Colliers Copenhagen Property Market Report 2019

Residential – Market Report 2019

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RESIDENTIAL MARKET

Denmark, some 25% of Danish businesses in 2018 observed, and expect to continue to observe, labour shortage. Labour shortage has caused bottleneck issues, making it necessary to hire more labour from abroad, suggesting that the Danish business sector in general requires access to a wider pool of skilled labour. Construction activity is expected to remain brisk in 2019. Judging by the current pipe- line, the volume of residential completions may well exceed 500,000 sqm in 2019 too, but longer term, capacity utilisation levels are likely to drop, just as several building engineers and architects are already facing a slowdown in new orders. Is residential newbuilding still profitable? A cocktail of stronger newbuilding activity and labour shortage has driven up construc- tion costs. Since 2011, construction costs have increased by approximately 11%, driven up mainly by a strong increase (21%) in labour costs. Investors and developers have had to factor in rising construction costs, while rent levels and selling prices have continued to climb. Rent levels in particular have now become so high that they are barely within the financial reach of many existing Copenhagen resi- dents. Should rental and selling prices stabilise or edge down even slightly, investors and developers will be in somewhat dire straits, as newbuilding in such a scenario will be profitable only if accompanied by a decline in building right values. However, the prices of building rights are seemingly slow to adjust. We expect the pipe- line of residential newbuilding to shrink within the next 24 months or longer, as current market conditions hardly incentivise investors and developers to compromise develop- ment margins by speeding up new development schemes. Housing supply fails to meet actual demand In Copenhagen, new residential construction is regulated by planning provisions for average unit size requirements. New residential units must be at least 95 sqm on average. However, up to 25% of gross floorspace may be discounted in the calculation of average unit size. Overall, the minimum unit size is 65 sqm, but in certain special devel- opment areas unit sizes down to 50 sqm are acceptable. Restrictions and minimum area requirements have served to render the new housing supply less diversified, effectively making it less accessible to the lowest income brackets: Large average unit sizes combined with climbing ownership and rental prices mean that mainly the highest income brackets are able to afford new residential units. The demand for smaller units is growing, not least because of the large number of young people moving to Copenhagen every year. In addition, the population of Copenhagen is charac- terised by a large proportion of single households, in 2018 accounting for 31%, which also demand smaller unit sizes.

Ownership housing ratios, 2018

50% All Denmark

Copenhagen

20%

Building stock, Cph 1 : 30 million sqm Share in multifamily buildings, Cph: 89%

Average flat size, Cph: 75 sqm

2018 IN REVIEW, CPH 1

Added supply: 525,000 sqm (est.)

Change in demand: + 500,000 sqm (est.)

Rental growth: 2.50%

Owner-occupied flat price growth: 2.25%

1 Copenhagen in this context includes Copenhagen proper and the district of Frederiksberg. Sources: Statistics Denmark and Colliers International