MR 2018

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Copenhagen Property Market Report 2018

Many developers still recall the fear of being stuck with an empty building without tenants. Nevertheless, we expect the prevailing

etc. were scaled up specifically to allow for adjustments to match new and more flexible use of office space. The over-dimensional design makes it possible to minimise the costs of future lease alterations to match a different setup, up- or downscaling measures, etc. When investing in new properties, investors are wise to have stronger focus on the long-term risk associated with the expiry of non-terminability periods and possible reletting. This focus may well increase the level of investment in the interior layout and fitting up of new buildings. However, this makes it possible to achieve substantial savings in term of reduced reconstruction and fit-up costs in connection with a future change of tenant. Revival of speculative newbuilding in the office market? In view of today’s red-hot office occupational market, we are starting to see a revival of speculative office newbuilding. Motivated by the current economic growth momentum, an increasing number of businesses are searching the market for office premises as they are often not able to put their expansion plans on hold for the duration of the 12- 24 months typically required to build a new office building. Since the financial crisis, developers and investors alike have been averse to speculative building, although the office occupational market has been recovering for years. In recent years, several speculative newbuilding schemes have experienced difficulties, mainly due to aggressive pricing, inferior locations or outdated space planning. These speculative schemes may well have failed to match actual tenant demand, but they have contributed to a pool of hard-won experience for future developers and investors to draw on, which we believe will be reflected in future speculative newbuilding. Many developers still recall the fear of being stuck with an empty building without tenants. Nevertheless, we expect the prevailing market situation with low vacancy rates and moderate rent increases to whet developers’ appetite and tolerance for risk. In today’s market, demand is largely focused on well-located and moderately priced up- to-date office properties in the 2,000+ sqm range. This is also the office segment that we expect future office newbuilding to target. We foresee that Copenhagen districts like Ørestad and Ny Ellebjerg as well as suburban districts along the Ring Road 3 corridor will offer some of the best conditions for speculative newbuilding, the latter locations in particular being characterised by an outdated and functionally obsolete office stock. Ørestad and Ny Ellebjerg, however, offer development opportunities in close proximity of Copenhagen and excellent accessibility. In addition, office rent levels in these districts remain affordable compared with prime Copenhagen market rents. Nevertheless, we do not anticipate speculative newbuilding to become as prevalent as in the pre-crisis years, when almost 40% of new office space was constructed on speculation.

market situation with low vacancy rates and

moderate rent increases to whet developers’ appetite and tolerance for risk.