Colliers Copenhagen Property Market Report 2019

Investing in Denmark – Market Report 2019

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THE DANISH MORTGAGE SYSTEM

The Danish mortgage system probably offers one of the world’s most efficient and reliable models of property financing, designed to work in favour of both borrowers and bond investors as well as the economy in general. It is based on flexibility, transparency and low costs due to market-based prices and advantageous prepayment terms. Compared to European commercial banks in general, Danish mortgage banks showed their resilience during the financial crisis of 2008-2009 by increasing mortgage lending. MORTGAGE LENDING PRACTICES In Denmark, the mortgage financing market is characterised by exceptionally low financing costs and a highly transparent cost structure due to a unique balance principle. Danish mortgage banks grant loans which must be secured by a mortgage on a real property, allowing for loan-to-value (LTV) ratios of up to 60-80% of the property’s ‘as-is’ value, depending on asset type and the debtor’s credit rating. Danish mortgage banks offer financing at fixed or floating rates with a maturity of up to 30 years.

In the past, domestic pension funds predominantly invested in core assets in prime Copenhagen locations. In 2018, pension fund acquisitions confirmed the shift in strategy, as major transactions included building rights in an upcoming new Copenhagen loca- tion at Grønttorvet in the district of Valby, industrial/logistics building rights in Fredericia, as well as a prime multi-user office building in Nordhavn with almost all leases nearing expiry of non-terminability periods. In addition, pension funds PFA and Topdanmark acquired a turnkey hotel in the Carlsberg City District in 2018, thereby affirming their commitment to the new Copenhagen district on the former site of Carlsberg Breweries as co-owners of the company in charge of developments, Carlsberg Byen P/S. Additional owners include pension fund Pensam and Carlsberg. Looking ahead, we expect domestic pension funds to allocate more capital to property investments. In line with its stated objective of allocating 12-15% of investment capital to property investments, PFA, one of the largest pension funds in Denmark, today boasts a property portfolio worth more than DKK 70bn, up from DKK 54bn at year-end 2017. Other domestic pension funds are believed to follow suit in the years to come, increasing prop- erty market exposure. Adding up the figures stated in the 2017 balance sheets of the five largest pension funds, total investments amount to DKK 1,692bn, up from DKK 1,635bn in 2016. An increase in allocations from a share of 5-10% to 12-15% would imply an addi- tional property investment volume of DKK 80-120bn in future. Holding this together with international institutional investors’ continued appetite for Danish investment assets, we expect that climbing interest rates will have only limited effect on property yields.

 MUHAMED JAMIL EID , muhamed.eid@colliers.com  MORTEN K. PETERSEN , morten.petersen@colliers.com