Colliers Market Report Denmark 2023

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Residential - Colliers Market Report 2023

Kr. Moreover, alternative or “competing” housing is a key determinant that decides if a rent increase will be perma nent. In Copenhagen and Aarhus, it is difficult to get hold of much less expensive housing of the same quality as rel atively new rental housing. For instance, the waiting lists for non-profit housing are very long, and old-stock resi Maximum indexation may have different outcomes Tenant does not accept: Risk of rental loss due to vacancies Tenant accepts: Potential for increased earnings kr. $ Kr. Kr. Rent adjustments require landlords to make proactive choices Irrespective of the added supply of various types of hous ing, most dwellings had one thing in common in 2022: Record-high inflation meant that the adjustment of rent was no longer a matter of automatic procedure, but rather an asset that required business plan revision. Many landlords are advised to carefully assess if tenants are able and willing to pay the rent increase that high inflation allows for. As it is, hikes in prices – and a sharp drop in real wages – have already put some tenants under financial pressure. In other words, a landlord faces higher vacancy risk if raising the rent more than tenants and the local residential market can sustain. For rent adjustments based on the net price index (NPI) of 2022 and 2023, the Danish Parliament has introduced a 2-year cap of 4%, and most landlords have chosen to adjust rents by this rate. However, some institutional investors have refrained from raising rents by the allowed 4% in neighbourhoods where the residential market is beleaguered, that is, landlords have concluded that a max imum rent increase would do more harm than good. Should inflation stabilise at a level above the previous yearslong 1-2% target rate, landlords would do well to evaluate individual rental properties, including tenant mix, that is, are they students or employed, with regular incomes. If rent indexation is carried out automatically, pushing rents beyond the financial reach of existing resi dents, and beyond the rent level that the property and the location can sustain, there is a risk of the rent increase trig gering a drop in operating income due to (higher) vacancy and reletting at lower rents. High inflation triggering diverging trends in market rent Although most landlords will raise rents by the 4% max imum rate introduced by the Danish Parliament, mar ket rent levels will not necessarily see the same rate of increase, because they hinge on whether tenants are able and inclined to pay higher rents. This will be the case for some households whereas others may be straining due to inflation and the dip in real wages. Tenants’ disposable income levels vary across munici pal boundaries and within individual municipalities, from neighbourhood to neighbourhood, from estate to estate.