Increasing transaction volume mainly in residential and other low-risk property segments – and international investors keep coming
Against the backdrop of Denmark’s COVID-19 lockdowns both in spring and just before Christmas, few people had foreseen mounting transaction activity. However, Heimstaden’s DKK 12bn acquisition from NIAM served to drive up the total transaction volume in the Danish market for investment and commercial property to DKK 71.6bn. International investors accounted for just shy of 55% of investments.
A lockdown of society along with travel and meeting restrictions, rising unemployment rates and an economic slowdown should have been poison to the market for commercial and investment property – and not least for international investors’ appetite for investments in Denmark.
However, up by some 25% on 2019 to total DKK 71.6bn, the 2020 transaction volume in the Danish market is testament to exceptionally strong underlying investor demand. Had it not been for the COVID-19 lockdowns, the market would no doubt have seen even brisker activity.
Moreover, the share of international investments increased from 52% of total investments in 2019 to just shy of 55% in 2020. Again, had it not been for travel restrictions, it is not unlikely that even more investments had been secured by foreign investors.
In this connection, it is worth noting that the vast majority of international investors active in Denmark today are investors with an institutional-type profile, that is, investors focused on long-term ownership and management, stable returns and sound day-to-day operations.
More “core” investments – with residential segment clearly heading the field in 2020
The relatively cautious approach to property investments caused a shift in favour of “core” properties with a focus on long-term operations, accounting for 75% of total investments, up 67% on 2019. By the same token, the share of “value-add” investments dropped from 31% to 21.5%, and the riskier opportunistic investments accounted for only 3.5% of the total investment volume.
Economic uncertainty, low interest rates and a strong ownership housing market not surprisingly translated into stronger demand for residential investment property, in 2020 accounting for 64% of investment activity, up from 42% in 2019. However, in this context it is of course worth noting the substantial impact of Heimstaden’s high-volume acquisition.
On the other hand, activity slowed quite significantly in the office investment market, from 36% to 17%, although in our opinion the slowdown here was due mainly to a shortage of the right products rather than lacking demand.
In fact, in connection with the sales of e.g. LB Forsikring’s headquarters in central Copenhagen and Accura’s new head office in Nordhavn, and the sale of Portland Towers in the same district to Hines, a great many investors showed an interest, and we have no doubt that 2021 will see numerous major transactions in this segment. Already the first week of the new year saw a German investor acquire The Square, a 16,000 sq m office complex in the Copenhagen City Hall Square (Rådhuspladsen).
The industrial/logistics segment accounted for a 10% higher share of total transaction volume – and had the supply of attractive investment opportunities been stronger, transaction activity could well have brisked up considerably.