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Scope Ratings says the Nordic region is a good case study of how strongly the logistics segment has developed into a separate asset class.

The lockdowns and physical distancing protocols imposed to curb the spread of coronavirus have had a significant adverse impact on some commercial property subsectors. Denmark, Finland, Norway and Sweden have not been spared, despite contrasting approaches to containing the pandemic.

“The shift toward to online commerce from physical shops has accelerated. Employers are encouraging remote rather than office working. The pandemic has forced the closure of hospitality, entertainment and sporting venues,” says Denis Kuhn, analyst at Scope.

“In this context, logistics properties offer a natural hedge against the pandemic-induced risks with which the segment’s growth is at least partly correlated,” says Kuhn.

“The Nordic logistics real estate sector is currently characterised by higher yields and lower vacancies than elsewhere in Europe,” he says. Annual prime yields for logistics properties in Copenhagen, Helsinki, Oslo and Stockholm are running at around 5%, compared with nearer 3.5-4% in cities in France, Germany and the UK. Nordic vacancy rates are running at 4.0% in Stockholm, 4.7% in Oslo, and 4.8% in Helsinki in Q3, compared with average rates of 5.4% in France, 6.2% in the UK and 8.2% in Poland.

Demand for logistics properties across Europe, including the Nordics, is partly a consequence of trends that have roiled other parts of the commercial real-estate sector. Prices for prime office property with high-quality tenants and long remaining lease terms remained stable and have even risen in many of Europe’s biggest cities.

“However, there are growing concerns among investors over non-essential retail and second/third tier office locations. Demand for retail and office space may shrink permanently through changes in shopping and working habits,” says Kuhn.

Online retail business volumes, already on the rise before the pandemic, have hit new records, triggering investment by companies throughout the retailing supply chain in more IT and distribution infrastructure – and the buildings to house it.

“Such properties tend to have multi-year leases, often with strong single tenants, providing greater cash-flow visibility, valuable for debt and equity investors,” says Kuhn.

A study among European debt investors found that more than 40% expect an increase in senior debt supply to fund sub asset classes like logistics – in 2020, more than for any other category in real estate¹.  

¹PwC Emerging Trends Survey 2020