Following a very weak H1 2019, activity in the investment property market picked up considerably in the final months of the year. Nevertheless, total transaction volume was still 20% below the 2018 equivalent and 35% below the record-breaking high in 2017.
The decline in transaction volume was seen mainly outside Greater Copenhagen, whereas investment activity only slowed marginally in the Copenhagen area.
We had projected a slightly higher transaction volume, but due to political announcements aimed at future restrictions concerning the possibilities of carrying out rent increases subject to comprehensive modernisation of old-stock residential property several major transactions were put on hold in the final weeks of the year.
In 2019, international investors accounted for just shy of 53% of all investments, a slight uptick on 2018. In recent years, domestic and foreign investors have accounted for a fairly even share of investments, i.e. about 50:50.
Sharp drop in transaction volume in the residential segment – but mounting activity in the office segment
Overall, the market has been marked by weaker activity in the residential segment. To a certain extent, this trend ties in with the quite substantial uncertainty concerning future framework conditions for the modernisation of flats in the old housing stock. Moreover, however, due to a cocktail of rather ambitious asking prices on major residential developments for turnkey sale and a slightly weaker letting market for large-sized flats, off-plan sales have plummeted.
In the retail investment property market, transaction activity also saw a sharp decline, whereas activity in the office market increased to more than one third of aggregate investment activity. Indeed, among top-five single-property transactions in 2019, all facilitated by Colliers, four took place in the office segment.
Slightly weaker risk tolerance in investor circles
2019 was characterised by concerns about slowing economic growth momentum, or even actual recession. At the same time, interest rate levels saw a sharp decline.
In such an environment, investors will often zoom in on investments yielding lower but more secure returns. It was therefore fair to expect investors to increasingly pursue so-called core properties, i.e. tenanted properties with high security of occupancy, rather than riskier but potentially more lucrative segments, value-add properties and distinctly opportunistic investments.
This notion would naturally be further supported by the fact that in the course of 2019 risk tolerance in the financial sector weakened in terms of property financing.
Although core properties accounted for a higher share of aggregate investments in 2019 compared to 2018, it is however remarkable that also 2019 witnessed fairly brisk transaction activity in the value-add segment, whereas activity slowed considerably in terms of actual opportunistic investments with a distinctly high-risk profile, no doubt due to tighter lending requirements.
Figures indicate that also the value-add segment attracts fair investor demand, provided pricing makes it possible to realise returns that match the higher risk carried by investments in this segment relative to the core segment.