Copenhagen Property Market Report 2020

2020

COPENHAG EN PROPE RT Y MAR K E T R E PORT

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Copenhagen Property Market Report 2020

CONTENTS

4

Letter from the CEO. Are the good times likely to last?

Kan gode tider vare for evigt?

20

6

Solid Danish property market Decline in transaction volume, but capital abundance

OFFICE HOTEL RETAIL INDUSTRIAL REGIONS RESIDENTIAL

Fald i transaktioner trods masser af kapital

12

Property price index Renewed increase in property price index

44

Ny stigning i ejendomsprisindeks

20

Office Office market with a strong tailwind

Kontormarked med stærk medvind

66

44

Residential Sustained housing demand

Fortsat efterspørgsel på boliger

66

Retail Retail market under pressure

82

Detailmarkedet under pres

82

Industrial & logistics Bolstered by strong economy and e-commerce

Med stærk økonomi og nethandel i ryggen

102

102

Hotel Buoyant hotel market

Solid vækst for hoteller

114

Major Danish growth centres outside Copenhagen De væsentligste vækstcentre uden for København

114

128

Danish economy Danish economy in top shape

Dansk økonomi i topform

136 137 138

Market practises Definitions About Colliers International

Watch Peter Winther’s video presentation of latest market trends and our take on what the commercial property market will bring in 2020

WATCH VIDEO

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Copenhagen Property Market Report 2020

Are the good times likely to last? Kan gode tider vare for evigt?

The Danish commercial and investment property market continues to thrive: Occupational demand in particular for o ce and industrial/logistics is constant and fair, and investment market demand is strong. A cocktail of very healthy Danish fundamentals, high political stability and fairly strong growth momentum makes Denmark, and Copenhagen in particular, an investment destination coveted by international investors, in 2019 accounting for the market’s top-5 single-property transactions, all facilitated by Colliers. Due to an exceptionally low interest rate level with negative interest rates across a wide maturity spectrum, the yield spread, deƒned as the spread between the income return on investment property and the yield on a 10-year government bond, is wider than ever before, with both domestic and international investors continuing to funnel more capital into the property market. Despite the general notion that good times are unlikely to last, and although a few sectors and segments are seeing budding signs of oversupply due to brisk newbuilding, the market is generally healthy, characterised by attractive income returns, substantial equity capital and quite low average LTV ratios.

Det danske erhvervs- og investeringsmarked fortsætter sin positive udvikling. Lejeefterspørgslen efter især kontor og industri/logistik er stabil og god, og på investeringsmarkedet er efterspørgslen kraftig. Kombinationen af en meget sund nationaløkonomi, en høj politisk stabilitet og en ganske god økonomisk udvikling gør Danmark og især København til en eftertragtet investeringsdestination for internationale investorer, som i 2019 stod for de 5 største enkelttransaktioner, alle formidlet af Colliers. Det ekstremt lave renteniveau med negative renter i en stor del af løbetidsspektret har betydet, at ”yield spread” – det direkte mera‘ast ved ejendomsinvesteringer i forhold til 10-årige statsobligationer – er højere end nogensinde før, og både danske og internationale investorer allokerer fortsat mere kapital til ejendomsmarkedet. Gode tider kan ikke vare for evigt. Og der ses enkelte sektorer og områder, hvor der er registreret tendenser til overudbud som følge af et højt nybyggeri. Men generelt er markedet sundt, præget af attraktive direkte a‘ast, meget egenkapital og en ganske lav gennemsnitlig belåningsgrad.

This makes us conƒdent that 2020 will be another good year in the property market.

Vi er hos Colliers overbeviste om, at 2020 vil være endnu et godt år på ejendomsmarkedet.

Copenhagen, February 2020

PETER WINTHER, PARTNER AND CEO (MRICS) peter.winther@colliers.com

Copenhagen Property Market Report 2020

6

SOLID DANISH PROPERTY MARKET

DeloitteHuset, Weidekampsgade 6, Copenhagen CBD

Solid Danish property market

7

Copenhagen Property Market Report 2020

Decline in transaction volume, but capital abundance Fald i transaktioner trods masser af kapital

For the second year running, transaction volume in the Danish property market dropped, in 2019 standing at about DKK 57bn, down from DKK 71bn in 2018. This decline does not reflect a lack in demand, however, as we continue to see massive domestic and foreign investor demand. In fact, competition has intensified for most property types on account of sustained low interest rates and substantial placement requirements in the investor community. More than anything, the slowdown in transaction activity therefore reflects limited property supply. The fact that new international investors continue to enter the Danish market serves to underpin the scale of placement requirements. According to a recent poll by EjendomsWatch, domestic pension funds are seeking to increase their property exposure by DKK 60bn in total in the years ahead.

For andet år i træk faldt omfanget af transaktioner på det danske ejendomsmarked og udgjorde i 2019 ca. 57 mia. kr. mod 71 mia. kr. i 2018. Faldet er dog ikke udtryk for manglende efterspørgsel, og vi kan fortsat registrere massiv interesse fra både danske og udenlandske investorer. Tværtimod er der blevet mere intens konkurrence om de fleste typer ejendomme i kraft af et fortsat meget lavt renteniveau og et stort placeringsbehov blandt investorerne. Det mere afdæmpede omfang af handler afspejler derimod i høj grad det begrænsede udbud af ejendomme. Det store placeringsbehov understøttes blandt andet af en fortsat tilgang af nye internationale investorer. Desuden viser en nylig rundspørge foretaget af EjendomsWatch, at danske pensionskasser ønsker at øge deres investeringer i ejendomme med samlet omkring 60 mia. kr. inden for de kommende år.

Renewed slight decline in transaction volume despite capital abundance

TRANSACTION VOLUME: The decline in transaction volume is not due to lack of investor demand but rather a mismatch between sell-side and buy-side price expectations.

20 30 40 50 60 70 80 90 100

0 10

10

11

12

13

14

15

16

17

18

19

Greater Copenhagen

Rest of Denmark

Note: Transaction volume, Denmark (DKK billion). Source: Colliers

Solid Danish property market

Copenhagen Property Market Report 2020

8

Shift from residential to office property The decline in transaction volume is driven mainly by a slowdown in the residential segment, where brisk newbuilding activity has made some investors hold back. At the same time, several transactions have been suspended as the possibility of political intervention against modernisations is looming, involving the much-debated section 5(2) of the Danish Residential Rent Regulation Act. The market for office property on the other hand has seen multiple high-volume transactions involving centrally located properties, with the combination of strong demand and limited supply translating into record-low yield requirements for this property type. Major investors in particular from Germany and the Nordics have contributed to yield compression, as a small yield premium is still achievable in Copenhagen when compared to e.g. Stockholm, Oslo, Hamburg and Munich. As a result, prices have now reached such a high level that some long-term investors will probably consider making office property divestments and reallocations to other property types. This also applies to some domestic investors relying more on comparing risk-and-return ratios offered by various property types across Denmark rather than on comparing risk-and-return ratios offered by the same property types across national borders.

Forskydning fra boliger til kontorer Faldet i omfanget af transaktioner skyldes især en opbremsning inden for boligejendomme. Her har omfattende nybyggeri gjort nogle investorer mere tilbageholdne, og samtidig er flere handler sat i bero på grund af usikkerheden om et muligt politisk indgreb mod moderniseringer, den meget omtalte paragraf 5, stk. 2 i boligreguleringsloven. Til gengæld har markedet for kontorejendomme oplevet flere store handler med centralt beliggende ejendomme, og den store efterspørgsel kombineret med et begrænset udbud har givet sig udslag i rekordlave afkastkrav for denne type ejendomme. Især større investorer fra Tyskland og Norden har været med til at drive afkastkravene ned, da der stadig eksisterer en mindre afkastpræmie i København i forhold til fx Stockholm, Oslo, Hamborg og München. Det har betydet et så højt prisleje, at nogle langsigtede investorer formentlig overvejer, om de skal sælge kontorejendomme og i stedet øge investeringerne i andre typer ejendomme. Det gælder fx nogle danske investorer, der i højere grad sammenligner risiko og afkast på tværs af ejendomstyper i Danmark frem for at sammenligne risiko og afkast for samme type ejendomme på tværs af grænser.

Sluseholmen, Copenhagen waterfront

Solid Danish property market

9

Copenhagen Property Market Report 2020

Residential assets remain the most coveted

Core assets head the field

41% Residential 35% Office 9% Industry/logistics

64% Core 29% Value-add 2% Opportunistic 5% User

6% Hotel 5% Retail 4% Other

Note: Breakdown of transaction volume by asset type. Rounded figures. Transaction volume, Denmark. Source: Colliers

Note: Breakdown of transaction volume by investment type. Rounded figures. Transaction volume, Denmark. Source: Colliers

Continued strong foreign presence For several years, Denmark has been a popular investment market with mainly Swedish property companies and German pension funds, most recently joined by investors from South Korea and Japan. Foreign investors perceive Denmark as a safe haven thanks to its stable economy, stable currency and stable political system. Moreover, the property market offers low transactions costs, favourable mortgage terms and attractive return-to-risk ratios. In 2019, foreign investors accounted for 52% of total transaction volume. This followed recent years’ trend towards a stronger predominance of foreign investors, a trend we believe will continue as we expect several new foreign investors to enter the Danish market. In 2019, seven of top-ten transactions involved foreign investors on the buyside, among them Swedish Klövern, acquiring Kalvebod Brygge 32 at a record-low yield of approx 4.00%, and Norwegian KLP, acquiring DeloitteHuset at a yield of about 3.60%. Swedish Niam accounted for the biggest transaction of the year, acquiring the Copenhagen Towers complex in the district of Ørestad, at approx DKK 2.3bn. A few hundred metres further on, French AXA closed the year’s biggest residential acquisition – at a price of DKK 1.3bn.

Fortsat mange udlændinge Gennem flere år har Danmark været et populært sted at investere for især svenske ejendomsselskaber og tyske pensionskasser, og senest er investorer fra Sydkorea og Japan kommet til. De udenlandske investorer betragter Danmark som en sikker havn med stabil økonomi, stabil valuta og stabilt politisk system. Samtidig er ejendomsmarkedet præget af lave handelsomkostninger, gode lånevilkår og attraktive afkast i forhold til risikoen. 2019 stod udenlandske investorer for 52% af værdien af de samlede transaktioner. Dermed fortsatte de senere års udvikling med en større udenlandsk andel, og udviklingen forventer vi vil fortsætte, da vi venter at se flere nye investorer fra udlandet. Blandt de ti største transaktioner i 2019 var udlændinge involveret som købere i de syv. Blandt dem var svenske Klöverns køb af Kalvebod Brygge 32 til et rekordlavt afkast på omtrent 4,00% og norske KLP’s overtagelse af DeloitteHuset til et afkast på ca. 3,60%. Svenske Niam stod bag årets største handel med købet af Copenhagens Towers-komplekset i Ørestad for ca. 2,3 mia. kr. Få hundrede meter væk gennemførte franske AXA årets største køb af boligejendomme – til en pris på 1,3 mia. kr.

Solid Danish property market

Copenhagen Property Market Report 2020

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The pursuit of low-risk property Following years of strong Danish growth momentum, the outlook for the years ahead is marked by a higher degree of uncertainty, as reflected in investor preferences. We witness a demand for a larger share of core properties offering high security due to good locations, low vacancy rates, financially strong tenants on long lease agreements, etc. It remains to be seen however if the supply of core properties will increase. Many of them are in fact owned by strategic and long-term investors with no imminent divestment plans despite today’s high prices, but rather attaching great emphasis on fixed- value property assets in the face of uncertain economic growth prospects. In addition, the sale of core properties would only exacerbate already existing serious capital placement difficulties. However, prices have risen so high that it cannot be ruled out that some investors will realise profits generated from recent years’ price hikes. Sustained demand in secondary locations Irrespective of the immense appetite for prime locations, we see sustained demand for properties in secondary locations, associated with inherently (slightly) higher risk. This applies e.g. to residential property in Copenhagen suburbs and major provincial towns and cities. These locations offer higher returns, at the expense of higher risk, but investors remain undeterred due to prospects of stronger population growth and lower housing burden ratios for tenants in these locations compared to Greater Copenhagen and Aarhus. In addition, strong occupational market trends in the office and industrial/logistics segments alike serve to retain a fair level of interest for properties outside Copenhagen proper, exemplified by PensionDanmark’s acquisition of NCC’s Company House® in Vallensbæk for DKK 240m. Nevertheless, in 2020 we expect to see a shift in investments away from the suburbs and other Danish locations in favour of Copenhagen in the pursuit of low risk.

Jagt på sikre ejendomme Efter flere års høj økonomisk vækst i Danmark er forventningerne for de kommende år præget af større usikkerhed, og det afspejler sig i investorernes præferencer. Vi ser et ønske om en større andel af core-ejendomme med høj grad af sikkerhed, fx god beliggenhed, lav tomgang og solide lejere på lange kontrakter. Det er dog tvivlsomt, om flere core-ejendomme vil blive udbudt. Mange af dem er nemlig ejet af strategiske og langsigtede investorer, som trods de høje priser ikke har umiddelbare salgsplaner, men tværtimod lægger stor vægt på værdifaste ejendomme på grund af usikkerheden om den økonomiske vækst. Ydermere ville salg af core-ejendomme blot forøge de eksisterende store udfordringer med at placere kapital. Priserne har dog nået et niveau, hvor det ikke kan afvises, at nogle investorer vil hjemtage gevinster efter prisstigningerne de senere år. Stadig efterspørgsel på sekundære beliggenheder Trods den massive interesse for primære beliggenheder ser vi stadig en søgning mod ejendomme med sekundære beliggenheder og tilsvarende (lidt) højere risiko. Det gælder eksempelvis boligejendomme i forstæderne til København og i de større provinsbyer. Her er afkastet højere og afspejler en øget risiko, men det skræmmer ikke investorerne i lyset af prognoser om stigende indbyggertal og en lavere boligbyrde for lejere end i hovedstaden og Aarhus. Desuden ser vi, at det stærke lejer- og brugermarked inden for både kontorer og industri/logistik er med til at fastholde en pæn interesse for ejendomme uden for selve København. Et eksempel er PensionDanmarks køb af NCC’s Company House® i Vallensbæk for 240 mio. kr. Vi forventer dog i løbet af 2020 at se en forskydning i investeringerne væk fra forstæderne og det øvrige Danmark til fordel for København på grund af jagten på sikkerhed.

Solid Danish property market

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Copenhagen Property Market Report 2020

Investment demand remains strong We expect investment demand to remain strong in the Danish market in 2020. Vast amounts of capital have accumulated, earmarked for investments in brick and mortar but still waiting to be placed. In addition, the anticipated interest rate hikes have failed to materialise, being replaced by prospects of sustained low interest rates for some time to come. modernisations will be of crucial importance – cf. the above- mentioned section 5(2). As long as uncertainty prevails in regard to future provisions, some investors will remain guarded. We have yet to see significant changes in the pricing of residential rental property, but fewer investors are active in the market, prepared to assume the risk associated with the prospects of possible amendments. In terms of residential rental properties predating 1992, the shape of the possible political intervention against

Stor efterspørgsel fortsætter Vi forventer i 2020 en fortsat solid efterspørgsel på ejendomme på det danske marked. Der er stadig rejst meget kapital, som skal investeres i mursten, men endnu mangler at blive placeret. Desuden er de ventede rentestigninger udeblevet, og i stedet er der udsigt til, at det nuværende lave renteniveau fortsætter en rum tid endnu. moderniseringer – af den tidligere nævnte paragraf 5, stk. 2 – bliver udformet. Så længe der hersker usikkerhed om de fremtidige regler, vil det gøre nogle investorer tilbageholdne. Vi har endnu ikke set nævneværdige ændringer i prissætningen på boligudlejningsejendomme, men i stedet er færre investorer aktive på markedet og tør tage den risiko, der eksisterer med udsigten til mulige ændringer af reglerne. For boligudlejningsejendomme opført før 1992 bliver det afgørende, hvordan et muligt politisk indgreb mod

 EMIL HELMSØE-ZINCK , emil.helmsoee-zinck@colliers.com  ALEXANDER VISBY BERTHELSEN , alexander.berthelsen@colliers.com

Amaliegade 16A, Copenhagen CBD

All segments, Copenhagen TOP 5 TRANSACTIONS

Investor

District

Property/project name

Address

Main uses

Volume, DKKm Volume, sq m

1.

Niam

Ørestad

Copenhagen Towers

Ørestads Boulevard 106, etc.

Office/hotel

2,300

84,000

2. Midstar 3. Klövern

CBD

Copenhagen Admiral Hotel

Toldbodgade 24-28

Hotel

na

17,675

CBD

Project Green Lane

Kalvebod Brygge 32

Office

1,420

31,700

4. KLP 5. AXA

CBD

DeloitteHuset

Weidekampsgade 6

Office

1,400

38,355

Residential

1,302

36,280

Ørestad

Bellakvarter

Various 1

Note: The listed transactions include disclosed sales only. Certain confidential or off-market transactions are not included. 1 Portfolio sale. Source: Colliers

Copenhagen Property Market Report 2020

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PROPERTY PRICE INDEX

Amaliegade 15, Copenhagen CBD

Property Price Index

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Copenhagen Property Market Report 2020

Renewed increase in property price index

Ny stigning i ejendomsprisindeks

MODEL AND APPROACH For both the Colliers property price index (capital growth) and the net initial yield calcula- tions, we have used a hedonic multiple regres- sion analysis based on empirical analysis of data collected from more than 5,000 property sales and property valuations in the Greater Copenhagen area since 1985, all involving Colliers (pre-2018, Sadolin & Albæk). The model covers all types of commercial prop- erty, except residential, but ƒxed implicit prices are applied for the various property character- istics, mainly location, use, state and condition/ quality, suitability/rationality and economies of scale, as a corrective measure to account for the di§erences between individual properties. In this context, the return applied is the average return, which denotes the most likely return or the return that investors may expect in a random year on the basis of historical returns. The average return should not be mistaken for the expected compound interest on investments or the geometrical average used to measure the compound return on an investment. The risk is measured by the standard deviation of the yearly returns, that is, the average deviation from the mean return. The risk measurement applied here thus provides information on the extent to which the return ˜uctuates around the expected average return.

Danske investeringsejendomme fortsatte i 2019 de senere års tendens med pæne a‘ast. Målt på Colliers’ prisindeks for erhvervsejendomme i Storkøbenhavn blev a‘astet for hele året 11,8% – fordelt på 4,4% i direkte a‘ast fra driften og dertil 7,4% fra værditilvækst. For syvende år i træk steg de nominelle priser på investeringsejendomme og priserne ligger et stykke over de historisk høje niveauer i 2007. Hvis in˜ationen indregnes, så er priserne i 2019 dog kun 5,2% højere end i 2007, og det var først i løbet af 2019, at de reale priser indhentede niveauerne fra årene før ƒnanskrisen. In 2019, Danish investment property continued previous years’ trend of producing fair returns. According to the Colliers commercial property price index for Greater Copenhagen, total average return was 11.8%, with income return accounting for 4.4% and capital growth for 7.4%. For seven years running, nominal commercial property prices have climbed, now at a level well beyond the historically high levels recorded in 2007. Factoring in in˜ation, however, 2019 prices merely exceeded 2007 prices by 5.2%: Only as 2019 wore on did real prices catch up with the levels seen in the years preceding the ƒnancial crisis.

In real terms, commercial property prices now exceed 2007-level

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Nominal values

De ated values

Note: Colliers commercial property price index, Greater Copenhagen (index 100 = Q3 1984), nominal and deŠated values. Source: Colliers

https://helpx.adobe.com/dk/illustrator/using/graphs.html#enter-graph-data

Property Price Index

Copenhagen Property Market Report 2020

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Capital growth driven mainly by yield compression In 2019, capital gains were driven mainly by yield compression, but uptrending rent levels also played a part. Developments were generally determined by favourable trends in the industrial and logistics segment as well as the office market, where we have seen property transactions at record-low initial yields. Market conditions in these two segments have made up for a generally weaker market for retail property, straining under the effects of e-commerce growth and higher consumer demands. Overall, yields compressed by 25 bps in 2019, which seen in isolation resulted in capital growth of 5.9%. On the back of a 0.9% increase in consumer prices or the net price index in 2018, the basis for most annual rent uplifts, uptrending rent levels have only had a limited net effect on capital growth. At first glance, this seems surprising as we have seen climbing office rents as well as a thriving industrial/logistics segment. However, retail property has generally struggled with increasing vacancy rates and decreasing rent levels, especially in secondary locations, partly eroding the positive effect contributed by the office and industrial/ logistics segments. Slower capital growth in 2020 If we focus on 2020 instead, we foresee slightly slower capital growth relative to 2019. Over the past seven years, annual average capital growth has been 5.9%, driven mainly by lower yield requirements of office and logistics properties in particular. Although the commercial property market is fundamentally healthy, we are starting to see weaker rental growth in some segments. In terms of the most attractive office properties, we expect rents to climb, while especially the retail sector is expected to remain beleaguered, albeit with some prospects of the lower rent levels stabilising. We do not expect any significant effect from a decline in vacancy rates as they are at such a low level in both the office and the industrial/logistics markets that the possibility of a further decline is limited. At the same time, we expect yield compression to slow down and stabilise in view of the current, historically high prices. However, the historically low interest rate levels and capital abundance may drive down yield requirements slightly further, leaving room for certain capital growth in 2020. In Greater Copenhagen, total property returns are expected to be in the region of 7-8% in 2020, that is, slightly lower than in 2019. Capital growth will be driven mainly by occupational market trends, with a 0.9% increase in 2019 in consumer prices (often the basis for minimum indexation clauses in lease agreements) supporting rent level increases. As the contribution from increases in real rent levels and vacancies is expected to be limited , the occupational market will have only moderate effect on real returns.

Investment property has been a highly solid and safe investment relative to stocks since 2000. Steady increase in total return on Greater Copenhagen commercial property, with seven years of unbroken capital growth

25 bps general yield compression in 2019

11.8% total return on Greater Copenhagen commercial property in 2019

Vandtårnsvej 83, Søborg

Property Price Index

15

Copenhagen Property Market Report 2020

Kapitalgevinster drives af faldende afkastkrav Kapitalgevinster skyldtes i 2019 især faldende afkastkrav, men også stigende lejeniveauer havde en effekt. Udviklingen har generelt været drevet af positive tendenser i industri- og logistiksegmentet samt kontormarkedet, hvor vi har set ejendomshandler baseret på rekordlave startafkast. Udviklingen i de to segmenter har opvejet et generelt svagere marked for detailhandelslokaler, der bliver presset af øget e-handel og større krav fra forbrugerne. Overordnet faldt afkastkravet med 25 basispoint i 2019, hvilket isoleret set resulterede i en kapitalgevinst på 5,9%. Med en stigning i 2018 på 0,9% i forbrugerpriserne eller nettoprisindekset, som er basis for de fleste årlige lejereguleringer, har de stigende lejeniveauer kun haft begrænset effekt på den reale værditilvækst. Ved første øjekast virker dette overraskende, da vi både har observeret stigende kontorleje og en særdeles positiv udvikling inden for industri og logistik. Samtidig har detailhandelsejendomme generelt dog døjet med stigende tomgang og faldende lejeniveauer, specielt på sekundære beliggenheder, og det har delvist udhulet den positive effekt fra segmenterne kontor og industri/logistik. Lavere kapitalafkast i 2020 Fokuserer vi i stedet på 2020, så forudser vi et reduceret kapitalafkast sammenlignet med 2019. De foregående syv år har det gennemsnitlige, årlige kapitalafkast været 5,9%, primært drevet af faldende afkastkrav på især kontor og logistikejendomme. Selv om markedet for erhvervsejendomme grundlæggende er sundt, begynder vi at se en svagere lejeudvikling inden for nogle segmenter. For de mest attraktive kontorejendomme forventer vi lejestigninger, mens især detailhandelen ventes at forblive under pres, dog med en vis stabilisering for lavere lejeniveauer. Der forventes heller ikke et større bidrag fra lavere tomgangsniveauer, da tomgangen for både kontor og industri/logistik markederne er i så lave niveauer, at muligheden for yderligere fald er begrænset. Samtidig forventer vi at afkastkravene i højere grad vil udvise en stagnerende effekt i betragtning af de nuværende historisk høje priser. Dog kan de historisk lave renteniveauer og kapitalrigeligheden i markedet presse afkastkravene en anelse yderligere ned, hvilket giver rum til en vis kapitalgevinst i 2020. Det samlede afkast for investeringsejendomme i Storkøbenhavn forventes at være i omegnen af 7-8% i 2020 – altså lidt lavere end i 2019. Bidraget fra værditilvæksten vil primært komme fra brugermarkedet, hvor en stigning i 2019 i forbrugerpriserne (ofte grundlag for minimumsindekseringer i lejekontrakter) på omkring 0,9% vil understøtte stigninger i lejeniveauet. Da bidraget fra stigninger i det reale lejeniveau og tomgangen vurderes at være begrænset, vil brugermarkedets effekt på det reale afkast dog være begrænset.

Risk-adjusted property return greatly outperforms returns on stocks and bonds. In 2020, total return on Greater Copenhagen investment property is estimated at 7-8%

KLP Huset, Ørestad

Property Price Index

Copenhagen Property Market Report 2020

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Why a commercial property price index? Over the past two decades, an increasing amount of capital has been funnelled into investment property as property assets have slowly been recognised as an attractive alternative to stocks and bonds. The mounting demand has clearly manifested itself in Denmark too, with the volume of investment property transactions growing at an average annual rate of 7% since 1992, peaking at DKK 88bn in 2017. In terms of pricing and investment decisions, estimates of average return, of standard deviation and of correlations across assets are key. However, the number of investment property price indices showing historical total return estimates is quite limited, despite mounting global investor demand for property. Stocks and bonds are easy to price with stock exchanges around the world serving as market places, and the two asset types trade on a continuous basis. Investment properties on the other hand are much more diversified products trading only rarely, making it a complex affair to model valid indices based on actual transactions and returns over time. However, the Colliers index represents a way to overcome this issue, by applying a so-called hedonic multiple regression analysis of both transactions and property valuations in lieu of actual trades. Derfor et prisindeks for erhvervsejendomme Gennem de sidste to årtier er en stigende mængde kapital blevet allokeret over i investeringsejendomme i takt med, at ejendomme er blevet vurderet som et attraktivt alternativ til aktier og obligationer. Den øgede interesse afspejles også tydeligt i Danmark, hvor omfanget af transaktioner for investeringsejendomme er steget med en gennemsnitlig årlig vækstrate på 7% siden 1992 og satte rekord i 2017 med 88 mia. kr. Vigtige data for prisfastsættelse og investeringsbeslutninger er estimater for gennemsnitligt afkast, for standardafvigelse og for korrelation på tværs af aktiver. Men antallet af prisindeks for investeringsejendomme med historiske estimater over totalafkastet er ret begrænset – trods den øgede globale investorinteresse for ejendomme. Aktier og obligationer kan let prisfastsættes med alverdens børser som markedspladser, og de to typer aktiver handles løbende. Derimod er investeringsejendomme langt mere forskelligartede produkter og handles kun sjældent, hvilket gør det kompliceret at udarbejde valide indeks baseret på faktiske transaktioner og afkast over tid. Colliers’ indeks udgør dog en løsning på den beskrevne udfordring – ved at benytte en såkaldt hedonisk regression, der både omfatter transaktioner og ejendomsvurderinger som erstatning for faktiske handler.

DeloitteHuset, Weidekampsgade 6, Copenhagen CBD

010% 015% 020%

Total return

00% 05%

Property Price Index

17

Copenhagen Property Market Report 2020

0-15% 0-10% 0-5%

19 18 17 16 15 14 13 12 11 10 09 08 07 06 05 04 03 02 01 00

Total return

Income return

Capital growth

Positive capital growth seven years running

30%

25%

20%

15%

10%

5%

0%

-5%

-10%

-15%

00

19 18 17 16 15 14 13 12 11 10 09 08 07 06 05 04 03 02 01

Total return

Income return

Capital growth

Note: Total return, income return and capital growth for commercial property in the Greater Copenhagen area. Source: Colliers

Commercial property produces attractive risk-adjusted returns

Commercial property continues to outperform bonds

0 100 200 300 400 500 600

2019

2000-2019

Return

Mean return

Risk Sharpe ratio

MSCI Denmark, Gross Total Return Nordea benchmark, 7-year bond Commercial property, Greater Copenhagen 1

31.6% 12.8% 24.6%

0.41

3.1% 5.3% 4.9%

0.52

11.8% 9.7% 5.9%

1.18

19 18 17 16 15 14 13 12 11 10 09 08 07 06 05 04 03 02 01 00

MSCI Denmark Gross Total Return Index Nordea benchmark 7-year bond Commercial property, Greater Copenhagen

Note: Average return and risk on commercial property, stocks and bonds. Sharpe ratio is calculated as follows:

[ E( r p ) — r f ] σ p E( r p ) = Expected return of asset p r f = Risk free return rate σ p = Standard deviation of portfolio Sources: MSCI, Nordea and Colliers

Note: Historical total return on Greater Copenhagen commercial property, stocks and bonds (index 100 = 2000). Sources: MSCI, Nordea and Colliers

1 Please note that the Colliers property price index is based on observations recorded throughout the whole year and therefore the return computed is an average across the year compared to the average across the previous year.

Property Price Index

Copenhagen Property Market Report 2020

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Property vs. stocks and bonds To enable us to compare total property returns with the total return on stocks and bonds, we have compiled a total return index for each asset class, including also reinvested income yields for the respective asset classes. For the Danish stock market, we have used the MSCI Denmark Gross Total Return Index, and for bonds Nordea’s 7-year benchmark return. For the total return on commercial property in Greater Copenhagen, we use the Colliers price index, in which total return is comprised of average net initial yields and capital growth. After a turbulent fourth quarter of 2018, sending stock markets on a major roller-coaster ride, 2019 turned out to be a golden year for stocks, reflected in an increase of 31.6% in the MSCI Denmark stock index. As 2019 wore on, several economies started to show signs of a downturn. In response, both the ECB and the US Federal Reserve introduced rate cuts to prop up the slowing economy. In addition, the year was marked by the US-China trade war, and in the final months of the year, stock prices rallied due to prospects of a treaty at long last. Although bond yields remain low on a global scale, the yield on Nordea’s 7-year benchmark bond closed at 3.1% in 2019. Time series dating back to 2000 show that the average total return on stocks has exceeded the total return on commercial property and bonds by 1,979 bps and 2,843 bps, respectively. In the same period, commercial property has produced an average total return outperforming Nordea’s 7-year benchmark bond by 864 bps. Whereas stocks have produced a higher average total return than commercial property and bonds, they also carry a considerably higher return risk. In order to compare the total return of various asset classes it is therefore essential to assess risk-adjusted return. Measured as the standard deviation of individual time series, the stock market shows markedly higher volatility or fluctuations than both commercial property and bonds. Broadly speaking, the total return on stocks has carried about four times the risk of commercial property and five times the risk of bonds since 2000.

The so-called Sharpe ratio, a measure of risk-adjusted returns, shows that commercial property has greatly outperformed both stocks and bonds for the past 19 years. The ratio provides a brief summary of the return and risk balance of an investment; Based on quite simple assumptions, a rational investor would prefer a higher Sharpe ratio as it offers prospects of higher return at a certain risk level. In addition, the time series show an exceptionally weak correlation between total return on commercial property and total return on other assets, that is, fluctuations in property returns scarcely track fluctuations in other asset returns. This is especially interesting in terms of major portfolios as an investor may enhance asset diversification and thereby greatly reduce portfolio risk by investing in property. From an investment perspective, property is an asset class composed of diverse assets generally held for long and usually trading in decentralised markets on a much more infrequent basis than e.g. stocks. Property normally trades at a substantial premium for limited liquidity as it is often uncertain how long it will take to sell a given asset. When prices rally, sales periods generally tend to be short, with many transactions taking place. In times of downtrending prices, however, the situation is reversed. From a purely theoretical point of view, an investor should therefore be compensated for limited liquidity with a certain premium, which helps to explain the highly attractive risk- adjusted returns on investment property.

Kalvebod Brygge, Copenhagen CBD

Property Price Index

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Copenhagen Property Market Report 2020

Ejendomme kontra aktier og obligationer For at sammenligne totalafkastet af investeringsejendomme med aktier og obligationer har vi opstillet det samlede afkastindeks for hver af aktivklasserne, med geninvesteret udbytte for de respektive aktivklasser. For det danske aktiemarked har vi benyttet totalafkastindekset udarbejdet af MSCI, for obligationer Nordeas syvårige benchmarkafkast. For investeringsejendomme i Storkøbenhavn bruger vi Colliers’ prisindeks, hvor det samlede afkast består af det gennemsnitlige nettostartafkast og værdireguleringer. Efter et turbulent fjerde kvartal 2018 med aktierne på en større rutsjetur udviklede 2019 sig til at blive et af historiens bedste aktieår – vist med en stigning på 31,6% for MSCI Danmarks aktieindeks. Undervejs i 2019 begyndte flere lande at udvise tegn på økonomisk afmatning, og derfor foretog både ECB og amerikanske Fed rentesænkninger for at holde hånden under økonomien. Derudover var året præget af handelskrigen mellem USA og Kina, og udsigten til en endelig aftale udløste sidst på året stigende aktiekurser. Selv om obligationsmarkederne globalt set fortsat var præget af lave renter, endte afkastet på Nordeas syvårige benchmark-obligation på 3,1% i 2019. Tidsserier tilbage fra 2000 viser, at det samlede afkast på aktier i gennemsnit har overgået afkastet for investeringsejendomme og obligationer med henholdsvis ca. 1.979 og 2.843 basispoint. I samme periode har investeringsejendomme givet et gennemsnitligt afkast på 864 basispoint mere end Nordeas syvårige benchmark-obligation. højere risiko. For at kunne sammenligne totalafkastet fra forskellige aktivklasser er det derfor afgørende at vurdere det risikojusterede afkast. Og målt som standardafvigelsen af de enkelte tidsserier udviser aktiemarkedet markant højere volatilitet eller udsving end både investeringsejendomme og obligationer. Helt overordnet har risikoen for aktier været omtrent fire gange større end for investeringsejendomme og fem gange større end for obligationer siden 2000. Mens aktier har givet et større gennemsnitligt afkast end ejendomme og obligationer, bærer aktier samtidig en betydeligt

Den såkaldte Sharpe-ratio – et mål for risikojusteret afkast – viser, at investeringsejendomme har klaret sig betydeligt bedre end både aktier og obligationer de sidste 19 år. Ratioen giver en kort opsummering af balancen mellem afkast og risiko på en investering, og med helt simple antagelser vil en rationel investor foretrække en højere Sharpe-ratio, fordi den tilbyder et højere afkast ved et bestemt risikoniveau. Tidsserierne viser desuden, at afkastet på investerings- ejendomme har en særdeles lav kovarians med andre aktiver – udsvingene i værdien følger altså kun i begrænset omfang udsvingene i værdierne på andre aktiver. Det er særdeles interessant ved større porteføljer, da en investor kan øge spredningen af aktiver og dermed mindske risikoen i sin portefølje markant ved at investere i ejendomme. Fra et investorsynspunkt udgør ejendomme en aktivklasse med forskelligartede aktiver, som generelt beholdes i lange perioder og almindeligvis handles på decentraliserede markeder langt mere sjældent end fx aktier. Ejendomme handles normalt med en markant præmie for begrænset likviditet, fordi der ofte vil være usikkerhed om salgstiden, når en ejendom skal sælges. Når priserne stiger, vil salgstiden generelt være kort, og der vil være mange transaktioner. I tider med faldende priser vil det imidlertid være omvendt. Rent teoretisk bør en investor derfor kompenseres for den begrænsede likviditet med en vis præmie, hvilket er med til at forklare de yderst attraktive risikojusterede afkast for investeringsejendomme.

 EMIL HELMSØE-ZINCK , emil.helmsoee-zinck@colliers.com  ALEXANDER VISBY BERTHELSEN , alexander.berthelsen@colliers.com

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DeloitteHuset, Weidekampsgade 6, Copenhagen CBD

Low vacancy rates set to continue in 2020 due to sustained high employment Imbalance as demand outstrips supply – in both the letting and investment markets Prospects of rent level hikes and low or even downtrending yield requirements in the CBD Vacancies mainly confined to old properties, virtually non-existent in up-do-date buildings Office hotels and serviced multi-user offices gaining ground

OFFICE HOTEL RETAIL INDUSTRIAL REGIONS RESIDENTIAL

OFFICE

Lav tomgang vil fortsætte i 2020 som følge af fortsat høj beskæftigelse

Ubalance med større efterspørgsel end udbud – både på leje- og investeringsmarkedet

Udsigt til stigende lejeniveauer samt lave og endda faldende afkastkrav i CBD

Tomgang eksisterer primært i ældre ejendomme, næsten ingen tomgang i moderne faciliteter

Kontorhoteller og servicerede flerbrugerhuse vinder frem

LOCATIONS OFFICE

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Copenhagen Property Market Report 2020

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O ce market with a strong tailwind Kontormarked med stærk medvind

O‚ce transaction volume DKK billion 18

Share of total transaction volume Transaction volume % 48

Today’s Copenhagen o ce market is characterised by a cocktail of low vacancy rates, climbing rent levels and low yield requirements, which may compress even further. Demand for up-to-date and high-quality o ce space outstrips supply, and both the letting market and the investment market are exceptionally strong. Years of economic prosperity have driven up employment levels, not least in o ce- intensive businesses. Job growth has been stronger in Copenhagen, and employment levels are expected to rise even further. In the past, increases in o ce demand were balanced by supply increases, but supply has not been able to keep up with demand. This imbalance is set to become more pronounced over the next 12 months. Kontormarkedet i hovedstaden oplever en cocktail af lav tomgang, stigende lejeniveauer og lave a‘astkrav, som kan falde yderligere. Efterspørgslen på moderne kontorlokaler af høj kvalitet overstiger udbuddet, og både markedet for udlejning og investeringsmarkedet er ekstremt stærkt. Flere års økonomisk fremgang har betydet stigende beskæftigelse, ikke mindst i erhverv med mange kontorjob. Jobvæksten har været kraftigere i hovedstaden, og beskæftigelsen forventes at stige yderligere.

Share of foreign investors Transaction volume % 66

Tidligere er stigende efterspørgsel af kontorarealer blevet udlignet af øget udbud, men udbuddet har ikke kunnet følge efterspørgslen, og dén ubalance vil vokse det kommende år.

Based on total transaction volume, Greater Copenhagen. Source: Colliers

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Copenhagen Property Market Report 2020

Record-low office yield in the Copenhagen CBD

... and in the non-CBD

0% 1% 2% 3% 4% 5% 6% 7% 8%

0% 1% 2% 3% 4% 5% 6% 7%

OFFICE HOTEL RETAIL INDUSTRIAL REGIONS RESIDENTIAL

11

12

13

14

15

16

17

18

19

20

11

12

13

14

15

16

17

18

19

20

Prime

Secondary

Prime

Secondary

Note: Net initial yields, office, Copenhagen CBD. Source: Colliers

Note: Net initial yields, office, Copenhagen non-CBD. Source: Colliers

TOP 5 INVESTORS

Office

Investor

Country of origin

No. of investments

Volume, DKKm Volume, sq m

1.

KLP

Norway

3

3,196

85,285

2. Niam

Sweden

1

2,300

84,000 1

3. Klövern

Sweden

1

1,420

31,700

4. PensionDanmark

Denmark

2

653

12,225

5. Schroder Real Estate

Germany

1

na

24,450

TOP 5 TRANSACTIONS

Office

Investor

District

Property

Volume, DKKm Volume, sq m

1.

Niam

Amager/Ørestad

Copenhagen Towers, Ørestads Boulevard 106, etc.

2,300

84,000 1

2. Klövern

CBD

Kalvebod Brygge 32

1,420

31,700

3. KLP 4. KLP 5. KLP

CBD

DeloitteHuset, Weidekampsgade 6

1,400

38,355

CBD

Weidekampsgade 12-16

1,085

27,100

Valby

E.C. Hansen House, Ny Carlsberg Vej 140

711

19,830

Note: The listed transactions include disclosed sales only. Certain confidential or off-market transactions are not included. 1 Including 31,000 sq m hotel. Source: Colliers

Copenhagen Property Market Report 2020

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Continued low vacancy At start-Q4 2019, the office vacancy rate was 6.6% in Copenhagen proper, implying that vacancy rates have remained stable around the 6% mark for a 24-month period. This reflects an exceptionally strong and solid letting market, even if the vacancy rate exceeds the pre-crisis historical low. We foresee continued low vacancy rates in 2020 – against the backdrop of high employment levels and a pronounced supply and demand imbalance due to limited supply. Vacancy data imply that it should be possible to find office premises. However, office vacancies are almost exclusively confined to old, functionally obsolete properties predating the millennium. Office space requirements then were very different from those today: Premises typically have poor daylight inflow, low ceiling height and a fair amount of unutilised space (e.g. long office corridors) – and properties located outside the Copenhagen CBD (Central Business District) may not have easy access to public transport. Even fairly new and well-maintained properties built in the 2000s may fail to meet today’s requirements, e.g. in terms of indoor climate, a relevant focal point due to the downscaling trend in workspace areas. It will often be a costly and unprofitable affair to upgrade old office properties to match – or even come close to matching – today’s tenant demands. Up-to-date and well-located office properties on the other hand are almost free of vacancies. We expect this trend to continue.

Fortsat lav tomgang I begyndelsen af 4. kvartal af 2019 var tomgangen i København By 6,6%, og dermed har tomgangen ligget stabilt omkring 6% gennem 24 måneder. Det afspejler et meget stærkt og solidt lejemarked, selv om tomgangen ligger over de historisk lave niveauer før finanskrisen. Vi forudser fortsat lav tomgang i 2020 – med baggrund i den høje beskæftigelse og ubalancen mellem stor efterspørgsel og begrænset udbud. Tallene signalerer, at det burde været muligt at finde kontorlokaler. Men tomgangen eksisterer næsten udelukkende i ældre, utidssvarende ejendomme, opført før årtusindskiftet. Dengang var kravene til kontorlokaler meget anderledes end i dag, så lokalerne er typisk mørke med lav loftshøjde og en del spildplads (fx lange fordelingsgange) – og ejendomme uden for den centrale del af København (CBD) ligger ikke nødvendigvis tæt på offentlig transport. Selv nyere og velholdte ejendomme fra 00’erne kan have svært ved at leve op til dagens krav om fx indeklima, som er kommet i fokus på grund af udviklingen mod færre kvadratmeter til hver arbejdsplads. Det vil ofte være dyrt og urentabelt at istandsætte ældre kontorejendomme, så de lever op til – eller bare nærmer sig – nutidens krav fra lejere. Til gengæld har moderne og velbeliggende kontorejendomme nærmest ingen tomgang, og vores forventninger er, at det vil fortsætte.

+13,552 new employees from Q3 2018 to Q3 2019 increase demand for office space

Information and communication +2,326

Public admin., etc. +2,411

Other business services +4,165

Note: FTE growth, Capital Region of Denmark, Q3 2018 to Q3 2019 1 Other includes the categories Real estate, Construction, Manufacturing, Agriculture and other unspecified business activities. Source: Statistics Denmark

Trade and transport +2,170

Other 1 +1,364

Finance and insurance +1,116