Brownfield: The future for logistics real estate?

Reducing land consumption: constructively and sustainably

Today, it is not only companies such as Garbe Industrial Real Estate that have to deal constructively with the concerns raised against them. But rather all users of space and traffic-intensive facilities. Not least because, as part of its national sustainability strategy, the German government has set itself the target of reducing land consumption from the current average of 81 hectares per day to less than 30 hectares per day.

Brownfield is the term used to denote industrial wasteland – i.e. disused areas that were previously used for industrial purposes. Residual waste, such as from real estate or in the form of contamination, remains on a brownfield site from commercial use. These must be removed before reuse. The advantages of such areas, on the other hand, are often an existing technical infrastructure and links to an inhabited surrounding areaThese factors must be weighed against each other in any redevelopment of any brownfield site.

Brownfield development: Advantages

One advantage of brownfield sites is that they are usually embedded in a social, industrial and transport infrastructure due to their proximity to the metropolis.
Other positives include:

• The loss of prior use means the loss of jobs and formerly reliable tax revenue. Labour is, therefore, available in the area and the local authorities and administration support logistical resettlement. This is often more intensive than on greenfield sites in relevant metropolitan areas, where “cherry picking” also flourishes in some cases. The support from the City of Dortmund in the Westfalenhütte project was (and is) exemplary in any case.
• The previous use was mostly emission-intensive – for example, a factory creates more forms of nuisance pollution through dust, noise and odour than logistics Acceptance for logistical use is, therefore, usually unproblematic because development plans take into account corresponding emission values.
• Transport connections are often more versatile than on the proverbial greenfield site. In Dortmund, the Westfalenhütte site is connected to road, rail, water and public transport.
• The so-called embodied energy – expenditure such as building materials, transport energy, etc. – can be partially transferred to the new use and reduces the ecological footprint of new facilities on the brownfield site.
  In addition, the utility connections (gas, water, electricity, etc.) do not usually have to be created separately, even for the consumption of large volumes.

Brownfield vs. greenfield

• However, the urban integration of the brownfield site also brings with it requirements that are increasingly being placed on greenfield sites, but not yet universally: The mandatory installation of photovoltaics or other features aimed at ecological sustainability is not always a plus for the yield and marketability of the property.
• In most cases, there are contaminated sites that need to be remediated. Example: At the Westfalenhütte, the process of remediation was carried out in consultation with the City of Dortmund in such a way that a logistical advantage was even gained by removing the soil and applying a levelling layer, as well as an obligation to completely seal the surface. For logistics and commercial buildings, the disadvantage that interventions in deeper and contaminated soil layers remain potentially costly is insignificant.
• Buildings in an urban context often have to meet higher design requirements or fit into an architectural environment. This results in slightly higher costs for logistics buildings. In the case of the Garbe Industrial Real Estate Park Westfalenhütte, however, this requirement is only enforced by the City with a good sense of proportion where facades are comprehensibly exposed to the gaze of the population.
• A land price that is usually significantly higher than that of a greenfield site must ultimately be enforced on the tenant with appropriate arguments regarding the benefit.

Brownfield investment: an attractive ecological balance

Institutional investors, in particular, and increasingly also tenants who are focused on sustainability and ecology, are questioning the contaminated site situation for every property or object. Brownfields are particularly meticulous about their remediation procedures and supporting evidence. Therefore, Garbe Industrial Real Estate GmbH also pays special attention to these topics. However, the life cycle assessment value of a redeveloped property then ranks significantly above a greenfield after a successful assessment. This is because environmental burdens were remediated or encapsulated and no agricultural or natural land was consumed. A decisive criterion for brownfield investments remains the argument of an attractive location and the value stability and value development derived from it.

Brownfield in practice: the Westfalenhütte project

The brownfield site “Westfalenhütte” with its area of 450,000 m² was originally used by Thyssen-Krupp. What makes the site, located in the eastern Ruhr area, particularly attractive is its proximity to six motorways and the possibility of a rail link.

While the conversion and redevelopment processes for the site went according to plan, actual demand for new logistics property developments was a problem until the second half of 2012 for a number of reasons

• The financial crisis spoiled the market for all participants for several years, including Westfalenhütte.
• The planned upmarket building standard with features that would have only paid off for the tenant after more than five to seven years at the earliest did not prevail in a market environment of shortening contract logistics agreements, or prevented deals from being concluded.
• The comparatively cheap greenfield sites of suitable size and location still available in the immediate vicinity of the Westfalenhütte disappeared from the market more slowly than expected during the crisis.

However, the fundamental decision for this brownfield development was never in question for Garbe Industrial Real Estate GmbH. First of all, the general low in demand in the market for logistics properties had to be overcome. After that, sticking to the following strategy paid off: To focus specifically on customers with a need for large and contiguous spaces, as well as geographic preference.
Construction then began in July with a facility of a minimum of 20,000 square metres of warehouse space plus an expansion option to 40,000 square metres for DB Schenker. The new logistics centre serves a demand that could only have been met with additional transport costs.
The current pipeline of enquiries, some of which are already heading towards the start of construction, with hall sizes averaging 35,000 square metres without extensions, confirms the trend – all the more so because these enquirers usually place great emphasis on the location and integration of the site, which is not the case in greenfield locations.
Only the building standard had to be reconsidered for those enquirers who either have shorter rental contracts – mostly contract logistics companies – or for whom, in terms of sustainability, the safe DGNB Silver Standard is sufficient.
All in all, we consider the Logistics Park Westfalenhütte to be a pioneering example of the economically and ecologically sensible conversion or re-use of former industrial sites. Garbe Industrial Real Estate GmbH will continue to be active in this field.

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