TSX: CIGI) is an industry-leading real estate services company with a global brand operating in 69 countries and a workforce of more than 15,400 skilled professionals serving clients in the world s most important markets. With an enterprising culture and significant employee ownership and control, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include strategic advice and execution for property sales, leasing and finance; global corporate solutions; property, facility and project management; workplace solutions; appraisal, valuation and tax consulting; customized research; and thought leadership consulting. In Denmark we are approx. 150 professionals in 5 different locations; Copenhagen, Aarhus, Vejle, Aalborg and Odense. colliers.dk Tlf COPENHAGEN Gammel Kongevej 11, 1610 Copenhagen V Palægade 2-4, 1261 Copenhagen K AARHUS Søren Frichs Vej 38 A, 8230 Åbyhøj Skovvejen 11, 8000 Aarhus C VEJLE Den Hvide Facet 1, 1. sal, 7100 Vejle ODENSE Tagtækkervej 8, 5230 Odense M AALBORG Østre Havnegade 20, 9000 Aalborg