Colliers Denmark Market Report 2024

10

COLLIERS MARKET REPORT 2024

According to Danmarks Nationalbank, around 9% of total mortgage lending to property companies is expected to be adjusted from an interest rate below 1% by 2025. However, it is important to point out that the risks associated with the interest rate adjustments may be hedged through the use of interest rate derivatives, which limits the impact. At the same time, it is highlighted that the majority of mort gage lending is already floating rate and so far has not generally resulted in distressed sellers across the sector. The Systemic Council’s recommendation to activate a new sector-specific systemic capital buffer for exposures to property companies at a rate of 7% will become a real ity on 30 June 2024. The new buffer will increase credit institutions’ financial buffers to better withstand impair ments and losses on their lending to property compa nies. Several stakeholders have attempted to estimate the impact of the legislation on the capital requirement, and while estimates vary widely, it suggests that the leg islation will result in an increased capital requirement of between DKK 10-20 billion. All other things being equal, an increased capital require ment will result in increased funding costs, assuming banks decide to pass the bill on to borrowers. While the measure will affect the entire sector, the impact will be greatest for borrowers financing higher risk pro jects/properties, as these loans are assigned a higher risk weight by banks. Assuming that the analysis of the impact of the capital requirement of DKK 10-20 billion proves to be accurate, Colliers estimates that the price effect of the legislation will be so modest that it is hardly measurable in the pricing of the commercial and invest ment property market. While 2023 has been a challenging year to raise capital, data from Preqin indicate that an increasing share of the capital raised has Denmark on the list of potential target countries. The Danish market is competing with prop erty markets in other countries to attract this capital, and before international investors return to the Danish mar ket on a large scale, they need to assess the pricing here as attractive compared to other markets. With a gradual improvement in framework conditions, including decreas ing interest rates, Colliers expects that this, together with increased transparency in pricing, will boost the Danish investment market. In particular, foreign investors, who have historically accounted for more than half of the trans action volume in the Danish market, are expected to return. Activation of new capital buffer will have a limited effect Better framework conditions and improved market transparency will shape 2024

ESG has become a more integral part of the decision-making process ESG has increasingly become an integral part of the invest ment decision-making process and there is widespread consensus among investors that ESG measures are now considered an essential investment parameter. An international survey conducted by Colliers in 2023 indi cates that most market players are moving from consider ing environmental initiatives to expecting to implement or have concrete action plans for the environmental aspects of their buying and selling activities by 2024. The analysis focuses on the international property market and inves tors’ views. In this context, it should be emphasised that the study does not specifically say anything about Danish inves tors. Nevertheless, the trend of increasing environmental awareness is also considered to apply here in Denmark, where, among other things, the number of DGNB-certified projects has been rising sharply.

Prevalence of environmental initiatives among property investors

Only a consideration

Currently being integrated

Completed full asset assessment

Capital programme, disposals & acquisitions strategy in place

0% 10% 20% 30% 40% 22 23 24

SPOTLIGHT

Note: International investor survey. Proportions of investors (%) responding to the question which action they are taking on environmental performance

of assets when buying and selling properties. Source: Colliers 2024 Investor Outlook Survey