The German logistics real estate market. Current trends like e-commerce, globalisation, and sustainability

Table of contents

1 Introduction

2 Current trends in the German real estate market
2.1 E-Commerce
2.2 Globalisation
2.3 Sustainability
2.3.1 Electromobility
2.3.2 Solar Panels

3 Outlook for the logistics market

Bibliography

Appendix

1 Introduction

The logistics sector is one of the most important infrastructure sectors and contributors to the national economy and the labour market in Germany. In this sector, companies warrant the transport of raw materials, semi-manufactured goods and consumer goods to producers and consumers by various means such as ship, plane, train and truck.

The logistics real estate industry faces new challenges due to the globalization of value creation and the strong growth of e-commerce. In addition, there are increasing demands from politicians and customers with regard to reducing the environmental impact of increasing freight traffic. These trends determine the development of the sector on a sustainable basis, as shown by individual indicators, such as the sharp rise in consignment volumes and turnover in parcel business, the increase in container traffic or the emergence of new business models. This paper will further elaborate the impact and importance of these trends to illustrate the dynamic change which the German logistics real estate market currently faces.

2 Current trends in the German real estate market

2.1 E-Commerce

Ecommerce has become increasingly important and has grown rapidly worldwide over the past decade and is therefore an important driver for logistics real estate. One particularly dominant ecommerce company is Amazon, which has complemented its online business with urban physical retailing formats such as Amazon Go, Amazon Books and the just recently acquired organic food chain Wholefoods. In Germany, this strategy is also pursued by Zalando, which recently acquired the sporting and leisure goods retailer Kickz. This example illustrates the significance of renowned retailers drif-ting towards a strategy of using both online and offline retai-ling hand in hand. Reflecting this trend to the real estate used, it is certain to predict that in the future shoppers will be able to decide whether to carry their purchases home themselves or rather have them delivered in analogy to online shopping.[¹ ] To enable this as well as match the current trend of shorter delivery times (same day / same hour) closer geographic proximity to the customers on the part of the logistics operators of companies like Zalando will become a necessity.[² ] As a result online retailers increasingly search for suitable distribution centres (hubs) in inner cities, changing their user profile from large scale properties to smaller properties. One solution approach involves a cascading system: large central warehouses in integrated conurbations re-stocking the supply warehouse on the urban periphery, which in turn re-supply above mentioned small micro-depots in inner cities (Figure 1).[³ ] The real estate specific requirements in such inner-city logistics buildings are yet unclear, with unit sizes extending from 15 to 25 square metres for micro depots up to a maximum of 3,000 square metres for micro fulfilment centres respectively 4,000 to 6,000 square metres for urban fulfilment centres.[⁴ ]

For instance, these urban fulfilment centres need to be as close to the customer as possible in order to optimally cover client hubs, which is mostly possible in areas of office real estate or residential areas. As construction in those inner locations is a big scarcity and municipalities are generally against logistics developments, operators and users of those properties have to re-develop existing spaces in the most efficient way possible. Many office and other commercial properties would possibly qualify as potential space. An example of this is Amazon’s facility in Berlin´s downtown.[⁵ ] Depending on the city and the correlating market penetration or delivery concept, floor space requirements between 4,000 and 6,000 square meters are considered adequate as mentioned above.[⁶ ] If multiplied by average office rents in inner city locations, for instance between €11.90 per square meter per month in Cologne as the bottom end and €18.70 per square meter per month in Frankfurt as the top end, the cost of leasing those spaces would be around circa € 570.000 – € 860.000 in Cologne and € 900.000 – € 1.350.000 in Frankfurt per year.[⁷ ] Therefore it becomes obvious that these cascading models only become viable in the medium term if a high throughput is achieved to match the costs created. This indicates that it will presumably only be profitable to implement this system to Germany´s densely populated A- and B-class cities (Figure 2).[⁸ ] To further match the rack rents paid by competing types of use in the urban environment, tenants and occupiers consider the use of floor space in underground and multi-story car parks as well as lock-up retail units as feasible and clearly attribute a comparatively sustainable potential for providing city logistics solutions to this option.[⁹ ]

By contrast, lenders and municipalities take a rather dim view of the idea to put such facilities to different use.[¹⁰ ] Other interim solutions for the time being, until both participants of the market find a compromise, include pop-up storage units in shipping containers and so-called flex hubs, where the modular building structure enables the adaptation of the space accord-ing to the current requirements of the tenants.[¹¹ ]

2.2 Globalisation

The federal Republic of Germany is considered an attractive logistics location because it is in the centre of Europe and unites Europe´s main traffic arteries. Furthermore, the most important European ports such as Rotterdam, Antwerp and Hamburg can be reached within a very short time. The logistics properties located close to those ports are large and centrally located hubs as a collection point for the overseas cargo to be redistributed in- and outside of Germany. At the same time, there are small to medium-sized warehouses for small-scale airfreight near cargo airports, such as Frankfurt am Main Airport. Due to its well-structured cargo logistics and central location in Europe, Germany is playing an increasingly important role in Europe, which can be quantitatively evidenced by the increase of the foreign trade index of Germany of 100 Points in 2010 to around 135 Points in 2018 (Figure 3).[¹² ] This indicates that German logistics property has become an essential part of an integrated international distribution network.[¹³ ] In fact, trading volumes with the distant markets are yet steadily increasing, but localization and regionalization are becoming more and more important. The demand for locally produced goods in Germany is increasing. The reasons for this are the dynamics of the labour market, rising transport costs, lower cost advantages compared to the products outsourced at that time, a better quality of production on site and a lower risk to the transport chain. Thus, the re-regionalization is designed to reduce the complexity of value chains and the increased risks they entail.[¹⁴ ]

Another effect of globalisation is that volatility continues to increase in the economic areas. Uncertainties are created by trouble spots in the worldwide trading network. They have a direct impact on production planning, sales and thus logistics volumes. Furthermore, economic power in some other European countries is still weaker than in Germany and this will only be slow to change. The economic areas of Italy, Spain, France and Greece in particular pose a great challenge to Germany´s standing. Numerous barriers to trade have a negative effect here and these have been built up in recent years. Although trade barriers such as customs or special packaging also have positive effects, these obstacles reduce the volumes and therefore the capacity utilization and turnover causing Germany to focus on local production and logistics.[¹⁵ ]

2.3 Sustainability

After the described globalization trend, a sensitive and sustainable management of the finite natural resources in our world is certainly the most ambivalent discussed trend that is currently emerging. Since 1972, when the study "Limits to Growth" was published on behalf of the Club of Rome, people's way of thinking has changed in the direction of greater environmental sensitivity. For Instance, this includes measures such as increasing the share of combined transport, using solar energy on the roofs of large logistics properties, practical tests with electric cars and city logistics with bundle concepts..[¹⁶ ] Such efforts are likely to be continued and even intensified in the following years. Political interventions, such as the increase in fuel taxes and toll charges, direct restrictions on the use of vehicles with high emissions and bans on transporting certain goods by lorry across the Alps.[¹⁷ ] In the following, this paper will further elucidate the impact of using both electric vehicles and solar panels to illustrate the resulting positive effects occurring in the logistics sector.

2.3.1 Electromobility

The logistics Real estate industry is striving to reduce its consumption of non-renewable energy and pollutant emissions as well as diminish congestion and safety problems caused by its vehicles and equipment. Therefore, Electromobility will inevitably gain importance for solving these problems. For instance, access restrictions for conventional diesel-powered delivery vehicles in inner cities can be handled with Electromobility. Deliveries by electric vehicles can also be made at night, as noise limits are adhered to.[¹⁸ ] Within the time period of 20 years, the energy consumption of goods traffic has increased by more than 30 percent. Between 2005 and 2014, energy consumption, measured in tons per kilometer, could be reduced by roughly 5 percent. At the same time, the increase in energy efficiency was compensated by the growth of freight transport by 13.1 percent overall, so that the final energy consumption through freight transport between 2005 and 2014 has increased by 7.2 percent (Figure 4).[¹⁹ ] The German government's "Climate Protection Plan 2050", which complies with EU regulations, envisages a reduction of greenhouse gas emissions by at least 40 percent by 2030. Transport greenhouse gas emissions are set to decrease from 160 million tons of carbon dioxide in 2014 to 95 to 98 million tons of carbon dioxide by 2030, which corresponds to a reduction target of 42 to 40 percent over this period.[²⁰ ] According to the German Climate Protection Plan, traffic will be virtually independent of fossil carbon fuels decarbonised by 2050 and thus largely greenhouse gas neutral.[²¹ ] As a consequence, electromobility will be an important measure to implement these plans on a practical basis, which implies that deliveries will only be possible either by electronic vehicles or bicycles with no harm to the environment in the future.

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¹ Bulwiengesa AG, Berlin Hyp AG, BREMER AG, Goodman Group, Savills Immobilien Beratungs-GmbH (2016), p. 80.

² Bulwiengesa AG, Berlin Hyp AG, BREMER AG, Goodman Group, Savills Immobilien Beratungs-GmbH (2016), p. 16.

³ Bulwiengesa AG, Berlin Hyp AG, BREMER AG, Goodman Group, Savills Immobilien Beratungs-GmbH (2016), p. 17.

⁴ Bulwiengesa AG, Berlin Hyp AG, BREMER AG, Goodman Group, Savills Immobilien Beratungs-GmbH (2016), p. 18.

⁵ Bulwiengesa AG, Berlin Hyp AG, BREMER AG, Goodman Group, Savills Immobilien Beratungs-GmbH (2016), p. 74.

⁶ Bulwiengesa AG, Berlin Hyp AG, BREMER AG, Goodman Group, Savills Immobilien Beratungs-GmbH (2016), p. 66.

⁷ Colliers Deutschland GmbH (2017)

⁸ Bulwiengesa AG, Berlin Hyp AG, BREMER AG, Goodman Group, Savills Immobi- lien Beratungs-GmbH (2017), p. 19.

⁹ Bulwiengesa AG, Berlin Hyp AG, BREMER AG, Goodman Group, Savills Immobilien Beratungs-GmbH (2016), p. 20.

¹⁰ Bulwiengesa AG, Berlin Hyp AG, BREMER AG, Goodman Group, Savills Immobilien Beratungs-GmbH (2016), p. 74.

¹¹ Bulwiengesa AG, Berlin Hyp AG, BREMER AG, Goodman Group, Savills Immobilien Beratungs-GmbH (2016), p. 74 f.

¹² Savills World Research Germany, (2018), p. 1.

¹³ Münchow, M.-M. (2016), p. 100.

¹⁴ Kille, C. & Schwemmer, M. (2012), p. 8.

¹⁵ Kille, C. & Schwemmer, M. (2012), p. 80.

¹⁶ Kille, C. & Schwemmer, M. (2012), p. 14.

¹⁷ Kille, C. & Schwemmer, M. (2012), p. 13.

¹⁸ Bulwiengesa AG, Berlin Hyp AG, BREMER AG, Goodman Group, Savills Immobilien, Beratungs-GmbH (2016), p. 23.

¹⁹ Zanker, Claus (2018), p. 39.

²⁰ Zanker, Claus (2018), p. 39 f.

²¹ Zanker, Claus (2018), p. 40.