Low vacancy is encouraging large occupiers to build their own space
Historically high demand and low vacancy rates are trends defining the Copenhagen office market over 2019. The strong Danish economy is generating an expansionary job market that is leading to a low unemployment rate and driving vacancy rates down to around 6%. The latter is encouraging development, leading to many new properties built in Ørestad, Carlsberg Byen and inner Copenhagen. The principle tenant demand is for co-working space, modern facilities and good location near public transportation.
The demand generated by small, medium and big businesses, is increasingly focused on choosing flexible office facilities where they can expand quickly. Low vacancy means that large corporations are either actively building their own headquarters to accommodate staff or pre-letting space in developments. The diminishing supply and ongoing space requirements, resulted in pressure being maintained on rents that reached DKK 2,100/sqm/year (€281/sqm/year) in the most central districts of Copenhagen.
Overseas investors made the majority of large investment transactions
We are witnessing ongoing interest for office properties from foreign investors. Four out of the seven trades in 2019 above DKK1bn were in the office segment and all acquired by foreign investors.
For these investors, it is essential that the property is located close to great infrastructure, public transport, as well as other high-growth companies.
Yield compression occurred in most segments by the end of 2019. Prime office yields reached 3.5% in the most central districts of Copenhagen. Yields at the 3.50% level in Copenhagen require a strong tenant with a minimum tenure of 10 years.