Key takeaways

  1. It is projected that occupier demand will remain sturdy, although it will likely be slightly lower than the high levels recorded in recent years. 
  2. The supply response has so far not been enough to move the vacancy rate needle, as vacancies remain at a historically low level. The rising cost of capital and increasing construction costs will impede the ability to bring new properties to the market.
  3. The supply-demand imbalance is expected to sustain rental growth. This trend is likely to persist as the continued expansion of e-commerce drive demand from occupiers. As such, rental growth is expected to remain robust in the coming years. 
  4. The stabilisation of global supply chains has reduced pressures. As a result, companies may review and adjust their precautionary excess inventory levels. However, it is important to note that supply chain reconfigurations may still occur, presenting potential investment opportunities. 
  5. After a period of repricing, logistics yields are projected to stabilise in the near term. This stabilisation is likely to occur sooner than in other sectors, as logistics assets are expected to continue to be a desirable asset class for investors. 

Rental growth to moderate despite ongoing occupier demand 

Occupier demand persists, albeit reduced 

Following a period of increased activity, take-up levels in 2022 showed signs of slowing down due to concerns about the impact of rising costs and reduced consumer spending. Despite this, take-up levels for the industrial and logistics sector still increased in the third and fourth quarter of 2022. This indicates a continued interest from occupiers in this type of real estate. 

Occupier demand is expected to persist in 2023, although take-up levels may slow further as occupiers re-evaluate their expansion plans. The demand for warehouse and logistics space is anticipated to come primarily from large retailers, occupiers, and third-party logistics (3PL) companies, as smaller businesses may not have the financial resources to expand their operations. Additionally, companies may look to increase their use of 3PL services as they seek greater flexibility and outsource more of their supply chain processes. This trend is likely to be further accentuated by the ongoing uncertainties in energy prices, fluctuations in retail demand, and broader economic risks. 

Additionally, the growth of the digital economy will continue to lead to an increased share of the on line retail market. E-commerce players are therefore expected to continue to acquire space to meet the growing consumer demand from on line channels. In general, younger shoppers contribute significantly to this trend, which is why companies are expected to increase warehouse presence in metropolitan areas to save transportation costs. 

Figure14Figure15

Limited supply will support rental growth 

In 2022, significant investments were made in developing new industrial and logistics facilities. However, despite the addition of a large amount of new space, the Danish market for industrial and logistics properties remains constrained. New properties are rapidly absorbed by occupiers, resulting in a low national vacancy rate. 

Elevated construction costs and an increased financing cost are expected to impede the supply response in 2023. The current low vacancy rates indicate that any new stock will be attractive to occupiers due to the limited supply. As a result, the supply of logistics space is likely to be insufficient to meet the demand for such properties. 

A persistent demand combined with a limited supply has created a supply-demand imbalance, which is expected to sustain rental growth. However, the anticipated rental growth will be somewhat limited compared to last year, though remaining significantly above the growth levels seen prior to the pandemic. 

Occupiers will continue prioritising properties in prime locations; however, we anticipate increased interest in buildings in secondary locations. This will be driven by a shortage of properties in prime locations that meet the specific requirements of occupiers, combined with more affordable rents in these areas. 

Repricing of the market expected to stabilise 

It is anticipated that most of the repricing of prime logistics assets will have occurred in 2022, with a slowdown in the movement of prime yields expected in early 2023. Low vacancy rates across industrial assets are expected to mitigate the effect of potential further repricing as it provides support for capital values and income growth. 

In 2023, the total real estate investment is expected to decrease compared to the level registered last year. Even though logistics is no exemption, it does remain one of the preferred sectors for investors to invest in. On a European level, it is also expected that the industrial and logistics sector will continue to absorb market share. 

Long-term expectations remain optimistic 

The capital value of prime logistics assets located in Copenhagen is projected to experience substantial growth over the next five years, with an expected annual growth rate of nearly 4%. This growth rate is expected to be higher than growth rates in other sectors and among the highest in Europe. 

The projected growth suggests that the repricing experienced in the latter half of 2022 and early 2023 is temporary and will eventually be replaced by increasing capital values. The recent repricing may therefore present opportunities for long-term investors. Furthermore, growth in capital value for prime logistics assets in Copenhagen is expected to outperform growth rates in other sectors, indicating a strong potential for investment in this area. 

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Pressure eases on global supply chains while reconfiguration continues 

The global supply chains faced significant strain due to various geopolitical events such as the COVID-19-induced closures, the congestion of the Port of Los Angeles, and the ongoing conflict in Ukraine, which all contributed to increasing international freight rates. These pressures began to wane in late 2022 as bottlenecks and disruptions eased off. 

Although the situation has improved, the pressure on supply chains remains high in a historical context. The supply chain disruptions caused a spike in demand for logistics space as companies required larger safety inventories as a precautionary measure. As supply chains normalise, some of the pressure on demand and rent may ease as companies reassess their inventory strategies and no longer need to maintain excess stock. 

Despite improvements in seaport congestion and reduced international shipping costs, global supply chains continue to be under transformation. As a result, corporations will continue evaluating their operational strategies and diversifying product sourcing to mitigate potential future disruptions such as labour disputes, port closures, and ongoing conflicts. This trend of nearshoring is expected to persist in the coming year, offering opportunities for both tenants and investors in the logistics market.

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