Max Barclay, head of Newsec Advisory, said: ‘Foreign appetite for assets in the Nordic region has been contributing to record deal volumes. We are approaching all time high transaction records here, with 2021 on course for €70 bn of deals. If you look back over the past few years deal volumes have been closer to €40 - €45 bn for the year.

In Sweden alone, we’re approaching €35 bn, a market which usually sees some €15 - €20 bn transacted. We are seeing yield levels being broken all over the region.’

Logistics focus
The latest data from Newsec confirms that logistics remains one of the highest conviction asset classes in the Nordics, reflecting its global popularity. Added Barclay: 'Logistics is the most borderless asset class and as the Nordics is the third largest market in Europe, after the UK and Germany, this creates great opportunities for investors active in the region.’

Yet, according to the firm, the lack of speculative construction and general requirements among many players for a large portion of space to be pre-let prior to projects being commenced, combined with strict planning constraints, has resulted in supply being held down relative to the rest of Europe.

'For instance, our analysis shows that compared to the rest of Europe, significantly fewer logistics buildings have been developed in the Nordics, even per capita,’ Barclay added.

For Barclay, supply-side issues are better understood by looking at the bigger picture. ‘There’s been a lot of focus on the undersupply of housing in the Nordics, so governments and municipalities and even investors have been overlooking the other segments.

'But it’s now clearer than ever that there are great opportunities in regional hubs in the Nordics for both logistics and last mile schemes, close to where people live. This has been deeply undersupplied to date.’

The Newsec research shows that geography and long distances between population centres suggests that the need for new logistics space in the region is substantial.

Though a record amount of new development is expected in 2021 – 800,000 m2 in Sweden, 350,000 m2 in Norway, 300,000 m2 in Denmark, 200,000 m2 in Finland – it will take some time for the older existing stock to be replaced by property with higher specifications and sustainable standards.

‘There's a lot of land to cover – it’s a long way from south to north, and the population is fairly spread out,’ noted Barclay. ‘That brings other challenges when it comes to logistics, especially last mile schemes. While the demands that we have are not unique, consumers expect same day or next day delivery, which adds to the pressures.’

Yield compression
In the meantime, the relative lack of modern supply as well as competition between investors is likely to push yields down even more. The yield gap between office and logistics has tightened substantially over the past five years, from 200 bps to sub 100 bps – and will tighten further.

Concluded Barclay: '2021 will be the strongest year for the transaction market in the Nordics of all time – partly driven by strong investment into the logistics segment.

'Newsec’s data shows that industrial is by far the most popular real estate segment amongst foreign investors in the Nordics. International investors account for more than half, 61%, of the industrial transaction volume.'

He added: ‘There are massive amounts of money in the system globally, so there are few alternatives to real estate, both on a local and international scale. The pressure from all types of players to invest money in real estate is huge. That, connected to the fact that logistics is a market which is regarded as safe and “saleable”, just keeps adding to the momentum.’