Private Wealth

Chambers Global Practice Guide

Real Estate Update

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This guide was originally published by Chambers and Partners and is reproduced with permission.

Since 2012, the transaction and building activity in the major cities of Denmark has been steadily increasing, and in 2016 this activity rose to the record levels seen before the financial crisis. Prices have also reached pre-crisis levels. The increase in transactions is primarily caused by international investors entering the Danish real estate market. In 2016, around 35% of the transaction volume in Copenhagen could be ascribed to foreign investors. The increase in building activity is primarily driven by public infrastructure and building projects and the increased demand for residential properties caused by people continuing to relocate to the major cities of Denmark and the lack of people moving away from these cities. The latter demand has also led to a substantial number of older office buildings being converted into residential buildings.

Big players with deep pockets such as Danish pension funds, foreign and Danish real estate funds and high net worth individuals dominate the Danish real estate market. This contrasts with the pre-crisis market situation dominated by a number of Soldiers of Fortune. This is partly due to an increased regulation of the financial sector and a more stringent lending requirement. An equity requirement of 40 – 50 % of the investment is not uncommon.

The question has come up as to whether a new price-bubble is being inflated - in Copenhagen and Aarhus in particular. However, up until now this has been rejected for three main reasons:

  • The current prices are based on actual yields and not on a speculation in continued price increases and quick resales at such higher prices
  • The yields are still more attractive than bond rates
  • Due to the heavy equity requirements, the majority of the present investors should be able to sit in during a new crisis, whereby oversupply of properties and consequent huge price drops should be prevented