Commercial - 8. November 2022
There have been major movements in the transport sector and the real estate market in the aftermath of corona with the closure of the port in Shanghai, Ever Given, which was stuck in Suez, and the war in Ukraine. All in all, many companies and industries have had difficulty delivering goods to customers. The companies at home have realized that we can no longer take the transport and delivery of goods for granted. Many companies will have to carry more products on the shelves, which requires more warehouse space, which is difficult to find, as the vacancy rate is at a historic low.
On average, Danes spend one hour in transport per day. Therefore, transport and logistics are essential focus areas that must function optimally to get the wheels turning in society. Karsten Lauritzen, branch director of DI Transport, says,
“Sometimes we forget that waste, building materials, citizens, and all goods have to be transported every single day. It sums up to many hours. Everything that can be done at a national and local level strengthens the transport sector and therefore, greatly strengthens the competitiveness of Danish companies. With the aftermath of corona, the war in Ukraine, etc., the Danes and the Danish companies have realized that we can no longer take the transport and delivery of goods for granted. It is no longer something that ‘just’ happens automatically and that you can count on and expect to work.”
“The new reality means that a large piece of logistical work needs to be done. We hear greatly from our members in DI – e.g., in our company panel, that many companies have been affected and are still affected by their security of supply. This means that many more people start to focus on ‘just in case’ and do what they can always to have sufficient goods on the shelves – and not as in the past when there was a trend of ‘just in time” to avoid a surplus of items. Thus, there has been a shift in the approach companies within the transport and logistics area, which ultimately also helps to influence the demand for warehouse and logistics properties.”
A survey by The Confederation of Danish Enterprises from September 2022 shows, for example, that the proportion of online stores with delivery problems is decreasing. However, the international supply chaos still affects 2 out of 5 online stores in Denmark and may have consequences on Black Friday and Christmas sales.
Lack of properties and record low vacancy rates
In large parts of Denmark, there are not a sufficient number of warehouse, logistics, and production properties, and the supply is also historically low, with only 1.3% vacancy nationwide. Mads Bjerrum Christensen, industrial manager at EDC Erhverv Poul Erik Bech Aarhus, says,
“After corona, several companies wanted to secure more storage space because they have experienced pressure on the supply chains and delivery problems, as goods have been stuck abroad. Demand is very high with record low vacancies, which puts pressure on the market. Therefore, there are real opportunities for those investors who want to invest in the existing properties or build new industrial and logistics properties.”
This picture is not limited to Denmark only – on the contrary, it is the case throughout the Nordic region. This is one of the main conclusions in the just-published report ‘JLL Nordic Outlook – Autumn 2022’, which focuses on the industrial segment and investments in the property industry. The report has been prepared by one of the world’s largest real estate companies, Jones Lang LaSalle (JLL), in collaboration with EDC Erhverv Poul Erik Bech. Joseph Alberti, Head of Research, EDC Erhverv Poul Erik Bech, says,
“As it can be seen from the Nordic report, logistics and warehouse properties have seen an increase in the total share of transaction volume. In 2019, logistics properties were traded for DKK. 3.6 billion, which increased to DKK. 12.9 billion in 2021 and DKK. 6.7 billion in the first half of 2022 alone. This means that the segment is growing, a clear trend that we expect to continue in 2022 and beyond. With a 4% return on prime properties in the logistics and warehouse segment, it remains an attractive investment in a Nordic and European context. With a record low vacancy rate, more and more investors will naturally consider building and investing in the segment.”
In a new report, Denmark’s largest commercial pension company PFA has calculated that their investment in logistics in Denmark and internationally has turned out to be an excellent business. PFA’s investments in logistics have yielded a return of 15.5%, corresponding to approx. DKK. 2.5 billion since 2013. Therefore, PFA has announced another 85,000 m2 expansion of Taulov Dry Port in Fredericia, which must be ready at the beginning of 2024. 100,000 m2 has been built, and a total expansion of 100,000 m2 has previously been announced and is ready in 2023.
Must have items on the shelves
In Denmark, the demand for properties is most significant in the larger cities, and virtually everyone wants to be located close to the motorways. Still, due to the low supply, many have to search further away from their desired locations, postpone or altogether drop their plans.
Mads Bjerrum Christensen, head of industry at EDC Erhverv Poul Erik Bech Aarhus, says, “All things being equal, it puts a damper on Denmark’s development, production, and new workplaces. Corona has also increased e-commerce, which has helped drive demand for logistics and warehouse properties in the past two years and is expected to continue to do so going forward. Increasingly, the fragility of supply chains is on the agenda, and companies are working to optimize production and delivery to secure goods on the shelves. All in all, it increases the demand for square meters.”
Karsten Lauritzen, branch director at DI Transport, says, “We hear from, for example, fashion companies that typically focus on a summer and winter collection, that there is a much greater focus on having goods on the shelves, as the customers otherwise disappear. Therefore, they risk burning out with more items and selling at sale prices, which can become a vicious circle for some companies. Many of our production and industrial companies also have a much greater focus on getting goods home on the shelves in time, and some are considering whether production should be moved home or closer to the respective markets.”
Use of business premises
According to Statistics Denmark, total transport by Danish trucks increased by 3% in the first quarter of 2022 compared to the fourth quarter of 2021 and ended at DKK. 3.9 billion tonne-km adjusted for seasonal fluctuations. The increase can be seen particularly in international transport, with a growth of 13%, whereas national transport has increased by 1%.
Karsten Lauritzen, branch director at DI Transport, says: “Companies are investing more in the area and taking precautions as they do not want to lose orders due to delivery problems. Many companies have to build up stocks to deliver, but this puts extra pressure on the entire supply chain. In recent years, we have transported more and more, and we expect that the volumes of goods will continue to increase, so it is difficult to see that the transport volumes will not continue to increase going forward.”
In Danish Industry, they continuously fight to ensure that the focus is placed on the issue of more business premises at a national and regional level. Karsten Lauritzen says, “We are in ongoing dialogue with several mayors and municipalities, who, of course, can see the problem in the lack of commercial space – especially in Greater Copenhagen, but also in larger cities. But there is more money in housing, and the population is growing, so the municipalities naturally have the greatest focus here.”
“Therefore, we also believe that it is an area that our politicians at national level must address. National solutions must simply be created through grants or legislation, which means that there must be a greater focus on business areas – ports, trains, airports, business areas, logistics, and industrial areas. We all have to make a living from these companies, which pay wages to the Danes and make money back home to Denmark. We will simply have to make room for our business community to continue the progress in Denmark.”
Need for comprehensive national plans
DI Transport works with several areas in the transport field where it is necessary to look at the challenges on a national level. Overall, according to Karsten Lauritzen, branch director at DI Transport, the focus must be on:
- We lack some national strategies for development, e.g., within port capacity, rail freight, the supply of raw materials, infrastructure for the green transition, etc. It is crucial for our society that we both take better care of our infrastructure, that we use it more efficiently, and that we can expand where there is a clear need. For example, better protection of commercial ports with national interests has just been adopted, but we still lack a port strategy that points forward.
- The capacity challenges in the transport industry must be solved. According to DI, it will continue for many years to come if nothing radical is done. For example, there is a significant shortage of lorry drivers, which is not a new problem, but with increased quantities to be transported and the high average age of the drivers at home, something must be done to solve the challenges. The problem will only get worse as the drivers retire.
- The transport sector, like everyone else, must reduce its CO2 account significantly. It is a massive task for the profession. Here, better framework conditions are needed for the sector to kick-start development. Solutions must be found so that it becomes both a whip and a carrot. It is important that the money that comes into the treasury from the transport sector goes back to the industry in the form of green measures and subsidies to help the green transition. Unfortunately, things are going slowly with the green transformation of truck transport, i.e., due to customers’ lack of green willingness to pay and unfavorable framework conditions for green transport.
- The transport industry is already under pressure. The EU has adopted a new road package that focuses on better working conditions, as road transport is particularly exposed to social dumping. Therefore, the EU has adopted a new law on social rights, which means that one in seven trucks will disappear from the roads in the coming years to live up to the new rules on pay, rest, and conditions. According to DI, it is, of course, essential to focus on and regulate the area. Therefore, the timing concerning regulating the transport industry is essential so that the focus is on development and the companies can remain competitive.