Colliers Denmark Market Report 2024

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COLLIERS MARKET REPORT 2024

HOTEL INDUSTRIAL & LOGISTICS RETAIL RESIDENTIAL OFFICE

Negative total return for 2023 Commercial property pricing has been under pressure, which is reflected in the total return. For the whole of 2023 compared to the whole of 2022, the total return has been negative, specifically -0.55%, a historically low level. We have to go all the way back to the financial crisis in 2009 to find a similarly low level. Since major price corrections only occurred towards the end of 2023, it becomes rele vant to analyse the development of the total return in Q4 2022 compared to Q4 2023, which results in a decrease of 3.80%. A closer analysis of the total return through a decomposition shows to what extent different elements have contributed to the development. Despite the nega tive total return, it is highlighted that Denmark has a solid rental market anchored in record-high employment, which has contributed to a low vacancy rate and a direct return of 4.58%, which contributes positively to the total return. On the other hand, there has been a negative cap ital growth of -8.38% driven by general yield decompres sion. Overall, the total return is negative as the effect of the negative capital growth, driven mainly by higher yield requirements, exceeds the direct return.

More bankruptcies in the construction industry but few distressed sellers The construction sector, which is particularly cyclical, has recently seen an increase in bankruptcies due to ris ing construction costs, higher required returns and high interest rates - the ‘perfect storm’ for developers. This has meant that new construction projects are either put on hold or abandoned, in some cases resulting in bank ruptcies. The upcoming supply is primarily made up of develop ment projects that have already been in the pipeline for some time. This development has led to demand being directed more towards properties in operation, as the opportunity for investment in new construction is limited. Owners of standing properties have not been under as much pressure to make ends meet in the new interest rate environment. However, there have been a few transactions that have been provoked by the inter est rate increases. An example of this is the sale of two Copenhagen office properties by a Swedish investor, Corem Property Group.

Full-year 2023 vs. full-year 2022 Year-end 2023 vs. year-end 2022 Yield decompression driving total property return regardless of method 6% 6%

4%

4%

2%

2%

0%

0%

-2%

-2%

-4%

-4%

-6%

-6%

-8%

-8%

-10%

-10%

-12%

-12%

-14%

-14%

Total return

Income return

Capital growth

Rental growth

Yield decompression

Increase in vacancy

Note: Decomposition of total return, commercial property, Greater Copenhagen. Source: Colliers