The future is nowhere near as bleak as feared: Still great investment appetite

This is the sixth survey of property market expectations conducted by EDC Erhverv Poul Erik Bech. Yet again, more than 1,200 businesses and investors have taken the time to respond. Thank you!

With the high response rate – from all parts of Denmark – the survey provides a solid picture of how investors and businesses expect the commercial property market to
develop in 2021.

And prospects are nowhere near as bleak as many feared when the coronavirus crisis suddenly erupted in Denmark and the rest of the world in spring 2020. Much of the economy has since recovered, and most businesses are back in good shape, although hotels, eateries, event organisers and travel agencies remain hard hit. Investors and businesses are therefore not quite as optimistic about the development in retail premises, but the overall expectations for this segment are generally more positive than a year ago. It may indicate that many expect the worst to be over.

Still great investment appetite

Despite the coronavirus situation, there is still a considerable investment appetite, with 49% expecting to invest more in real property than last year, while just under 30% intend to invest the same amount. Overall, the figures reflect an investment appetite on a par with last year. One of the explanations for the great interest in real property investment is the historically low interest rates, where nine out of ten respondents expect the current low level to continue or even a further drop in interest rates.

As in previous years, residential rental properties remain by far the most popular property type, in which eight out of ten respondents would like to invest. This is followed by mixed properties – with every third respondent expressing an interest – while one in six investors has their sights on warehouse/production properties, which for a long time have been characterised by very low vacancy rates and high demand.

In turn, the survey shows that the prospects for residential rental properties are slightly less bright than last year. This is probably ascribable to the recent amendments to section 5(2) of the Danish Housing Regulation Act. Half of all investors which have so far focused on older residential properties will adjust their strategy, which could lead to a decline in demand. This is due to the intervention against shortterm investments in older rental dwellings. For example, a five-year qualifying period has been introduced before a new owner may raise the rent. In addition, energy-efficiency requirements have been made more stringent and the same
applies to the materiality concept, under which the permitted rent could be 10% above the market rent. Furthermore, tenants’ rights have been improved. Despite this, residential rental property is the segment in which most investors (34%) expect rising prices.

Falling retail property prices

The reverse is the case for the retail property segment, where only 17% expect prices to increase, while 42% expect prices to fall. This is probably explained by the structural
changes that the retail trade is undergoing, with e-commerce accounting for an increasing share of the total trade. However, while impacting the retail segment negatively, this development is positive news for the logistics industry. The coronavirus situation has significantly impacted the Danes’ consumption patterns, with more money being spent on physical goods and less on services.

The responses provided by the businesses surveyed indicate a growth market. There is a great willingness to relocate, with the principal reasons still being a lack of space. On the other hand, fewer respondents intend to spend more money on their business premises than in previous years.

This year we have, for the first time, asked investors about the importance of sustainability certificates. A total of 62% attach importance to properties having a green stamp from, for example, Green Building Council Denmark, and 8% attach great importance to this.

So, all in all, the conclusion of the Expectations Survey 2021 is that the future is nowhere near as bleak as feared. There is still a considerable investment appetite for commercial properties.

Do you want to read all the expectations for 2021? Read the report here