Colliers Copenhagen Property Market Report 2019

Special Feature: Aarhus – Market Report 2019

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AARHUS S is a secondary office location offering the most affordable office space PRIME RENT: DKK 1,000 per sqm p.a. SECONDARY RENT: DKK 700 per sqm p.a.

Occupational demand in the district is driven by various types of business but mainly public organisations, trade and technology as well as industrial/logistics businesses, the latter exclusively targeting Aarhus S due to easy motorway access and proximity to storage facilities. This type of tenant tends to be strongly cost focused. In the district, private sector businesses pay annual rents of DKK 556-679 per sqm on average. In our sample, public organisations pay substantially more, DKK 1,025 per sqm p.a., typically occupying modern office space in top locations in Aarhus S. As for non-terminability, tenants in the district have agreed to highly different terms, with industrial/logistics tenants committing to an average term of 84 months (7 years), whereas public organisations as well as trade and technology businesses have committed to average terms of 54 months (4.5 years) and 51 months (4.25 years), respectively. Among the four main office districts, Aarhus S is characterised by the highest annual minimum rent adjustment rates, 1.90% on average, with 81% of tenancy agreements subject to minimum rent adjustment. Parking is typically free of charge in this district. Sustained low vacancy rates Office letting has accelerated in the Aarhus market in the past 24 months, driving down the office vacancy rate to 8%, marking an eight-year low. However, the pre-crisis level of 5% is still a way off. Recorded vacancies cover general market fluctuations as well as relatively large disparities across various office locations. At end-2018, online web portal Ejendomstorvet.dk released a report on office vacancies, according to which more than 80% of office space in Aarhus C and Aarhus N – both prime office locations – was relet in less than 365 days, implying generally fast-paced letting activity. Seen in isolation, Aarhus V, has longer reletting periods, with an even share of office space in the 365+ days category. This implies a certain degree of market segmentation, with the two prime office districts, Aarhus C and N, typically benefitting from shorter reletting periods and lower vacancy risk than more secondary office locations. A vacancy rate of 8% could indicate that the existing office supply is sufficient to meet occupational demand in the years ahead. As mentioned, however, we argue otherwise as the quality of today’s office supply is not aligned with current tenant requirements in terms of building design, quality, functionality, location, indoor climate, etc. Strong office market spawns speculative newbuilding Several local and domestic investors have been quick to recognise the favourable trend in the Aarhus office market, including the moderate vacancy risk associated with up-to- date office properties. As a result, some investors have initiated speculative office newbuilding. Nevertheless, speculative construction schemes remain a relatively rare phenomenon in Aarhus where developers typically continue to require tenant commit- ments for roughly 50% of lettable space ahead of construction start. Nevertheless, to our knowledge, recent years’ speculative newbuilding schemes have all been successful, meaning that although they were initiated without any prelet agree- ments in place, they were in fact fully let when obtaining occupancy approval. Speculative

Office vacancy has dropped to 8% in the past 24 months, marking an eight-year low

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Source: Ejendomstorvet.dk