Colliers Copenhagen Property Market Report 2019

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Copenhagen Property Market Report 2019

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Strongest office market since the crisis

Need for more office space as employment rises

Today’s Copenhagen office market is the strongest market in more than ten years, with mounting demand driving vacancy rates down and rental prices up.

Continued economic recovery and strong confidence in future prospects have encour- aged an increasing number of businesses to expand their workforce. This applies to more or less all business sectors. Since Q3 2017, the number of full-time equivalent employees (FTEs) has increased by some 10,100 in Copenhagen and by some 18,300 in the Capital Region of Denmark. In particular, office-intensive industries such as ‘Trade and trans- port’, ‘Information and communications’, ‘Business services’ and ‘Public administration’ (categories used by Statistics Denmark) are growth drivers, combined accounting for 75% of FTE growth in Copenhagen. At the beginning of Q4 2018, the Copenhagen office vacancy rate was 6.0%, having dipped to 5.7% at start-Q1 (Ejendomstorvet.dk). Although statistics fail to show an unequivocal downtrend, it is worth bearing in mind that office vacancy rates cover both old and relatively new office buildings. A review of available office leases reveals that existing office vacancies are confined largely to old-stock buildings, whereas new and up-to-date buildings have virtually no prolonged vacancies. In the short term, the office market is expected to continue to prosper, putting further pressure on vacancy rates and rent levels. However, whereas recent years’ office market boom has been driven by the demand side and employment growth, we believe that future improvements in market fundamentals will be driven mainly by stagnant supply, which will be unable to match the projected increase in demand. Sluggish newbuilding and speculative building Broadly speaking, an increase in office occupational demand was in the past largely matched by a corresponding increase in office supply, which has served to keep office rent levels relatively constant in Copenhagen over the last 10-15 years. However, irrespective of the highly favourable conditions in today’s office market, we still see a pronounced aversion in the investor and developer community against new office construction unless a substantial share of lettable space is pre-let. Although there is a fairly strong pipeline of new office space both in the CBD and in neighbouring districts, most of it is pre-let, and several businesses are therefore likely to be frustrated in their ongoing search for new premises despite this added new supply.

+1,295

Information and communication

+3,235

Trade and transport

+4,101

Other business services

+1,904

Construction

+1,175

Finance and insurance

+6,643

Other 1

+18,353

Total

Note: FTE growth, Capital Region of Denmark, Q3 2017 to Q3 2018.

1 Other includes Real estate, Public administration, Manufactur- ing , Agriculture and other unspecified business activities. Source: Statistics Denmark