Colliers København Delrapport 2023 UK

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Residential transaction activity slowed in 2022 – investors in stand-by position

ing of large residential units has attracted demand from many young families that often lack the financial means to enter the ownership housing market due to current pricing and financing requirements. The residential market segment has for some time now been property investors’ top pick. However, the rise in in- terest rates in 2022 has dampened demand, because finan- cing terms and achievable LTVs have greatly deteriorated. This has been particularly evident in Copenhagen, as resi- dential property here trades at the lowest yields, which means that this kind of property bears the brunt when interest rates move higher as the cashflows from property operations is required to cover costs associated with stand ard financing. By the same token, an increasingly uncertain market outlook and a shift in sellside/buyside power bal ance in favour of the buyside dramatically changed the residential investment market in 2022. In 2022, the Copenhagen residential transaction volume fell dramatically below the 2021-level, which to some extent was anticipated as 2021 witnessed a record-high total trans action volume. Mainly residential properties in top locations have suffered a blow, commanding the lowest yields, and with the movement in interest rates severely impacting achievable LTVs for this segment. In addition, the currently higher interest rate payments impair investors’ overall in vestment assumptions and business case. Similarly, the change in market conditions have made investors some

For years, Copenhagen rent levels have been uptrending. This was also the case in 2022. In particular the higher rent adjustment rates due to high inflation have contributed to a rent uplift. This applies mainly to areas characterised by scarce supply and strong demand. However, rent levels have in many locations reached a level where many tenants are neither willing nor able to pay the rent. As far as this group of tenants is concerned, suburban rent levels may well be more alluring. Still, rents have increased across the board, also in Copenhagen suburbs, involving both prime and secondary properties. Although already high in central Copenhagen, rent levels are expected to see a sustained in crease in 2023, with urban sprawl and new central residen tial schemes playing an important part. When the city grows, prime locations typically become more popular as they are considered unique. However, as supply has a natural limit in such locations, and with rent adjustments being higher here (and tenants ready to pay them), rent levels are ex pected to increase in prime locations. New micro living projects, e.g. Kaktus Towers at Dybbølsbro in central Copenhagen, have highlighted how differentiated residential schemes are attracting exceptional tenant inter est. In addition, these projects have shown that the propen sity to pay is intact provided the residential units meet ten ant requirements. Such projects are therefore fully let, even if at excessive rent levels. Similarly, the large-scale newbuild

Copenhagen Local market report to Colliers Market Report 2023

Typical rent levels

Residential

Change

2020 2,200 1,650 1,800 1,450 2,000 1,550 1,850 1,450

2021 2,300 1,650 1,850 1,450 2,100 1,550 1,850 1,450

2022 2,350 1,700 1,850 1,450 2,200 1,600 1,900 1,500

2023 2022-2023

Copenhagen K

Prime

2,400 1,800 1,950 1,500 2,250 1,700 1,950 1,550

2.13% 5.88% 5.41% 3.45% 2.27% 6.25% 2.63% 3.33%

Secondary

Copenhagen NV

Prime

Secondary

Frederiksberg

Prime

Secondary

Valby

Prime

Secondary

Note : Rent levels quoted in DKK per sq m p.a. for new residential units of 75-80 sq m, ground-floor and penthouse units excepted, Copenhagen. Level in 2023 indicates Colliers' estimation at year-start . Source : Colliers.