MR 2018

28

Copenhagen Property Market Report 2018

Domestic investors retake the lead

Prime office investment supply outstripped The office investment property market continues to thrive as current economic growth is supporting momentum in the occupational market. Although Danish fundamentals continue to improve, the yearly aggregate office transaction volume dropped from 2016 to 2017. It is worth bearing in mind that the decline in transaction activity ties in with a profound supply/demand imbalance in the office market, with the annual transaction volume being defined mainly by whatever assets are offered for sale. In conclusion, we see no imminent signs of weakening investor demand, although the decline in transaction volume could be argued to indicate otherwise. In 2016, international investors gained a strong foothold in the Danish office property market, accounting for more than 50% of the total transaction volume. Domestic investors reclaimed the lead in 2017, however, and were involved in three of the five largest transactions measured in terms of volume. Nevertheless, international investor appetite seemingly remains unabated. The root cause of their smaller share of transactions in 2017 was the year’s lower availability in the market for high-volume office portfolios, which is their preferred type of office property investment. Whereas high-volume property transactions abounded in 2016, including head-office sales on behalf of Danske Bank and Nykredit, this sub-segment experienced limited activity in 2017. However, locations on the outskirts of Copenhagen saw brisker transaction activity, with some transactions standing out in particular, bearing witness to the fact that investors increasingly recognise their potential: Danica’s sale of a major office portfolio to Wihlborg’s and SEB’s divestment of the vast office complex of Teknikerbyen in individual sub-portfolio sales to PensionDanmark and a joint venture of Sampension and Kristensen Properties, respectively. Key transactions in Copenhagen included the acquisition by Nordic real estate fund management company Genesta of Kalvebod Brygge 32 in autumn 2017. Despite its central waterfront location, the property sold in virtually vacant possession and thereby at a substantial vacancy risk. This transaction would not have been feasible just a few years ago, but the current buoyant occupational market and substantial competition for assets in central locations, made the investment opportunity gain traction. The largest single asset transaction in 2017 was the sale of the EY head office at Flintholm to the Danish Building and Property Agency (Bygningsstyrelsen). Although labelled a sale and leaseback transaction, the sale involved an element of owner- occupation longer term, as the agency expects several of its departments to relocate to the building when EY has completed construction of its new head office on a neighbouring site. We believe that the key determinants for the acquisition were flexible space-utilisation, making it possible to adjust to organisational changes swiftly and at low cost, as well as excellent access to public transport. The transaction served to exemplify the mounting demand for flexible and efficient office space.

Domestic

Foreign

68%

32%

Note: Office transaction volume by investor origin. Source: Sadolin & Albæk

Value-add on the rise

57% Value-add 31% Core 11% User 0.5% Opportunistic

Note: Office transaction volume by investment type, rounded figures.

Source: Sadolin & Albæk