Construction costs becoming biggest challenge for logistics

Construction cost increases are becoming a serious challenge for the logistics real estate sector.

While logistics tenants face challenges due to price rises, logistics developers are suffering from the dramatic increase in the price of raw materials according to Jan Philipp Daun, Chief Investment Officer, GARBE Industrial Real Estate GmbH

“My personal view is that in the last four weeks the biggest issue is the explosion of building cost,” Daun told Real Asset Insight’s Richard Betts. “Everybody is talking about steel prices, about energy prices,” he said.

Costs are rising so fast that general contractors are reluctant to be pinned down on price. “Nobody is willing to fix a price level above a week. Sometimes you’re not even getting a quote.”

Daun said this will have a huge impact and rental growth is needed to balance out cost increases.

Nevertheless, Daun said there are opportunities, particularly for upgrading core-plus buildings. He said that upgrading lighting to LED, adding modern doors and toilet systems can have huge impact because old buildings can comply with modern standards.

Click on the video to watch the full interview or listen to the podcast below.