Colliers Market Report Denmark 2023

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Retail - Colliers Market Report 2023

Hotel I ndustrial & logistics Retail Residential Office

Changing conditions for tenants and landlords The grim conditions facing the retail sector are forc ing both tenants and landlords to adapt to a changing retail landscape. The coronacrisis prompted increased dialogue between the two parties, and flexibility and dialogue remain key if both parties are to weather a potentially looming recession as unscathed as possi ble. Shops and eateries were beleaguered by the rise in inflation that eroded the purchasing power of Danish households in 2022, just as many tenants were straining under high energy prices to power fridge and freezer counters, etc. Inflation also spelt prospects of substan tial rent increases for tenants with no cap on annual rent adjustments. Inflation and rent reviews were at the crux of the dilemma facing many landlords: Should they carry out a full rent adjustment as usual linked to the net price index, at the risk of tenants moving out and landlords potentially fac ing long-term vacancies? Or should the landlord on indi vidual lease unit level assess the chances of the tenant in question being financially strong enough to stom ach a “full” rent adjustment? In the first instance, many landlords have adjusted the rent at the rate they have been entitled to, but in the second instance, they have entered into a dialogue with at least some tenants.

It may be risky business for landlords to charge the maximum indexation rent. Many tenants are straining due to weaker household purchasing power and higher energy prices, and perhaps the prolonged coronacri sis even left them financially weakened. In response to renewed inflation, tenants will increasingly demand a cap on annual rent adjustments. There is anecdotal evidence of landlords showing flex ibility to meet tenant requirements. Some landlords have become more sympathetic to the fact that tenant finances may be stretched in the startup phase, offering to contribute to fitting-up costs, optimising sales areas or allowing for temporary rent reductions based on individ ual tenant needs and without impairing the market rent in case of the landlord granting a short-term discount. As 2022 wore on, many tenants were forced to scru tinise price calculations and operating costs, mainly energy costs. Energy optimisation initiatives are there fore highly valuable to tenants, potentially helping them to cut their expenses/balance cost pressure. Landlords able to offer energy-optimised lease premises therefore have better negotiation leverage, all the while they also harvest the financial benefits of energy savings in terms of a higher net rent.

Consumer confidence taking a nosedive

30

20

10

0

-10

-20

-30

-40

13

14

15

16

17

18

19

20

21

22

Consumer confidence indicator

Financial situation of the household over the next 12 months

Source: Statistics Denmark, Colliers

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