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Foreign capital into Sweden logistics market propels record investment volumes in 2019

This reflects approximately 16% of the total European logistics investment volume, compared to SEK 17 billion (€1.59 billion). Large portfolio transactions are a key explanation for the high investment volume. Many investors consider portfolio transactions a good way to deploy large sums of capital and thereby acquire a sizeable market share in strategic locations within a relatively short period of time.

The five largest transactions are all portfolio transactions and account for SEK 15.3bn (€1.4bn), reflecting 60% of the total investment volume in the sector, according to Savills.

The Swedish online retail sector grew by 15% during 2018 and most forecasts indicate a continued 10%+ growth over the coming years. The strong development of the online retail sector has had a profound impact on logistics.

The UK which has always been ahead in the property cycle and in terms of market maturity acts as a very useful case study for investors looking for potential opportunities on the European continent. Of course, one size does not fit all. But compared to the UK, the Swedish online retail penetration is in circa 2012. This should help to forecast how this rapid shift in demand might be. Savills has identified an inflection point when online retail reaches 10.7% of total retail sales, triggering a surge in occupier demand for logistics space.

Sweden will most likely pass this tipping point in 2019 or 2020, according to Savills. Two of the most online mature sectors in Sweden are consumer-electronics and books with respectively 37% and 46% online channel share. Forecasts indicate that the sectors still have significant growth potential. By 2023, home electronics are expected to grow with 25% and books are expected to grow with 16%, according to Forrester Analytics.

Peter Wiman, Head of Research, Savills Sweden, says:

“Although yields for modern logistics assets are at a record low, from an international investor perspective, Sweden still looks relatively cheap compared to some of the core markets in Europe.”

Savills has recorded that development activity of new logistics assets in Sweden continues at healthy levels with approximately 650,000 sq m being completed in 2019, which is slightly short of the record volumes produced in 2018.

The development pipeline for 2020 is increasingly strong and by November 2019, just over 570,000 sq m has been scheduled for completion. So far 265,000 sq m is set to be built in 2021, which will increase as we move into 2020 as production times in most cases are shorter than 12 months. A clear indicator of property developers’ strong future belief in the logistics sector is that speculative construction in 2019 is above 55% in Stockholm and 40% in Gothenburg.

james.wallace@realassetmedia.com