Investment Market. In 2019, the industrial and logistics sector recorded a total transaction volume of €384 million, which is 35% less than the 10-year average of €585 million, largely due to missing of large portfolio and M&A deals explaining the record high volumes of 2014 and 2017 (€1.45 billion and €1.55 billion respectively).
The industrial and logistics sector contributed 6% of the total investment volume in 2019, which was significantly below the 10-year average of 11%. A few of the largest logistics transactions of 2019 included NRP & Wilfast acquiring 40,000 sqm site in Hyvinkää from Onvest for €68.5 million and Isku selling their 43,000 sqm site in Lahti to Ilmarinen for €25 million. The largest production property transaction involved JM Suomi acquiring 54,000 sqm site in Helsinki from G.W Sohlberg for €34 million.
One of the current trends in the industrial and logistics market in Finland is that due to the limited stock and new development pipeline the demand for prime investment grade industrial properties highly exceeds the supply, which has resulted the prime yields to compress to record low levels of roughly 5%. However, this applies only for a very limited amount of top investment grade properties, mainly near the Helsinki-Vantaa airport area and with long leases for large established users. In the other end of the spectrum there is a multitude of smaller and outdated properties with secondary transport connections in need of major renovations, so the variation in demand and yield between areas and properties can be very significant.
Stock and development pipeline
The total industrial and logistics property stock in Finland amounts to ca. 74 million sqm with 9.3 million sqm located in the Helsinki Metropolitan Area. The overall industrial stock involves a wide range of properties with variety of use cases. These range from large power plants and manufacturing sites to small owner-occupied establishments, many of which are outside the typical commercial market. It is estimated that 85% the total industrial and warehouse properties are owner-occupied as measured by capital value.
The commercial industrial and logistics market in Finland primarily consists of three major categories: light manufacturing properties, modern warehousing and logistics properties. The logistics segment has developed significantly during the recent years along with the changes in demand and traffic connections. Much of changes in logistics have been caused by the trend of e-commerce with the need for modern warehousing and shorter delivery times.
The new industrial and logistics developments are heavily focused in the Helsinki Metropolitan area, representing approximately one third of the total pipeline with slightly over 100,000 sqm of space under construction. In the Helsinki-Vantaa Airport area, 25,000 sqm of space was completed during 2019, and 32,000 sqm was under construction at the end of the year. Largest development projects in the recent years include the major logistics and central warehouse projects by S Group in Sipoo and Lidl in Järvenpää, of which the S-Group’s logistics centre will comprise over 200,000 sqm after completion of the last phase.
Rental Market
With increasing pressure to improve efficiency and processes, the occupier demand is shifting more and more towards newer property stock, leaving older properties vacant and increasing the gap in rents between prime and secondary areas and properties. With lack of speculative development by investors and developers, the larger and more specialised units often need to be purpose built to be occupier-owned, or as a leaseback project, with a collaboration with a contractor.
In Finland, the market rental levels are typically presented in terms of gross rent including the service and operational charges. The prime industrial gross rent in the most prime areas, namely near the Helsinki-Vantaa airport have increased steadily during the years and can currently reach €13 per sqm per month, whereas the average rents in the Helsinki Metropolitan area vary around €10.50 per sqm per month. To reflect these rates to net rent levels, the level of operational charges typically ranges between €2.5-3.5 per sqm per month, resulting prime net rental level of €9.5-10.5 per sqm per month and average rental level of €7-8 per sqm per month. In other larger cities in Finland the prime industrial gross rents have also reached the € 10 per sqm per month threshold, and net rents ranging between €4-6 per sqm per month.
My conclusion
Despite the weakening economic situation within the industrial sector, we expect e-commerce and general internal demand to further propel modern stock levels over the coming years – particularly within and close to the Helsinki Metropolitan Area. The constant growth of e-commerce sales opposed to traditional bricks and mortar shops will continue to have a major impact on the logistics and warehouse space. We have noticed an increasing interest in premises suitable for cold chain logistics and warehousing, and last mile logistics, reflecting wider changes in supply and delivery chains, perhaps dissolving the traditional division between logistics and retail real estate in the future. We see that the investor interest in the industrial and logistics sector will increase in the long term as investors continue their search for yield and asset diversity.
Read more about the Finnish Real Estate market from CBRE Finland Real Estate Outlook 2020.
Read more about CBREs Research.
