MR 2018

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Copenhagen Property Market Report 2018

Supported by a healthy retail occupational market, solid Danish fundamentals and strong tourism, high-street properties remain attractive investment assets despite substantial yield compression in this segment. The shift in investor composition and risk profiles partly ties in with the fact that value-add international investors in particular, in keeping with their exit strategies, have started to re-sell (to core investors) “dry” high-street assets with no more value-add potential.

delivery at home. Traditional shops therefore add a greater element of flexibility to business operations. For instance, the webshop Boozt.com is opening a flagship store at Købmagergade in 2018. In spring 2017, it opened a shop in the RO’s Torv shopping centre in Roskilde. Moreover, it should not be ignored that the boom in e-commerce is feeding through also to the logistics property market as businesses operating online are required to have up- to-date and efficient storage and distribution channels. All other things being equal, this increases the demand for functional and well-located storage and logistics facilities. Customers define the future scope of retail As society becomes increasingly digitalised, consumer patterns are transforming, adapting to the new and added sales channels. Similarly, trends such as increased customer focus on F&B may greatly affect the demand for retail space in terms of unit size and functionality. This imposes much higher and different demands on retailing, but, most importantly, it is all about presence and having the right products, meeting the customers where they are, whether online, in the physical shop or through other sales channels, e.g. social media. We therefore believe that consumers are increasingly defining the scope of retailing. This is already evident in the strong focus on the holistic shopping experience, leaving its mark everywhere, on the Copenhagen high street market and in shopping centres. Yield compression affects investor composition High-street transactions continue to drive the Copenhagen retail investment property market. Supported by a healthy retail occupational market, solid Danish fundamentals and strong tourism, high-street properties remain attractive investment assets despite substantial yield compression in this segment. In 2012-2017, the net initial yield on prime high-street property plunged from 5.00% to 3.25%, and we currently see a further downtrend, with yield requirements as low as 3.00%. Indeed, the market has seen multiple transactions involving net initial yields just below the 3.00% mark. As a result, the investor composition in the high-street market has changed dramatically. Previously, a mix of domestic and international investors used to be active in both the core and value-add segments of the high-street investment market. In 2017, however, international investors headed the field as they were involved in nearly all high-street transactions. Similarly, the proportion of value-add and even opportunistic investments is on the decline, with core investments on the rise. The shift in investor composition and risk profiles partly ties in with the fact that value-add international investors in particular, in keeping with their exit strategies, have started to re-sell (to core investors) “dry” high-street assets with no more value-add potential. However, it is also partly due to the fact that core investors have reduced their yield requirements to be able to compete for assets. Prime yields have therefore dropped to a low that effectively rules out value-add investors.

Nygade 6, Copenhagen