Colliers København Delrapport 2023 UK

OFFICE

Robust office letting market

Because of the city’s diversity, supply and demand are highly heterogeneous, reflected in a substantial spread in rent lev els. Most of all, this applies to central Copenhagen, the CBD (Central Business District), where demand is exceptionally strong. Held together with the limited supply in the CBD, this has rendered it difficult for businesses to find the right premises in a central location. The businesses in question, operating mainly in the liberal professions or knowledge-in tensive industries, demand a central location as they con sider this to be a key parameter to attract and retain young skilled talent. Historically low office vacancy In 2022, employment figures continued to accelerate at a high pace, now hitting new highs. Despite heightened mar ket uncertainty, employment levels have helped to sustain office occupational demand in most of Denmark, but in Copenhagen in particular, as the city is Denmark’s premier centre for economic growth and office-intensive industries. However, user requirements have changed along with market conditions. For instance, the increased need for flexibility has triggered a stronger push for short non- terminability periods. In addition, sky-high inflation has prompted many tenants to demand a cap on rent adjust ments. Similarly, lockdowns and restrictions during the coronavirus pandemic have reshaped the office workplace in terms of more flexible office landscapes, with activity- based working coming to the fore, including the possi- bility of shared workstations. Despite a year of widespread market un- certainty and to some extent deteriorating conditions, the Copenhagen office market continues to be characterised by massive demand.

Whereas businesses relatively swiftly can shift their strategic focus to growth and new hires, the supply in the office mar ket is not equally equipped to allow for short-term adjust ments. In addition, Copenhagen has a natural cap on supply in some city districts, in the sense that even periods of brisk newbuilding, as currently witnessed, only have a modest ef fect on the supply and demand balance of the office market. Along with continuously mounting demand, this has served to drive down overall vacancy rates in Greater Copenhagen. Existing vacancies are predominantly found in outdated and functionally obsolete premises and/or in more secondary locations. Bright outlook defies changeable times On the back of a year of exceptionally favourable market conditions and limited supply, 2022 was characterised by general rental growth across all Copenhagen districts, in terms of both prime (first-rate) and secondary premises. Furthermore, rent levels in the most sought-after districts are expected to come under upward pressure due to rent indexations setting new market rent standards. Historically, international investors have viewed a CBD loca tion as a categorical investment criterion. However, the re quirement has gradually softened due to brisk development activity in several non-CBD office areas that offer exception ally good accessibility. In 2023, this trend is expected to con tinue, with investor demand expected to increase for Valby and Sydhavn. In both districts, metro stations are scheduled for commissioning in 2024. In the past and to this day, the Copenhagen office invest- ment market differs from office markets in the rest of Den- mark as the Copenhagen market is driven by e.g. domestic pension funds and foreign investors with a long-standing appetite for Copenhagen. This appetite is supported by high market transparency, low vacancy risk and the yield premium that Copenhagen offers relative to comparable