Investors are interested in the 4.25 percent return on logistics properties, as they combine many growth trends.
Ecommerce growth has made investors particularly interested in logistics properties.
The coronavirus pandemic has reinforced the global megatrend of e-commerce growth. There is also a clear shift in grocery shopping to online shopping and home delivery. This will require new modern storage space and facilities close to customers where the food cold chain remains uninterrupted.
Real estate consulting company Director of Research at CBRE Jussi Niemistö says construction companies and real estate developers have woken up to the phenomenon in the past.
“The Nordic countries are likely to have a spike in new completed logistics properties during next year and the first half of 2022,” says Niemistö.
He predicts that the construction of new logistics centers will continue briskly in 2022.
Growth is boosted by e-commerce products that receive a lot of customer returns. For example, about 30 to 40 percent of clothing is returned.
Also e-food e-commerce is expected to grow in Finland. According to HS data, a foreign challenger will enter the Finnish market within a year, focusing on home delivery of food.
For example, there are already a few growth companies in Sweden and Denmark that specialize in food e-commerce, which could expand their operations to Finland.
The development is facilitated by the fact that restaurant-focused courier companies such as Wolt and Foodora want to actively expand their operations to the delivery of other products as well. Wolt already has two warehouses in Helsinki, from which shippers search for food and goods.
According to Niemistö, several real estate projects focusing on cold storage are underway in the Nordic capital areas.
Growth is also expected from mega-size stocks.
“The growth peak in mega-inventories has been seen in Europe before, and this trend is expected to come more and more to the Nordic countries as well,” says Niemistö.
For example, large Online Stores like Amazon need mega-warehouses to take control of the entire logistics chain.
For example, Amazon has announced that it will increase the size of its logistics network by 50 percent this year to better serve the increased order and delivery volumes, Niemistö says.
Amazon opened in October at the end e-commerce to Sweden.
Logistics centers arise naturally in the vicinity of ports and transport hubs and where there are many customers.
“In Finland, development has been hampered by the fact that there have not been enough modern warehouse properties here. But now they are being built a lot, ”says Niemistö.
According to him, investors are particularly interested in Vuosaari and the Aviapolis region in Vantaa near the airport.
Investor interest is well illustrated by the fact that the yield requirement for good so-called prime properties has fallen by half a percentage point from 4.74% to 4.25%.
“As the yield requirement falls, it says investor demand is strong.”
Yield levels are still attractive to international investors compared to zero-interest bonds or residential or office investments, where yield expectations move in the 3-4% range.
Construction company YIT is currently building a 20,000 square meter K3 Logistics North logistics center in Viinikkala, Vantaa, south of the airport. In the summer, YIT completed the 11,300 square meter K3 Logistics West logistics center in the area.
YIT’s customer manager responsible for renting these premises Jouni Grönlund says that the demand and need for facilities is comfortable. According to him, no logistics plots can be found south of Helsinki-Vantaa Airport.
YIT has anticipated continued growth to the north of the airport. It has acquired land in the Tuusula region and expects the Ring Road IV project to progress as Ring Road III’s traffic flow is already at its extremes.
According to Grönlund, large operators such as Posti, DB Schenker, DHL, the German Post and the Danish and Swedish Postnord have already made far-reaching decisions about their logistics facilities, but new international players and domestic wholesalers are interested in modern warehouses under construction.
The change is accelerated by the fact that the sizes of consignments have decreased a lot recently, Grönlund says.
“Delivery frequency has changed.”
YIT’s new logistics center will be completed at the turn of 2021–2022.
Almost 33,000 square meters of Avialogis logistics center for Barona Warehousing Services, For and Aberdeen Standard Investments will also be built next to Ring Road III in Vantaa, Viinikkala. Its first construction is currently underway.
Grocery store an increasingly shift in the direction of home delivery may be the most drastic of recent changes in warehouse space.
Due to the interest rate pandemic, the food online store in the K-Group grew tenfold year-on-year in the last weeks of April, for example, says Kesko’s Director of Online Grocery. Antti Rajala.
Now sales have leveled off from the spring highs. Overall, online food sales have increased fivefold this year compared to the same period last year.
“And online food sales have been growing strongly rather. In 2019, it doubled. ”
Research company Nielsen estimates that last year, e-commerce accounted for 0.6 percent of the grocery trade.
Before the start of the corona pandemic, Kesko predicted that the share of e-commerce would rise to 5 per cent in 5–10 years. This share was filled momentarily as early as April. According to Rajala, the situation caused by the coronavirus brought growth to “completely new spheres”.
After the corona peak, the share of e-commerce in the K-Group has leveled off at around 2.5 per cent. Rajala forecasts that the 5% share will be met in five years due to the higher level now underlying.
“Us it is not surprising if new players enter the market, ”Rajala answers the question of whether Kesko knows the results of new competitors in the food online store.
The reason for the interest of potential new competitors is that the size of the online food store in Finland is still small in international comparison, and now the rapidly growing market offers opportunities for business.