Newsletter Q3 2017 UK

Newsletter Q3 2017

PROPERTY INVESTORS’ APPETITE FOR RISK IS MOUNTING Strong transaction activity and a predominance of international investments: Transaction activity in the Danish investment property market continues to be brisk. Sadolin & Albæk therefore expects 2017 to see a record-high volume of traded commercial and investment properties to the tune of DKK 80bn relative to DKK 64bn in 2016.

By Peter Winther, Partner and CEO and Kristian A. Nielsen, Senior Consultant, Sadolin & Albæk

Mounting risk tolerance In this context, it is interesting to note that investors today demand investment opportunities associated with higher risk. In 2016, 72% of the transaction volume involved core properties, i.e. typically fully let investment property associated with low risk and high cash-flow security. In the first half of 2017, the share dropped to 47% - while the share of value-add investments, i.e. investments associated with weaker and more uncertain cash flows and a potential for operational improvements subject to proactive management, rose from 13% in 2016 to 49% in the first half of 2017.

The market is greatly affected by the fact that international investors have particular appetite for large-volume single properties and property portfolios. Whereas international investors accounted for almost 45% of aggregate property investments in 2016, they accounted for as much as 67% in the first half of 2017. The predominance of international investors has become even more pronounced in the segment involving assets with a volume in excess of DKK 500m. In the first half of 2017, they in fact accounted for all of 85% of transactions in this segment, up from 55% in 2016. In terms of the very largest transactions, with a volume in excess of DKK 1bn, domestic investors accounted for 10% in the first half of 2017 – a historically low share.

At the same time, however, so-called opportunistic investments associated with very high risk continue

International investors account for most high-volume transactions

2016

2017

32%

68%

59%

41%

37%

63%

<500m

500 - 1,000m

<500m

500 - 1,000m

51%

49%

>1,000m

>1,000m

International investors Domestic investors

Sour ce: Sadolin & Albæk

5