by Allan Ramby
The Danish economy has developed in a surprisingly positive manner, especially during the latter part of 1989, contrary to what was to be expected considering the possibilities and tendencies which existed about a year ago.
With largely the same constitution, the Conservative coalition administration has stayed in power for more than seven years as a minority government. Several of the moves made in recent years, very often resulting in unpopular consequences for private economies, are now showing a positive effect on the overall, general economy.
Thus the absorption of domestic buying power through tax schemes, with measures promoting exports, have resulted in such heavy increases in exports that the strongly improved balance of trade, and with it the balance of payments, caused Denmark’s foreign debt to remain at a standstill in 1989 — something which has happened only twice in the past 25 years.
However, the market for commercial properties is still weak owing, among other things, to the fact that the heavy overdevelopment of commercial properties in the years 1985 to 1987, which to some extent has continued in the years after, has not to a sufficient degree been marketable on a weak domestic market, characterised by poor buying power.
As the table shows, Danish rental levels are low by international standards. By and large, prices have been constant throughout 1989 with the exception of rents on offices and shops in Copenhagen which continued the tendency from 1988 of falling levels. In addition, there is now a paradox as regards office rents in Copenhagen city, which in some places are lower than rents on the outskirts which, admittedly, are for newer buildings. This paradox, which is generally characterised by a harmonising of prices for rented offices in the city and the surrounding areas, is caused mainly by many large concerns and public institutions moving out of the city during recent years and especially in 1989, coupled with the fact that the weak domestic demand has been unable to absorb the heavily increasing supply in the city centre as well as the expansive new buildings in the suburbs of Copenhagen.
The demand for attractive investment properties, characterised by good location, reliable tenants and a long lease term, has always been strong. A weak market, however, can offer fewer really attractive investment properties with equivalent low yields. As regards other investment projects, the increased risk of tenants moving out and fewer possibilities of reletting at stable prices have now caused investors to demand a bigger yield on the capital employed than was the case a year ago.
The decline, however, which has existed for commercial properties in the past three years seems now to have partially stabilised. This should make it attractive for Danish as well as foreign investors to turn their interest towards Danish investment properties, which at present can be acquired at sensible prices, before an expected recovery in connection with the overtures being made in approaching the European single market.
Last year was characterised by a merger wave which in particular has affected Danish institutions of finance such as banks, insurance companies and mortgage institutions. For example, Denmark’s present largest and second largest banks, Den Danske Bank (continuing under the name DDB) and Handelsbanken, respectively emerge, after merging with Provinsbanken, as one of the larger in Scandinavia, although still only the 40th largest bank in Europe. Three more of the larger banks have equally merged into Uni-Bank Denmark (UBD).
The financial world is now awaiting Denmark’s two largest mortgage institutions (each holding 40% of the market), Nykredit (NK) (equity capital Dkr 16.5bn) and Kreditforeningen Danmark (KD) to join in a partnership with UBD and DDB respectively.
Approaches between insurance companies, which for several years have conducted banking services, and mortgage institutions are also seen.
It is generally felt that most Danish politicians would rather avoid discussing the EC. It is a characteristic that hardly any mention of the EC and the single market was made at the general election in Denmark in May 1988. In most other countries, the debate was very intense and Danish economic life suddenly rushed for information to get a feel of the lie of the land. A temporary result is the merger wave, mentioned above with particular reference to the financial sector, which essentially took place in 1989.
The most important changes in the property market are the recognition and concentrations of capital which have taken place within the financial sector. In 1988, Baltica set up a chain of real estate shops on franchises. Private customers were thus offered insurance, banking and real estate counselling services.
Throughout the first half of 1989, the big national chains of real estate agents continued their efforts to buy or establish formal co-operation with important independent estate agents. After this the path was clear for the three largest mortgage institutions, Nykredit (NK), Kreditforeningen Danmark (KD) and Byggeriets Realkreditfond (BRF), who between them hold almost 100% of the Danish mortgage credit market, to make their way into a market that was new to them.
Following the merger wave in the summer of 1989, NK, KD and BRF together control all real estate companies of importance who were previously independent. The buying-up has been extremely expensive (totalling Dkr 0.5bn) despite the fact that only a few real estate companies in today’s market, characterised by a large number of forced sales, make a decent return. The efforts have mainly been concentrated on being able to influence the customer’s choice of mortgage institution in connection with private house sales. Initially, the mortgage institutions have not had the same interest in buying real estate companies, which deal merely with commercial property, as most clients of these companies want to make their own choice in financing real property.
The three Danish mortgage institutions have their eyes set on the other markets in the EC, above all the UK, West Germany and France. In strong competition with National Home Loan (NHL), NK has in the UK acquired Business Mortgage Trust (BMT), now renamed Nykredit Mortgage Bank, while in West Germany NK has acquired Frankfurter Bodenkreditbank. Kreditforeningen Danmark (KD), however, still has the largest international department counting a lending portfolio of Dkr 3.1bn distributed one-third in West Germany and two-thirds in the UK (among others in the Docklands) — in both cases with considerable losses as a result. KD also has a smaller involvement in France through its subsidiary company, Kredit Danmark SA, with a joint stock of Fr 150m of which Credit Lyonnais holds some 9%.
Generally, Danish society and Danish business can expect considerable positive effects from the single market. This was shown in the Cecchini Report, which the commission had prepared in 1988 to shed light on the actual effects of the single market. And last year a Danish report estimated the total benefit of removing the technical trade obstacles at Dkr 14.7bn. The greatest increase in turnover (about 15%) is expected in smaller companies with a staff of 20 to 49. The report states that trade obstacles are difficult to do away with, the reason being, among other things, the slow process involved in passing the directives. This is an area where Denmark can use its influence, for instance by publicising the more absurd examples — a worthy task for possibly underworked Danish diplomats in the EC countries.
