Market Report 2022

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I&L - Colliers Market Report 2022

Greve Distribution Center, modern storage and logistics park situated in the south corridor. Developed by MG Real Estate.

Facilities to serve multiple purposes For businesses that handle goods, mainly e-commerce growth has imposed higher demands on the configuration of stor age and logistics facilities, today increasingly required to offer advanced, automated, and efficient systems to ensure quick reloading of goods. This applies to last mile distribution, where efficient storage facilities are a key competition parameter. By the same token, the occupational market sees a general demand for high-ceilinged storage facilities and sufficient load ing docks. Although the current market for logistics and storage facili ties is characterised by record-low vacancy rates and massive demand, it is still relevant to invest in the development of facil ities equipped to serve more generic purposes than the spe cial fit-up requirements of a specific tenant, if the objective is to reduce vacancy risk longer term. Stronger demand and lower vacancy on account of e-com merce growth throughout the coronacrisis have driven up rental prices in the segment, with a drop in prices from the cur rent level seeming unlikely, as we expect to see future invest ments in the retrofitting of existing facilities to meet today’s requirements, this also considering the limited options for the construction of new industrial and logistics facilities in good locations.

Market ripe for speculative building The low vacancy level reflects a more long-term trend and is therefore not a phenomenon created solely by the coronavi rus pandemic. One solution to the immediate shortage of facil ities is speculative newbuilding, that is, developers constructing facilities before one or multiple tenants are in place. For a developer, speculative building may be a sensible strat egy in a scenario where substantial demand and limited sup ply drive down vacancy rates to an all-time low. Exactly these determinants prevail in today’s market, where fierce compe tition for lease premises has driven up rental prices in virtu ally all parts of the country. In addition, demand is not lim ited to businesses with expansion plans: There is also a certain amount of hidden demand as many tenants of outdated facil ities would like new and efficient lease premises but often put off the decision until an actual opportunity arises rather than proactively searching the market. Even rising construction costs should not impede speculative building as today’s prices of newbuilds exceed development costs by a fair margin, even when factoring in a developer fee to compensate for risk. This was not the case just a few years ago, when developing new logistics and industrial facilities was only lucrative if the facilities were either pre-let or developed by the end-user.