Industrial Real Estate in Stockholm – Where are businesses supposed to go?

During the last decade Stockholm county has grown with the same number of inhabitants that currently reside in the entire municipality of Malmö.  analys6

The large influx of new residents have put further pressure on the housing market, and a large number of industrial areas near the city have been redeveloped to residential areas. This trend shows no sign of stopping. However, the demand for smaller industrial premises is still high and the diminishing supply have led to record-low vacancy rates and a very positive trend for rental levels in the remaining industrial areas.

 

Residential construction in Stockholm has already peaked but from a historical standpoint the volume of newly constructed residential units is still rather high. The value growth in the residential sector has been much greater than for the real estate market on average and thus many industrial areas has given way for residential construction. The trend seems to be sustaining when looking at the upcoming larger residential areas being planned: Slakthusområdet and Värtahamnen are excellent examples of the phenomenon.

 

Croisette is closely monitoring the total volume of industrial real estate in Stockholm region and our assessment is that up to a million square meters of industrial space might vanish over the next twenty years. Since this corresponds to approximately ten percent of the total volume it could have very real implications for the service industry that typically occupies these premises.

 

There are large volumes of industrial area being constructed in the county at the moment, one might note. However, the added premises consist, to a large degree, of large-scale logistics and warehouse buildings in peripheral locations. The industrial areas being removed on the other hand mostly consist of smaller buildings occupied by service technicians, contractors, or picking stock warehouses located close to the city centre. The large scale units being constructed is obviously in demand as well but they won’t replace the areas that are being demolished.

 

Businesses located in these small scale industrial areas are often part of the service sector, but in spite of ever increasing demand for higher levels of service these businesses are forced to move further away from the city centre. A company dealing in deliveries will be hard pressed to offer one-hour delivery if they’re located thirty minutes outside of the city where most deliveries will be received.

 

The winners in this situation are the property owners that are active within the segment and has seen large increases in rental levels and decreases of vacancy rates. The same actors have also been able to reap the profits of the situation when selling to residential developers. The losers in this situation is the rest of the public that are more or less dependant on these services for their everyday life.

 

Stating the problem might be trivial, but the solution is far from obvious. Should new industrial areas be planned closer to the city? Well, not necessarily. One possible solution would be to ease regulations surrounding the zoning process by allowing some types of services, that are currently defined as industrial activity, in connection to residential buildings. By allowing certain types of services to operate near their costumers transports would be reduced, the possibility for full electrification of their fleet would open up, and the level of service for the end costumers would be higher.

 

The large majority of all companies in the service sector would greatly benefit from being located where the concentration of costumers is the highest. Many of these companies’ activities, however, are defined as industrial activities which puts them in another type of zoning from other commercial businesses. If the companies are to rise up and meet the demand for a higher level of service they ought to be allowed to operate close to their costumers.

 

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