MR 2018

38

Copenhagen Property Market Report 2018

Ownership housing ratios, 2017 Danish market at a glance

essentially priced out of the city. The net migration between Copenhagen and the rest of Denmark already turned negative in 2015, dipping further into negative territory in 2016. The municipalities surrounding Copenhagen receive a large share of the migration, with the trade-off between access to the city and price levels generally becoming more pronounced. In fact, migration to the rest of the Capital Region of Denmark from Copenhagen is at an all-time high. We expect this pattern to continue as these areas provide a more affordable alternative to Copenhagen, while still within commuting distance. Record-breaking residential construction In 2017, residential construction activity continued at a steady pace, responding to the surge in demand. An estimated 400,000 sqm was completed in 2017 in the city of Copenhagen, marking a milestone as the volume of completions now exceeds the pre-crisis high of 365,000 sqm. We have previously argued that, due to capacity limits, the construction sector would be under strain to deliver more than 375,000 sqm p.a., but increased utilisation of foreign labour and allocations from other segments in the development sector have facilitated this record-breaking high. However, it is unlikely that the scale of completions will rise much further in the coming years as residential development outside the Capital Region of Denmark is starting to pick up along with a substantial pipeline of public projects. Affordability strong driver in new supply planning New supply is curbed by overall planning restrictions, stipulating an average residential unit size of 95 sqm in the City of Copenhagen. The objective is to secure a more diverse offering of housing as the old building stock typically comprises smaller units. Since 2015, planning regulations have also allowed the City of Copenhagen to demand up to 25% allocation of social housing in new planning areas in an effort to provide more affordable housing. In late 2017, the lord mayor of Copenhagen proposed that the scheme be expanded, offering an additional DKK 500m subsidy in return. If implemented, this could raise the total expected added supply to some 10,000 social housing units in the next decade. In addition, the lord mayor recently hinted at the possibility of relaxing unit size restrictions, which could diversify new supply and ease affordability concerns in new developments. We predict that affordability will set the political agenda in 2018, impacting planning provisions. Central development space in scarce supply In the past, the municipal urban development company, By & Havn, was the prime supplier of building rights for new residential development in Copenhagen as it owned most of the major development sites, the largest ones being situated in the districts of Ørestad, Sydhavnen (the south harbour) and Nordhavn (the north harbour). The first two areas are all but completed, having added an estimated 1 million sqm of residential space so far. Although Nordhavn is still under development, in 2017 the supply of residential space was increasingly sourced from private development sites, such as the F.L. Smidth site, Amager Strandpark and the Carlsberg City District (Carlsberg Byen) – all of which are redevelopments of former industrial sites. On the other hand,

All Denmark

19% Copenhagen

50%

Source: Statistics Denmark

Building stock: 30 million sqm Share in multifamily buildings: 86% Average flat size: 76 sqm

Source: Statistics Denmark

Added supply: 400,000 sqm (est.) Change in demand: + 465,000 sqm (est.) Rental growth: 2.50% Owner-occupied flat price growth: 12% 2017 in review

Sources: Statistics Denmark and Sadolin & Albæk Note: Figures cover City of Copenhagen.