Denmark is an attractive investment country for real estate investments. That's the story, and the figures confirm it. Investors are more than able and willing to invest in Danish real estate, but can we find investment products to meet the demand, and what are the investors looking for in a market characterised by limited supply? 

In 2021 transaction volume soared above DKK 94 billion. This is at a record level according to our preliminary calculation of the total Danish transaction volume.

 - We have the demand to trade far more properties than we do, but we are curbed a market that has been drained for investment assets, says Jacob Lund, CEO and partner.

Accepting lower yields and higher risk
Investors accept lower yields and higher risk. It is not only quality properties in the cities that attract the investors interest. With only a few exceptions, virtually any property in almost any location can be sold, if the price is right.

- Investors are in the market to buy, and they see a lot of opportunities. This is a positive development that makes our role as a professional adviser even more important, says Jacob Lund.

In their search for yields, we see more players with an investment strategy that includes value-add properties and opportunistic investments with a significant development potential and correspondingly higher risk. The less risky core investments with a stable cash flow remain popular, but the yields are less appealing compared to the other types of property investments.

A professionalised property market
Foreign investors consider Denmark to be an attractive property market. In 2021, international investors accounted for close on 70 percent of the total transaction volume. Denmark offers a stable economic landscape, a strong economy with sound public budgets and good borrowing options, and well-functioning credit markets. The international majority of investors has entailed a highly professional property market, which over time will benefit liquidity, marketability and transparency. In 2022, we expect an increasing number of international players to invest in Danish properties. With the current In today's professional property market, where the big players are dominant, we see more players entering joint ventures to benefit from the shared professional and financial resources. We expect this trend to continue in 2022.

Economic tailwinds despite continued market uncertainty
Generally speaking, economic activity is on a tailwind and the KPIs show growth potential. However, in light of Covid-19 lockdowns, an increased number of people infected and a new virus variant, some market uncertainty remains. Rising inflation and interest rate increases may pose a risk in the current market and both will certainly affect the property market.

- Significant increases in inflation and interest rates may potentially cause increased uncertainty in the property market, but if the curve, as expected, is stable with a slight upward trend, we do not expect this will affect investors' appetite for property investments," says Jacob Lund.

The steadily increasing employment in the capital area may lead to an increased demand for office space. However, the Covid-19 pandemic has accelerated a trend towards working from home, but the extent of this and its impact on the office market in the long term is difficult to predict in the current situation with the new Omicron variant.

Mark-to-market tax is a particular point of attention
The upcoming mark-to-market tax, effective from 2023, is expected to keep valuation departments busy in 2022. For the smaller and medium-sized companies that are close to the bottom limit of DKK 100 million, it may be worth considering divestment of properties to get below the limit and thus avoid the mark-to-market tax. Conversely, the larger liquid companies will be more compelled to accept the tax. Offhand, around 75 percent of the property companies in Denmark will be exempt with such a bottom limit, but the majority of property values are likely to be covered. This is due to the competitive structure of the industry, which is characterised by a few large and many smaller players.

Towards a greener property market
The Danish Climate Act stipulates that Denmark's greenhouse gas emissions must be reduced by 70 percent by 2030 compared to 1990 levels. Buildings account for around 40 percent of CO2 emissions, and this i.a. comes from building operations, maintenance and renovation of buildings. From the figures, it is clear that buildings have an impact on the environment. It is therefore not surprising that the professional property and construction industry is moving towards a new sustainable era. Investing in and building property is not only about returns, but also about ethics, people and the environment – a responsibility everyone shares.

- It's short and simplified, but the greener a property, the higher the financial gain over time. Generally, a sustainable property will have lower operating and maintenance costs. At the same time, there is a greater potential for higher rental income. Overall, this means that a sustainable property can be sold at a higher selling price in the long term. Add to this that the possibilities for obtaining financing for sustainable property investments are more favourable. Accordingly, we see clear signs that point towards a much greener property market in the future," says Jacob Lund.

In light of a record-high transaction volume in 2021, we expect continued strong interest in property investments in the coming year. We are off to a good start with an exciting pipeline, where dialogue with the first 2022 clients is in full swing. 

Welcome to a new year in the property market!