Office Market Denmark Q2 2022
In the current market, office tenants have realised that the hybrid is here to stay with a high level of activity expected to continue despite growing economic uncertainties. We do not expect tenants' relocation decisions will be driven by a desire to optimize or minimize the number of square meters, but rather by the right solution with the right interior and location. We continue to see an increasing focus on both location, flexibility and sustainability from the tenants. This will drive an increasing spread between prime and secondary rents where well located, modern and sustainable premises generate premium from stronger demand.
Office Space Copenhagen
As expected, the office vacancy rate in Copenhagen increased by 0.5% point from Q1 to Q2 2021.
The increase is primarily caused by the fact that many older properties have become vacant as many larger tenants have moved to newly developed offices in central Copenhagen. In the coming months, we expect this trend to continue.
As a result, the office vacancy rate in Copenhagen is expected to increase further.
Driven by COVID-19 and uncertainties regarding the future and new ways of working, we continue to see an increasing focus on flexibility from the tenants in the form of relatively short non-termination periods, break options before the end of the non-termination period, right to sub-let, and right to assign.
Office Investment Denmark
The figures for Q2 2021 show that the transaction volume in the office sector reached DKK 3.4 bn, corresponding to a 30% decrease compared to Q1 2021.
Despite this decrease investors' demand for prime office properties continues to be high, which is why we continue to witness record low yield levels.
The decrease is not a due to decreasing demand but to a limited supply of prime office properties in Copenhagen.
Another consequence of the limited supply is that the office sector was dominated by Danish investors who accounted for 76% of the transaction volume in the office segment in Q2 2021.
Office Space Outlook DenmarkWe are continuing to experience strong demand for office leases in central Copenhagen. However, as vacancy rates are expected to increase in the coming months, there will be increased competition for the tenants, which is why we expect unchanged rent levels in the short term.
For the next 5-10 years however, we expect significant increases in the office rent levels due to limited opportunities for new construction.
Due to the increasing vacancy rate in the CBD and the expected adoption of mark-to-market taxation, the prime yield is expected to remain unchanged at around 3.25-3.50% for the rest of 2021.
For the long term we expect that a strong occupier demand, limited opportunities for new construction, the fact that large sums of capital are currently accumulated, and a strong investor demand will result in decreases to the yield level.