In an interview with Estate Media, Anders Bengtsson, Partner at Savills Denmark, talks about the increasing demand for a new asset. In a time of less market activity and lower demand for the more traditional property segments, there is a focus on new segments with potential. Thanks to Estate Media for the interview.
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Demand for warehouse facilities soared during the Covid-19 pandemic as e-commerce exploded, and since then, the segment has maintained its position as a substantial part of the supply chain.
Accordingly, more companies are now also searching the market for last-mile logistics locations. From this demand a subsector has now emerged – Industrial Outdoor Storage (IOS) which has become an investment opportunity.
The current economic landscape entails that more property investors are looking for alternative profitable investment opportunities. These are typically smaller and more unconventional asset types with counter-cyclical tendencies, such as the IOS sector. "While no property segment is completely impervious in uncertain times, we consider IOS assets to be relatively safe investments as the supply of warehouse facilities is still limited and because storage options are needed in good as well as bad times.
Anders Bengtsson, Partner at Savills Denmark
Logistics and e-commerce companies, which are the typical tenants, need storage space for goods and equipment. Parking for lorries and container storage are also a necessity, that makes IOS properties an important supply chain link to ensure a smooth transport flow.
- Compared to traditional logistics properties, IOS assets require less capital and have lower maintenance costs, simpler operations and letting, and excellent conditions for generating a stable cash flow. The supply is low and the demand for this asset type is increasing, which prompts expectations for climbing rent levels,” says Anders Bengtsson.
Although the IOS market in Denmark is still relatively young, Savills has positive expectations for the sector in the future.
- It is a market in which international investors will typically invest because they include the cashflow in the plot differently than before. Investors want to buy sites in areas where the long-term plan is to develop the plot for something other than outdoor storage. The earlier you can get in on the act in the area, the greater your potential upside. However, it's important to emphasise that this is typically not at a point in time when it can be included in the pricing.
Ringsted is one of the places that has a similar situation.
- In this area we see that several plots sold by the municipality are let for equipment storage etc. until a district plan is adopted.
The IOS market originated in the US.
- We are currently engaged by a couple of buyers in the segment. Not because they need IOS space specifically, but that's what they're looking for and the closer to Copenhagen the better.
Anders Bengtsson points out that the pricing is a little unusual.
- I calculated the price on a property a few years ago where there was a user that could use the outdoor space. It wasn't originally included in the value of the property, but then we included it. Typically, these are areas for which 25-50 basis points can be added to the yield for standard logistics properties. So, an indication could be a yield of 6.75-7.0%, depending on the specific location. But part of the story is also that it is more difficult to a obtain financing for this asset type because you cannot use the property as collateral to pledge security for the loan, says Anders Bengtsson.
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