Brownfield: The future of logistics real estate?
- logistics properties
THE STARTING POINT IS CLEAR:
Not only companies like Garbe Industrial Real Estate GmbH as a real estate developer, but everyone with land- and traffic-intensive systems today has to deal with the concerns directed at them in a constructive way – not least because the federal government has issued the goal of reducing land use from the current average of 81 hectares per day to less than 30 hectares per day as part of its national sustainable development strategy.
THE ADVANTAGE OF BROWNFIELD SITES
is usually that it is already embedded in the existing social, industrial and traffic infrastructure because of its metropolitan location – this is also the case with Westfalenhütte:
- With the discontinuation of previous use comes the loss of jobs and formerly dependable tax revenues – the labour force is therefore available in the local community, and authorities and administration often support logistical reoccupation more intensely than at greenfield sites in proximity to the relevant metropolitan areas, where “cherry picking” is also blossoming. The city of Dortmund’s support for the Westfalenhütte project certainly has been and continues to be exemplary.
- The previous usage was mostly emissions intensive – often creating more dust, noise and odour than a logistics facility generates. The acceptance of logistics usage is therefore mostly not problematic because local development plans take relevant emission values into account.
- Transportation is often more versatile than on the proverbial greenfield sites – for the Westfalenhütte location in Dortmund there are connections to transport modes by road, rail, water and also public transport.
- Not only that, but connections to utilities (gas, water, electricity, etc.) for large-volume consumption do not usually need to be specially created.
THE URBAN INTEGRATION OF BROWNFIELD SITES,
however, also brings demands with it that occur more often on greenfield sites, though not as consistently:
- Facilities with mandatory photovoltaic systems or other features aimed at environmental sustainability are not always a plus for the (short- and medium-term) yield and marketability of the property.
- In most cases the sites are contaminated and need to be rehabilitated. At Westfalenhütte the rehabilitation was carried out in consultation with the City of Dortmund in such a way that a logistical advantage was possible, through soil removal and application of a leveling layer and an obligation to completely seal the surface. The disadvantage, which is not significant for logistics and commercial buildings, is that intervention in deeper, contaminated soil layers remains prone to potential costs.
- Buildings in an urban context often have to meet higher design requirements and fit into an existing architectural environment. In logistics buildings, this means slightly increased costs. In the case of Garbe Industrial Real Estate Parks Westfalenhütte, however, this demand is only asserted by the city with a lot of sound judgement, where façades are visible to the local population.
- Finally, a significantly higher land price (compared to greenfield sites in general) needs to be explained to the lessee using the right value propositions. This is sometimes more and sometimes less easily achieved, depending to a great extent on the respective logistics project.
WHAT DO BROWNFIELD SITES MEAN FOR INVESTORS?
Institutional investors in particular and, increasingly, tenants oriented toward sustainability and ecology, scrutinize the contamination situation of each plot or property. The rehabilitation procedures and certifications are checked especially meticulously for brownfield sites. That is why Garbe Industrial Real Estate GmbH also pays special attention to these issues. The environmental balance sheet
of a rehabilitated plot, after successful testing, ranks significantly higher than a greenfield site because environmental contamination has been rehabilitated or encapsulated and no agricultural lands or natural areas have been used. As always, however, the argument of an attractive location and the value derived from stability and performance are what remain crucial for investors.
While the conversion and rehabilitation process of the plot went according to plan, the actual demand for new developments of logistics properties continued to be a problem into the second half of 2012 for a number of reasons:
- The financial crisis spoiled the market for all participants for several years, as was also the case with Westfalenhütte.
- The superior building standard, planned with features that would not be profitable for the tenant for more than five to seven years at least, did not come across well, and even prevented contracts from being signed, in a market environment where contract-logistics agreements were becoming shorter all the time.
- The comparatively cheap greenfield plots in the vicinity of Westfalenhütte, which were still available and which had a useful size and location, went off the market more slowly than expected during the crisis.
The fundamental decision for the development of this brownfield site, however, was never a question for Garbe Industrial Real Estate GmbH. After the general slump in demand in the market for logistics real estate was overcome, the adherence to the strategy paid off, especially for clients with a need for relatively large, connected areas and a geographical preference. Then, in July, construction of a property with a minimum of 20,000 square meters of warehouse space, with possible expansion to 40,000 square meters, was started for DB Schenker. The new logistics centre fulfils a demand that would otherwise have been implemented in other areas farther away from the centre of Dortmund, with more transport expenditure.
The current request pipeline confirms this trend, in part already at the start of construction with floor sizes of 35,000 square meters on average without expansion – even more so because the location and integration of the land is usually very important to these buyers, which is not the case in greenfield sites.
The building standard only needs to be reviewed for those consumers who either sign shorter leases – usually contract logistics providers – or those for whom the reliable DGNB Silver Standard is sufficient in terms of sustainability.
In summary, we consider the Westfalenhütte logistics park to be a groundbreaking example of the economically and environmentally sound conversion or re-use of former industrial areas. Garbe Industrial Real Estate GmbH will remain committed to this field of development.