Growing pains

With Germany's economic recession over, companies are once again importing raw materials and producing and exporting goods at increasing levels. But there's a problem: Investment in new warehouse space has yet to catch up.

Some 587 million euros ($837 million) were invested in warehouses, logistics and industrial structures during the first half of 2011, according to property consultants at Munich-based Colliers Deutschland. That represents a 17 percent drop compared to the 2010 numbers, which were inflated considerably by the purchase of a single 330-million-euro portfolio.

Investment could have been much higher considering the broader commercial real estate sector saw turnover rise by 24 percent. Analysts at Colliers say there simply aren't enough warehouses on the market to meet the growing demand for storage space.

Speculative investment in commercial storage facilities almost dried up entirely during the recession. As a result, the past 12 months of sustained growth have seen nearly all available space rented out, pushing up prices but slowing down sales, Colliers said.

Rising prices

Colliers said the values of warehouses in prime locations were rising compared with the rents they attract.

The most expensive storage spaces in Germany are located in the Rhine-Main area, where warehouses were being sold for the equivalent of 15.4 times their annual rental income.

"In general people have been having problems because there simply isn't enough warehouse space," Colliers senior consultant Marcus Blumenthal told Deutsche Welle.

"The entire real estate sector suffered during the economic downturn. In the logistics branch, that means less warehouses were built. That's why there's a shortage now."

According to Blumenthal, Munich, Frankfurt, Berlin, Hamburg and the western Rhine-Ruhr region are the focal points of German logistics.

Those renting warehouse space are often logistics companies contracting out their services. To reduce costs, they seek modern warehouses with ceilings higher than eight meters, at least one truck dock per 1,000 square meters of floor space as well as and modern insulation, heating and cooling systems, he said.

Warehouses built in the 1960s and 70s tend to have ceilings closer to five meters in height. Since rental prices are calculated by square meters rather than volume, these properties are considered less attractive because fewer goods can be stacked on top of each other, he added.

Outsourcing trend

According to Tobias Kassner, a real estate analyst with the Berlin-based research consultancy BulwienGesa, logistics is "one of the first branches to react to economic recession."

In part that's because companies tend to contract out their logistics, as markets today are "often so volatile that it doesn't make sense for companies to build their own permanent facilities."

"For most companies which need logistics services, building and operating warehouses isn't one of their core competencies,"´Kassner told Deutsche Welle. "So it's a more attractive prospect for them to rent space in a new structure where the operational costs are low."

Upper limit

Contrary to the basic law of supply and demand, rents for warehouse space are unlikely to increase indefinitely.

Axel König, a shareholder with the Cologne-based real estate developer Alpha Industrial, says that's because the logistics companies that rent most available space operate on slim profit margins.

"There's not really the question of how much rent a logistics service provider is willing to pay," he told Deutsche Welle. "There's simply the problem that if the rent is too expensive, the company has to bypass doing business it can't afford."

König added that the few warehouses constructed during the worst of the recession were typically designed for individual companies.

"What basically never happens during a crisis is speculative construction without a guaranteed tenant," he said. "Few people have the courage to do that."

Author: Gerhard Schneibel
Editor: Sam Edmonds