The soon-to-be past year will go down in history as one of the years marked by the most frequent shifts ever recorded in the market for commercial and investment property. From a calm year-start, with stable prices and a supply/demand balance, the March lockdown triggered an almost panicky sentiment – nevertheless, the year ends on a stronger note than ever before.
We will shortly be closing the books on a year in which sentiment and activity in the commercial and investment property market have shifted repeatedly and dramatically.
The March lockdown triggered a panicky financial market sentiment, and the property market too experienced spells of budding panic. Transactions were put on hold and investors became decidophobic, with the sentiment spreading that the market could be headed for a prolonged downturn.
Throughout the period, Colliers urged calm. At end-March, we wrote:
“It is today impossible to foretell the depth and (in particular) the duration of the current crisis. Nevertheless, history tells us that recessions brought on by exogenous shocks are much more short-lived than recessions brought on by structural or cyclical issues."
We believe that business cycles will improve as early as in H2 2020. We may well face spells of stagnating or declining property prices; However, our base scenario tells us that the market will not plunge into actual property crisis”.
In June, we were even more optimistic:
“We are … confident that H2 2020 already will see a surge in investment activity, with a transaction volume of more than twice the volume seen in H1. By the same token, we have adjusted our prognosis for price movements upward. We now believe in stable prices in the two largest segments, residential and office, and we expect prices to climb in the industrial and logistics market”.
Crazy upturn exceeds expectations
However, the H2 market has proved a great deal stronger than we, our bright expectations notwithstanding, had dared to predict. Although we are presumably halfway through the second wave of COVID-19, stock market prices exceed or almost match the highest pre-crisis levels.
The same applies to the property market.
"Only retail properties and hotels, sectors notoriously taking the brunt of travel restrictions and the absence of tourists, have been seen to experience a decline in prices."
The prices of logistics/industrial property have increased by more than 10% in 2020. Similarly, the market for residential rental property has, despite stagnant rental prices and climbing vacancy rates, seen price hikes. This also applies to centrally located office properties, whereas trends in the market for offices in less central locations have been somewhat weaker.
Only retail properties and hotels, sectors notoriously taking the brunt of travel restrictions and the absence of tourists, have been seen to experience a decline in prices.
Investment demand has not rebounded to the level seen in the pre-crisis years, when it was possible to sell, and mortgage, anything. This time around, the financial sector refrains from adding fuel to the flames. On the other hand, an unprecedented amount of equity capital has been funnelled into the property market. Based on expectations of interest rates remaining in negative territory for some time to come, we see no reason to assume that the demand for investment property is set to weaken.
Bright prospects for 2021
December has all the markings of becoming a very busy month in the Danish transaction market. In fact, 2021 may well turn out to be one of the most positive and active years ever in the Danish property market.
With highly effective COVID-19 vaccines underway, society is expected to embark on a normalisation process within a few months’ time, and even if a third COVID-19 wave should break in spring, social life will likely have returned more or less to normal by H2 2021.
This makes us highly confident about the 2021 trends in both activity and prices in the Danish property market. Massive investor demand, driven by capital abundance and sustained low interest rates, along with a more stable economic outlook, may well drive up property prices. Unlike the period preceding the financial crisis, however, this time around supported by abundant equity capital, ultimately stemming from ever-growing global pension savings and therefore free of high leverage and the inherent risks to financial stability.