Keeping One Step Ahead with Speculative Developments
As a Prologis market officer with many years of experience, Philipp Feige knows the German logistics real estate market well. He is aware that competition for logistics facility sites continues to increase and recognizes when a speculative development is worthwhile.
Space scarcity in urban areas is an issue in the logistics industry. How does Prologis approach this challenge?
Philipp Feige: The supply of space has shrunk continuously over the previous two to three years, both in terms of existing facilities and vacant plots of land. At the same time, we are witnessing a trend toward centralization. Our clients want to move back closer to urban areas that are already in high demand to profit from distances as short as possible and from a highly qualified labor force. Additionally, as a logistics property developer, we compete with developers of offices, production buildings and even housing. Even with brownfield sites, municipal authorities are now more often asking themselves, “Do we want logistics? Or can we potentially turn this industrial wasteland into housing?” All of these factors are making it more difficult for us to deal with the situation of developing high-value logistics spaces in high-demand locations.
Prologis is increasingly building speculative developments, including in Hanover, Germany. Does this speculative approach come with certain risks if it is unclear who will use the facility?
Philipp Feige: The risk is highly minimal in the regions where we are active. Of course we investigate beforehand what the market situation is like and if the demand is there. We purchased our Hanover properties in multiple stages beginning in 2007 and, among other things, have also constructed facilities at our clients’ request. Building the facilities speculatively is the final stage of the development process. We decided to adopt this approach because there is almost no logistics space left in Hanover. The city is a location for high-value logistics with added services and coveted jobs.
Logistics is also attractive for surrounding communities. In the period from 2017 to 2018, two of our clients exited from a total of 35,000 square meters’ space. We succeeded in finding replacements before the previous customers had even moved out. These factors argue in favor of developing about 25,000 square meters in Hanover on a speculative basis. Given the current market situation, there is truly no major risk to speak of. Speculative development offers us a clear advantage of being able to respond to client inquiries with a suitable property at relatively short notice and, most of all, to offer our existing clients areas for growth at the location.
Does Prologis consider Hanover one of its prime locations?
Philipp Feige: The city is clearly a prime location for us. We have been active in the region from as far back as 2006. At that time, we were the first major developer to discover the market. Since then, we have grown steadily and now own almost 200,000 square meters of logistics space spread across three logistics parks. The infrastructure in and around Hanover is great. There is a highly qualified workforce available, and high-value industry exists in the region—factors that distinguish a prime location.
The Prologis Hanover-Langenhagen Park is close to the airport. Does that location involve any special challenges?
Philipp Feige: The proximity to the airport turned the project in Hanover into a real challenge. It is a tremendous advantage for clients, but it also required extreme diligence during project planning. We needed to observe strict security measures stipulated by the airport operator. As a result, our construction company carried out crane and above-ground work in close coordination with airport security. This ensured air travel was not affected.
The building plans also had to be specially adapted to the location next to the runway. The side of the building facing the airport was built at a slight angle to minimize impact on the airport’s radar systems. The slant allows the radar waves to travel freely. We developed this solution together with our construction company on the basis of a radar signature report.
Are there industries with an exceptional interest in this location?
Philipp Feige: We have clients from a wide variety of industries who are active in our logistics parks, ranging from classic logistics contractors to trade, e-commerce and industry, as well as last-mile distributors for the Hanover region.
Have you already leased the new spaces in Hanover? If so, who are the future users?
Philipp Feige: Seventy-five percent of the property has already been leased before completion to Rhenus Automotive and a logistics contractor active in the fashion sector. The units will be ready for occupancy as of November 1. About 6,800 square meters will still be vacant at that time.
Philipp Feige MRICS, Vice President, Market Officer Germany
Email: [email protected]