Colliers Copenhagen Property Market Report 2019

Industrial & logistics – Market Report 2019

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Returns still attractive In today’s market trading at yields of 5.50-5.75% or higher, prime industrial/logistics properties offer highly attractive returns relative to other asset classes in terms of secure and strong cash flow. Like other investment property segment, the markets for prime and secondary industrial/logistics assets have seen yield compression for some years now. Currently, the prime industrial yield is approximately 5.50% on Greater Copenhagen prop- erties let on long leases (10+ years) and 6.50% on properties let on short leases. Yield requirements are therefore largely on a par with the yields seen prior to the onset of the financial crisis in 2008. Sale & leaseback transactions remain popular Current transaction activity is driven mainly by sale & leaseback transactions, allowing companies to focus on their core business and free up capital tied in property assets. In addition, they want to achieve greater flexibility by not owning the premises they operate from by pursuing an ‘asset light strategy’. Many of them are also aware of the fact that well-located and fully let investment properties currently fetch historically high prices, making this the ideal time to divest, as illustrated by the sale & leaseback involving the Horsens facility of DSV, see above. Although we have seen an increase in the number of sale & leaseback transactions, we believe the market harbours great potential for more transactions of this type as flexibility and core business focus remain weighty corporate parameters. Outlook for 2019 suggests strong activity Prime industrial/logistics assets offered for sale in 2019 are likely to see investors require a further decline in prime yields, although less pronounced than in recent years. The anticipated continued, but more moderate yield compression in this segment is driven by the bright outlook for Danish economy, which has manifested itself in down- trending vacancy rates and stable or uptrending rent levels in the occupational market. Furthermore, even if factoring in the predicted slight decline in net initial yields, prime industrial and logistics properties let to strong-covenant tenants on long leases will continue to produce attractive returns compared to e.g. a yield requirement of 3.75% on prime office properties. Generally speaking, office assets are considered more attrac- tive and secure than industrial/logistics assets, but if a top-modern, well-located indus- trial/logistics asset is offered for sale at 100% occupancy and with a strong-covenant tenant on a long lease, the current 175 bp gap between the prime industrial yield versus the prime office yield seems excessive; an investor will make a good investment at a yield requirement of 5.50%. Overall, we therefore foresee sustained activity in the industrial/ logistics investment property market.

KEY TRANSACTIONS

The by far largest transaction in 2018 involved W.P. Carey’s acquisition of the Danske Fragtmænd portfolio at a price of DKK 1.3bn, reflecting a net initial yield of 6.15%. Composed of 14 logistics facilities as well as the Danske Fragtmænd head office, the portfolio comprised some 185,000 sqm in total. The portfolio carries a WAULT of 17.8 years. At a price of DKK 470m, Sampension acquired the 75,000 sqm Horsens distribution centre of DSV Østjyske in a sale & leaseback transaction, involving a 7-year lease agreement with DSV as part of the company’s asset light strategy. In the first quarter of 2018, Snellman Properties AB acquired a former Essex portfolio of 12 secondary logistics properties, comprising some 101,000 sqm in total, at a price of DKK 360m, corresponding to a net initial yield of 9.00%.

 GÜNEY AKDOGAN, guney.akdogan@colliers.com