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Logistics facilities: A high-momentum market?


Recent years have seen exceptionally strong momentum in the logistics property market. So far, this market seems to come out of the coronacrisis unscathed. Several market players have claimed that on the heels of the coronacrisis will follow trends like accelerating e-commerce growth and increased focus on so-called buffer stocks, further exacerbating the pressure on logistics facilities. In this article, we provide a general logistics property market overview – both before, during and after corona.


In the period preceding the coronacrisis, the logistics property market was thriving. As company inventories had been building for years, vacancy rates had come down in all parts of Denmark, in several areas dropping to levels on a par with the low seen before the financial crisis in 2007 2009. Broadly speaking, demand was virtually insatiable for up-to-date logistics facilities, while more outdated facilities struggled.



The main reasons for the shortage of contemporary, well-located logistics facilities are twofold. Firstly, the aftermath of the financial crisis saw relatively few speculative building starts, and supply was therefore not able to match demand. Secondly, due to e-commerce growth and the heightened focus on efficient supply chains, many old logistics facilities became functionally obsolete, no longer meeting modern user requirements. 

Although the cited trends, on a varying scale, apply to Denmark in general, the market for distinct logistics properties has seen a shift towards a higher degree of centralisation. As illustrated in figure 3, many Danish logistics facilities are today located around Copenhagen, Odense, Aarhus and the Triangle Region (mainly Kolding, Fredericia and Vejle):

  • Although located on the nation’s outer boundaries, the area around Copenhagen has so much financial clout that it is bound to require a well-defined logistics infrastructure. Several years of strong economic growth momentum and population growth have only served to underpin this.
  • With is location at the vertical centre of the Jutland peninsula, the area around Aarhus is the gateway between the northern and southern parts of the country. Increasing population figures, economic growth, proximity to the motorway grid as well as one of the largest ports in the Nordics all combine to sustain strong demand for logistics facilities.
  • Although the area around Odense enjoys one of the most central locations in Denmark, Odense is facing intense competition from the Triangle Region. With its central location in Denmark, in the very heart of the Danish motorway grid and with ideal travel times in terms of driving and resting requirements, the Triangle Region today functions as Denmark’s logistics capital. 

Is the coronacrisis taking its toll?

So far, the logistics property market has weathered the coronacrisis fairly well, with no significant increase detected in lease termination activity. There has only been a moderate number of inquiries relating to “corona-discounts” (respite of rental payments, rental discounts, etc.), and it has been a phenomenon mainly among small-size tenants. Although some major investors have been slightly more careful to buy at the same low yield levels, demand for the segment remains strong.

The fact that the logistics property market has remained largely unscathed by the coronacrisis is due mainly to three factors. Firstly, there has been substantial growth in online sales. According to analyses by FDIH (the Association of Danish Internet trading), total online spending was higher in April 2020 than in April 2019. The sharp decline in the sale of travels and hotel stays has been compensated by an increase in the sale of home electronics, household appliances, foodstuff, pharmaceuticals, etc. – all products that require increased logistics capacity, both in terms of storage and in terms of physical delivery to end-user.

Secondly, the logistics property market is a segment to be hit by shocks to the economy only in the late stages of cyclical fluctuations. Most of all, this ties in with the fact that many logistics facilities are let on long-term lease agreements. However, it is also due to the position of logistics in the economic supply chain. When businesses are unable to sell their goods, the goods must be put into storage. In the short term, the need for storage may remain largely intact although manufacturing companies come to a halt. Figure 4 illustrates this logic for the post-financial crisis years of 2007-2009 (the selected areas are representative, with the same pattern seen in the rest of the country).


Thirdly, recent years’ shortage of up-to-date, well-located logistics facilities has created some sort of buffer, in the short term effectively cushioning the market from the effects of a minor drop in demand. Depending on how the coronacrisis unfolds over the months ahead, this leg of argument may quickly collapse, however.

Future outlook uncertain but bright

Obviously, the future is hard to predict, but the outlook for the logistics property markets is believed to be bright. However, it is fair to assume that the economic downturn will take a severe toll on many businesses, in particular small ones with limited liquidity. As a result, it cannot be ruled out that the next 12 months will see uptrending vacancy rates in old, outdated logistics facilities. Nevertheless, a possible decline in the demand for the secondary building stock is expected to be balanced by an increase in demand for prime premises. In this respect, the Triangle Region is one of the areas to be ready and waiting, with multiple speculative construction schemes in Taulov, northern Kolding (Kolding Nord) and Horsens.  

Several market players, among them Prologis (one of the world’s largest investors in logistics properties), also point out that the coronacrisis is going to change international supply chains. For instance, they have singled out trends like accelerating e-commerce and “buffer stocks”.

In our opinion, e-commerce will undoubtedly affect the logistics property market for many years to come, not only in terms of the volume of available logistics capacity but also the type of available capacity. In major urban areas like Copenhagen, for instance, focus will increase on traffic bottlenecks and last mile delivery. 

This being said, there is also a real risk of overestimating the impact of the coronacrisis on e-commerce. Although recent months’ sales figures show a substantial increase, we know from experience that people tend to return to their former behavioural patterns. It is not unfeasible that the coronacrisis will be a long-term boost to online sales. However, it is important to bear in mind that mounting e-commerce was a trend even before corona and that businesses therefore already to some extent have factored this into their long-term plans.

Unlike the coronacrisis impact on e-commerce, it is much less likely that we will see an increasing number of businesses building buffer stocks. The problem with buffer stocks may be illustrated by a fictitious example: If we assume that domestic supermarket group Salling increases its inventories by 5%, it will without question impact on the group’s bottom line and, by extension, on its competitive strength. Let us now assume that Amazon enters Denmark. The enormous pressure from the new competitor will invariably force Salling Group to make its supply chain more efficient. In other words, it is difficult to see how buffer stocks will be able to survive in a highly competitive market environment. In the immediate term, however, several businesses are quite likely to try their hands at buffer stocks. 

As far as more long-term trends are concerned, multiple market players have indicated that they are contemplating moving their logistics capacity closer to local catchment areas. Today, Europe’s logistics network springs mostly from large storage facilities at the centre of the European continent. If several major players should start to move parts of their logistics capacity closer to the consumers, it may severely impact the market for logistics facilities in Europe, including Denmark.