Logistics Nordic

Financial highlights

-3% y/y

Investment market for logistics segment in Nordics in 2022 compared to 2021

We continued to see solid risk appetite for logistic and industrial investments during 2022, although values came under pressure, due to a sharp increase in funding costs. Long duration rental contracts and strong locations for newly built assets remain the key value drivers to return and interest among investors across the Nordics.

In the short term, the higher cash-on-cash return for light industry-type buildings is having a positive impact on investor risk appetite. The main drivers are linked to positive fundamentals for rental growth and development potential and the subsequent higher return potential. Supply growth and strong tenants are both factors that have held back rental growth potential for prime logistics, while very strong take-up and rising construction costs are creating a basis for rents to increase more than inflation in the coming years. Logistics properties remain among the favoured property types for 2023, and we believe the positive fundamentals will balance higher funding costs. With a more stable outlook on yield requirement, value growth potential will likely support total returns in 2023 in growth regions across the Nordics.

+35bp y/y

Average yield up to 4.55 percent in Q4 2022

Logistics Sweden

The demand for modern logistics and industrial assets in strong locations continues to be high, going into 2023, especially for ‘last mile’ assets. The amount of newly produced stock reached record levels in 2022, amounting to approximately 1.5 million square metres, which is way above the 10-year average of 700,000 square metres.

Investment market

Rising interest rates and geopolitical uncertainty have gradually affected the investment market since the second quarter of 2022. However, there is still a robust demand for modern logistics and industrial assets in strong locations with solid tenants.

Tenant market

There were record levels of take-up in 2021; however, the rate somewhat slowed in 2022 but is still at high levels. There is a continued demand from tenants within retail and e-commerce as well as in logistics and distribution.

Funding status

The softer outlook for the economy, in combination with rising funding costs, has had a negative impact on all properties. Funding costs are substantially up and refinancing LTV is lower. Nordic banks are focusing on existing relationships, which is having a negative impact on fund availability and new investors in the market.

Sustainability

ESG has become a hygiene factor for an increasing share of investors who are leading the way, although all will need to adapt to ensure liquidity moving forward. Over 30 percent of the developments with completion in 2022 have a green code certification.

Outlook for 2023

Yield increased in 2022. However, there is still a large capital pool looking for investments. Investment volumes will likely be supported by larger portfolios and new developments, albeit with adjusted return requirements, in part mitigated by a strong outlook for rental growth in capital areas.

Financial highlights

4.50%

Yield requirement prime logistics.

Up 100 percentage points y/y

Logistics Finland

1.2

New logistic developments with completion 2023

Logistics has been one of the sectors most affected by the rapid change in the market sentiment after the summer. The swift rise in interest rates, combined with the poor economic outlook, rampant inflation and growing uncertainty, has resulted in considerable outwards movement in yields, after eight years of continuous compression.

Investment market

Transaction activity decelerated during the second half of 2022. The logistics and industrial sector (L&I) transaction volume amounted to €302 million during the second half of the year, while the total volume in 2022 was €869 million. In the fourth quarter of 2022 the volume was €86 million, just 19 percent of the €452 million volume witnessed in the second quarter of the year.

Tenant market

The occupier demand remained strong in the second half of the year, although there are signs of the tenant market slowing down amid the poor economic outlook. Thus far, landlords have been able to carry out CPI-linked rent indexations in full.

4.65%

869€m

Funding status

Lena Grimslätt Senior Director Capital Markets Sweden

The sector is relatively favoured by the bank lenders, but financing conditions have become more challenging, in tandem with the general market. Tenant quality mix, alternative use and reletting possibilities dictate the financing possibilities.

Sustainability

Sustainability is becoming an integral part of investor decision making and record-high energy costs are providing further incentives for energy investments.

Outlook for 2023

The positive long-term outlook of the L&I sector remains unchanged, but rapid changes in market conditions have created a notable gap between buyers’ and sellers’ opinions on value. With considerable headwinds present in the economy and in investment markets, it is likely that transaction volume will remain subdued during the first half of 2023.

Logistics Norway

As the rest of the market, the logistics segment is facing challenging times, both in the transaction and leasing market. During the pandemic, the segment attracted investors fleeing to safety with long WAULTS and strong credit, the same trend is not as clear today. Prime yield has increased 75 bps in the past year, and in the near-term, we see further upward pressure.

Investment market

There is still unemployed capital and willing investors in the market, but it has taken time to establish a new price equilibrium. For now, buyers are hesitant to be first movers in an uncertain market.

Tenant market

The most attractive hubs around Oslo are recognised by low vacancy, and vacant properties still have considerable traction in the leasing market. Strategically located hubs along the main access roads have had the strongest rental growth.

Funding status

The cost of capital has skyrocketed, and a repricing of logistics property is underway. Limited access to capital through the bank and bond market has resulted in fewer reference transactions.

Financial highlights

Sustainability

Persistent high energy prices have once again put the spotlight on sustainability and energy efficiency. Environmentally friendly solutions have suddenly become financially viable, which is likely to accelerate the investments in sustainable solutions, such as solar panels on roof surfaces, charging stations for electric trucks and establishing green roofs that collects rainwater.

Outlook for 2023

A weak currency, lower demand for goods among consumers as well as full inventories have resulted in challenging times for the e-commerce sector, which is pressured on both pricing and margins. Thus, the leasing market is expected to cool down in the near-term, with a flat development in rents. Further ahead, the outlook remains favourable when consumption picks up and e-commerce sales find their way back to their rising, long-term trend.

13.8NOKbn

Prime yield up 75 bps in 2022

4.75% Logistics Denmark

The high demand for logistics space, combined with limited supply, has led to a spike in rental rates. As financing costs have increased, the transaction market in this segment has been going through a period of readjustment in pricing.

Investment market

Logistics and warehouse properties continue to be attractive for investors. Transaction volume remains particularly strong from international investors, who account for 65 percent of transaction volumes. Additionally, prime yield for these properties is at a favorable rate of 4.25 percent, compared to other areas in the Nordic and European regions.

Tenant market

Strong tenant demand and limited supply have led to low albeit rising vacancy rates. Many companies are struggling to find properties that meet their needs, resulting in suboptimal solutions. Additionally, the supply of older industrial areas is decreasing as they are being replaced by residential developments.

Funding status

Obtaining funding for warehouse and logistics properties has traditionally been challenging in Denmark. Despite an increase in transaction volume and investor interest, it remains a segment that is difficult to secure financing for.

Sustainability

The importance of sustainability is increasing as energy costs rise, driving investments in energy-efficient buildings and shortening the payback period. Sustainability is no longer just a trend, as the cost of energy has made it a necessity.

Outlook for 2023

As interest rates rise, yields are shifting to match the real estate markets with the current state of the economy. However, the sector's longterm prospects are still promising, and investor demand continues to be high.