A combination of low-price borrowing costs and a relatively high yield makes Denmark an attractive country for property investors. This states Cushman & Wakefield in their new survey concerning yields and borrowing costs in Europe, which they presented at their Nordic Investment Conference.
For a long period, the real estate market has been stable with a moderate positive growth in all segments. This means that one´s has experienced a modest rise within the investment volume, and further a continuous growth in the commercial property rent. In the North, an increase of 4.6 p.c. is to be found, and more also in Germany 2.6 p.c. In proportion to the investment volume, the North experienced a rise of 5 p.c. and Germany 2.6 p.c. The continuously steady progress has resulted in yields being pressed down all over Europe.
LARGEST PREMIUM IN DENMARK THAN REST OF THE NORTH
In spite of the before mentioned low yields in Europe, Denmark has the highest premium within property investments than the rest of Europe. This is due to the fact, in Denmark, one can get a relatively high yield in both loan interest and alternative interest rate. In Denmark, the average premium in borrowing costs is 3.4 p.c. with a starting point of a 5-year rent and an average marginal on 125 basis points.
Lior Koren, Partner in Cushman & Wakefield RED, point to “Cushman & Wakefield’s survey is very interesting in the sense that it confirms our selling point about the Danish market – the low-priced mortgage raises the otherwise low property yield to a price competitive level.”
In Sweden and Norway, the gap to the loan interest is also very reasonable. However, the premium is still somewhat lower than in Denmark. I Norway it is 2.19-percentage point lower, and in Sweden 1.01-percentage point lower. Lior Koren further explains “If you also take the transaction costs and valuta hedging into account, the Danish market after my opinion has a bigger advantage in contrast to our sister countries if you see it from a foreign investors perspective. One can also say that Cushman & Wakefield’s survey lays a relatively conservative level for contribution rates, which means that the yield in contrast to loaning costs in reality are bigger than it appears to here.”
THE LOW ALTERNATIVE INTEREST RATE
In Denmark, one will get the absolute highest premium in contrast to the public bond even though countries like Poland offers a higher yield. This due to Denmark, in an extended period, has operated with a risk-free rent that has circulated around zero. Therefore, many investors choose to seek against other assets, like real estate, which currently has a positive and inflation-proofed yield.
A combination of low-cost borrowing costs, a relatively high-risk premium in contrast to the rest of Europe, and lastly a stable economy makes the Danish real estate market a very attractive market.