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A warehouse isn't exactly the beauty queen of real estate.

While architects design spectacular creations for office buildings, and shopping centers can at least be somewhat conspicuous from the inside, logistics properties are usually an unadorned box in the landscape.

Umut Ertan finds the image of boredom unfair.

At least with a view to the industry as an asset class.

The founder and partner of the Realogis-RLI group, which specializes in logistics and industrial real estate, has been involved in the industry for 25 years.

"For 20 years, logistics properties have been the most stable asset class in the real estate sector," he says.

When prices collapse in other markets, warehouses remain in demand.

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In view of a real estate market that initially fell into shock due to the pandemic, this is initially surprising.

But if you look at the topics that dominated the news in the first few weeks of the crisis, you will see why logistics plays a special role in this.

First of all, there was the contribution to security of supply: Whether it was toilet paper, pasta or breathing masks, people feared a shortage of all of this.

While the big supermarket chains worried about replenishment, other industries had completely different problems: They needed space at short notice.

This includes, for example, the textile industry, which in normal times sometimes changes and sells collections on a weekly basis, creating a jam of clothing that had to go somewhere.

Growing logistics market

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Both were largely silent, the supply of more or less essential goods did not collapse, and no retailer had to store their products on the street.

Passed the exam, you could say.

Probably also because the logistics industry - and with it the associated real estate sector - has been on the upswing for years.

A number of factors favor this - primarily the need.

Online trading has been gaining in importance for years, which is why companies keep more products in stock and have to stretch their logistics networks ever closer across the world.

This trend has been accelerated by the extensive store closings due to the pandemic.

“The number of orders in the second half of March was above Black Friday and the pre-Christmas period,” says Patrick Völtz, an analyst at the analysis company Bulwiengesa.

"But this is not a boom, it is an ongoing structural change."

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And so logistics properties were in great demand in the first half of the year.

Although only a few deals were agreed during the lockdown, trading in logistics real estate increased over the entire half-year.

CBRE counted transactions with a volume of 3.8 billion euros, which means an increase of 43 percent and the second strongest half-year ever.

Colliers International comes to three billion euros (plus 22 percent) and JLL to 3.83 billion euros (plus nine percent).

More than 7.5 billion euros were turned over with logistics real estate in 2019, five years earlier it was 4.2 billion.

Modern logistics industry

That could just be the beginning of a logistics boom that has been going on for years.

If online trading becomes more and more important, it doesn't just need the large buildings of several 10,000 square meters on the green field.

Transshipment points are also required in the cities themselves in order to get the parcels efficiently to the customer.

At this point, at the latest, urban planners are called upon to reconcile the interests of the logistics industry with housing, office and retail needs.

And that's where the difficulties often began, says Anton Mertens.

He is a managing partner at the logistics property developer Alcaro Invest.

Mertens has observed how the entire logistics industry is changing, away from freight forwarders in plaid shirts and towards smart advocates of digitization.

The industry's turnover almost doubled between 1999 and 2019, from 149 to 279 billion euros.

"Even with just-in-time production, which is very trendy, someone always has to store things," says Mertens.

The large buildings will continue to be on the outskirts, in the commercial areas.

But creative solutions are needed in city centers.

"Office buildings as an attractive alternative"

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"In the future, many retailers will disappear, including bank branches," Mertens expects.

"These are then objects that could well be suitable as parcel stores." Mertens, like so many others in the industry, hopes that the Corona crisis will provide the urgently needed tailwind for logistics projects in the metropolitan regions, but also for the large logistics hubs in the suburbs that brings cities.

Umut Ertan from Realogis-RLI sees an opportunity to use office buildings differently.

“In the past, big cities preferred the creation of office properties,” he recalls.

“But now a lot of people are working from home and not all of them want to go back.” So there is no need for large office parks, which could create more space for large warehouses, especially on the outskirts of the city.

That would be attractive for the cities.

"Business tax revenues are falling in many places, so logisticians could be attractive alternatives instead of office buildings," says Ertan.

Because the logistics industry survived Corona in a stable manner, with profits, without layoffs.

Even if some supply chains were idle, storage space was still in demand.

"And of course you continue to pay for it, which is one of the reasons why logistics are so crisis-proof," says Ertan.

24-story warehouse?

Alone, the switch from office to logistics parks will probably not be enough to meet the long-term demand for warehouse properties.

Patrick Völtz from Bulwiengesa therefore sees another possibility.

“Existing properties could be redensified,” he says.

That would mean, for example, adding additional floors to a warehouse.

Asian cities in particular, which have been incorporating multi-storey logistics properties into their urban planning for many years, serve as a model here.

In Hong Kong, for example, the 24-story “Interlink Hongkong” has been standing since 2012, 150 meters high and with an area of ​​224,000 square meters.

"However, this number of floors is more expensive," warns the expert.

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There is no shortage of ideas to structurally cope with the rise of the logistics industry.

Umut Ertan hopes that awareness of the problems of logistics real estate will be maintained even after Corona.

“So far, people have not been able to assess the importance of logistics real estate, although e-commerce is making them more and more important for each individual,” he says.

But this acceptance has now received a big boost.

"The logistics were subjected to a massive stress test, but it passed it with flying colors."

This article was first published in July 2020.