With this analysis, we shed light on the global perspectives that may potentially affect the Danish market for residential property investment. 

While several retail and office property owners struggled with rent collection during the Covid-19 lockdowns, those who had invested in multifamily properties faced fewer challenges.

The residential letting sector has maintained a strong rental income and has at the same time been supported by demographic trends which continue to influence demand worldwide. This contributed to the total worldwide transaction volume in the residential segment, which reached $478 billion in 2021. This is 30 % higher than the transaction volume in the office sector.

The record high level has been instrumental in the yields on prime residential investments dropping to 3% or even lower, which has put some buyers out of the running. However, investor demand is highly unlikely to slow down anytime soon, as rising inflation typically gives optimal inflation protection to the housing sector.

However, some residential landlords and landlords in other property segments are compelled to maintain stable rents despite rising inflation. This is typically due to long lease agreements which are not subject to indexation – this is generally not the case for residential property. For this property type, the combination of shorter lease terms, often only one or two years, indexation and higher churn rates allows for the rent adjustment to reflect inflation, though with an appropriate rent cap.

We predict that investor demand for multifamily properties will increase as inflation continues to rise, despite generally increasing asset prices.

Invest in ESG
The activity may not be driven solely by the prospects of solid returns, because the housing sector is also one of the most obvious investment opportunities for property investors, who want to focus on social value, which is one of the three core values of ESG.

ESG stands for Environmental, Social and Governance and is used to assess the sustainability and accountability of companies’ business practices. We believe that developing sustainable housing of prime quality is the greatest social value the industry can deliver. Investors and developers work with local operators and authorities to ensure that the projects they commence and realise will also perform extraordinarily. This can e.g. be by including new green areas, reusing old buildings or improving public infrastructure.

Many institutional housing investors have some of the most developed ESG values and are accordingly driven by social factors when they increase their investment volume within multifamily housing. This trend, along with stable returns on housing, may help to further sustain interest in the multifamily housing segment.

Read the full Savills analysis here.