MR 2018

74

Copenhagen Property Market Report 2018

The south corridor is a top-performance industrial and logistics location

Birkerød/Allerød/ Hillerød

Ballerup/Måløv Brøndby/Glostrup/ Herlev

The south corridor

Avedøre

Amager/Kastrup

Location Efficiency Infrastructure Demand

Top performance

Above-average performance

Average performance

Below-average performance

Note: The strength profiles of individual industrial areas are based on performance scores based on four selected framework criteria. Source: Sadolin & Albæk

a 34,000 sqm grocery storage facility, the largest of its kind in Scandinavia, to accommodate the mounting demand from Copenhagen customers.

The favourable trends in the industrial and logistics markets, including mounting occupational demand and resulting decline in vacancy rates, have translated into stable and slightly uptrending rent levels for both prime and secondary properties at Brøndby/ Glostrup, Ballerup, Avedøre Holme and Amager/Kastrup. Modern facilities in demand Broadly speaking, the quality of the existing stock varies, and demand mainly centres on up-to-date and well-located logistics facilities with easy access to major arterial roads. In addition, the market for logistics facilities continues to be characterised by a high level of owner-occupation. As a result, available data may not reflect actual vacancy rates. Old and worn-down logistics facilities that fail to meet user demands in terms of location, flexible space, ceiling height, ramps and turning space are particularly vacancy prone. As a result, traditional 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 associated with some vacancy risk, exacerbated by the fact that it is rarely possible to achieve a rent that covers the cost of comprehensive refurbishment and conversion schemes. 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Irrespective of the decline in vacancy rates, rent hikes, yield compression and a relatively high proportion of outdated facilities, the market for logistics properties has so far seen speculative newbuilding only on a limited scale, as construction costs still exceed property market values based on market rent/yield calculations unless 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 interest rates far lower than the yield requirements of a third-party investor. Access to favourable financing has also made