Colliers Copenhagen Property Market Report 2019

Industrial & logistics – Market Report 2019

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Domestics investors take the lead in the industrial/logistics segment

As a result, traditional industrial/logistics facilities with an ancillary office unit at the front and production/storage at the back attract little demand. The same applies to the built-to- suit production facilities common in this segment as they may be difficult to re-let, hence entailing some vacancy risk, which is exacerbated by the fact that it is rarely possible to achieve a rent that covers the cost of comprehensive refurbishment and conversion schemes. Especially facilities with a low ceiling height are cost-intensive in term of refur- bishment. Still limited speculative development Irrespective of the decline in vacancy rates, rent hikes, yield compression and a relatively high proportion of outdated facilities, the market for industrial/logistics properties has so far seen only speculative newbuilding on a limited scale, as new construction costs still exceed property market values based on market rent/yield calculations unless they are taken into account in a long lease. As a result, development schemes are typically launched by the end-user or hinge on a pre-let agreement being in place with a long- term, financially strong tenant. For newly completed facilities, the contractual rent will often exceed the market rent during the lease term to produce a satisfactory return relative to construction costs. End-users therefore often prefer to get involved in the development phase, especially as they are currently able to achieve favourable financing at a high loan-to-value ratio and at interest rates far below the yield requirements of a third-party investor. Access to favour- able financing has also made operating leases an attractive option for many businesses that view their facilities as long-term assets but would like to free up capital tied in prop- erty assets. Owner-occupation dominates the market As the market for industrial/logistics property continues to be characterised by owner-occupation, this segment traditionally lags behind other segments of the property market in terms of transaction activity. Broadly speaking, investor demand is increasing in the segment. International investors, often with specialist market knowledge, typically target big-ticket assets or portfolios. However, such high-volume single properties or portfolios are in short supply in Denmark. Institutionals are also displaying appetite for the segment, but as a rule they invest via specialised funds. This was the case in April 2017, when NREP set up a fund comprising 49 up-to-date logistics assets in the Nordics with a total value of some EUR 1.1bn, intending to expand longer term. Investors in the fund set-up include domestic pension funds PFA, DIP, JØP and Lægernes Pension. However, in 2018 Sampension broke with this rule, in a direct acquisition investing in DSV’s 75,000 sqm distribution centre in Horsens in a sale & leaseback transaction. Other important market players in the segment include M7 Real Estate, W.P. Carey, MG Real Estate, Blackstone, Standard Life Aberdeen, Pareto Securities and MEP Industrial Centre.

Domestic 57%

43% Foreign

Note: Industrial/logistics transaction volume by investor origin. Industrial/logistics transaction volume, Greater Copenhagen with the addition of the south corridor

and Birkerød/Allerød/Hilllerød. Source: Colliers International

Transaction volume dominated by core and value-add investments

22% Opportunistic 29% Value-add 29% Core 20% User

Note: Industrial/logistics transaction volume by investment type. Industrial/logistics transaction volume, Greater Copenhagen with the addition of the south corridor and Birkerød/Allerød/Hilllerød. Source: Colliers International