It is always difficult to make predictions, especially about the future. Nevertheless, Colliers ventures five new outrageous predictions for the coming year. Based neither on historical data, nor current forecasts, the predictions are indeed outrageous: They do not necessarily signify the most likely scenario, but perhaps a scenario that cannot be ruled out, and they will hopefully spark nuanced debate on the topic of what 2023 has in store for the property market.
Only 12 months ago, nobody would even consider predicting that inflation would rise to 10%, interest rates multiply, and property prices drop despite fair rental growth.
So perhaps one should be careful not to pay heed to all-too preconceived notions of what the market will bring in 2023, be it dystopian prophecies of plunging property prices and a slump in transaction volume – or the traditional estate-agent attitude with overly optimistic predictions claiming that in six months’ time the market will have bounced back with a flourish to witness brisk activity and prices that are rebounding to the previous high as of end-2021/start-2022.
Instead, we venture our five outrageous predictions:
Newbuilding dropping by 75%: Recent years have seen brisk newbuilding activity, involving both residential, office and logistics space. However, construction costs have risen, and financing has become more costly. As a result, there is a risk that newbuilding takes a plunge in the next 24 months.
Copenhagen residential rental prices increasing by 10% over the next 24 months. Reduced newbuilding will increase the demand for standing properties, mainly in the Copenhagen area where employment and demographic trends remain favourable. This will translate into continued increases in market rental prices.
Inflation plummeting this spring – followed by renewed rise and stabilisation above the 2% mark. Inflation has started to edge down. And once we pass the one-year anniversary of the Russian invasion of Ukraine, which triggered massive hikes in food and energy prices, inflation will drop significantly. As a result, the ECB will refrain from further (substantial) rent hikes. However, core inflation, to some extent driven by wage growth, but in the longer term mainly by deglobalisation, will be more unrelenting, and property investors can expect NPI increases well above the 2% mark for years to come.
Investment activity soaring in H2 2023: Investors will spend some time in a decision-making vacuum. During spring 2023, however, investors will come to the realisation that there is no prospect of a massive supply of investment properties coming to market in circumstances bordering on forced sales. Investors will therefore successively return to a market where it is possible to buy at direct yields slightly above or on a par with financing interest rates – and offering a direct or indirect hedge against inflation, which in some countries potentially exceeds the central banks’ target rate.
The magic of logistics facilities evaporating: In recent years, logistics properties have been in exceptionally high demand. Although demand will remain strong for robust business models involving large stocks as buffers in the event of supply line disruptions, businesses will be required to refocus on reducing funds tied-up due to extensive stockpiling.