EDC Market Update: Which challenges and opportunities will 2020 offer?
The latest edition of EDC Market Update is available. But what did 2019 offer, and what can we expect in 2020? Joseph Alberti, Head of Research for EDC International Poul Erik Bech, says:
”2019 was a year with lower transaction volume than 2018, primarily due to the lack of DKK +500 mill. transactions, which in recent years have had a significant impact on the total transaction volume. 2019 was also characterized by uncertainty on regulated rental properties, which has significantly reduced the sales of these properties.”
”Multifamily housing remains the most sought-after asset among all real estate investors with the highest transaction volume. But record-high employment provides a good basis for office properties, in particular flexible offices are in high demand. In Copenhagen, new offices are being constructed in the outer areas of the city, while older offices to a greater extent are being converted for residential purposes.”
Logistics remains hot
The supply of logistics properties cannot keep up with demand. This applies to both rentals and investments, which is largely due to the need for proximity to deliver goods for e-commerce. There is a great need for high-ceilinged and flexible properties, which provide good opportunities for speculative construction. Joseph Alberti says:
”While online shopping has a positive impact on logistics properties, it creates challenges for retail. Here, the future will be about collaboration between landlords, tenants and urban planning. We believe that if you manage to collaborate on better planning of the retail area, and add in-store experiences, then it will continue to be an attractive market.”
Mismatch between vendor and purchaser
The years with record transaction volumes have also meant that there is a mismatch between the seller and the buyer with regards to price expectations. At the same time, private investors have become even more challenged in terms of alternative investments of funds, as most major banks introduced negative interest rates for wealthy clients in 2019. Although historically it has been difficult to predict interest rate developments, low interest rates are expected to continue.
”The public property valuations are still an unknown size in the commercial real estate market. First the private market needs certainty, after which it will be interesting to see the solution for commercial real estate. However, we have not seen that the market has been troubled as we approached the deadline in 2021, and as it is now postponed to 2024, the pressure has subsided for the near future.”
”It can also be discussed whether it is possible to make a fair valuation of the different types of properties. However, there is no doubt that land taxes will increase in larger cities. Although the taxes can be attributed to the rent, it will nevertheless have an impact on the operation of the property, for example for owner-occupied properties, vacancies and whether a rising gross rent can cause downward pressure on the net rent in general.”
Climate investments are key
Another challenge will be how the real estate market adapts to the wave of PropTech by operating properties smarter. Joseph Alberti from EDC International Poul Erik Bech says:
”Especially the possibility of operating properties in a more energy-friendly way will be a key term in the future. In line with the requirements for emission reductions in the legislation, there will be an increasing focus on climate investments from investors, builders, tenants and the public.”