04.10.2019
Project development real estate: Full competence in all asset classes
Many people know that ECE is the largest shopping center operator in Europe. But less well known is the fact that ECE has been successfully developing projects in the office, residential, and logistics sectors since the 1970s. In fact, ECE is now among the top three hotel developers and top 20 logistics developers in Germany. We spoke with Florian Sauer, Managing Director of ECE Office Traffic & Industries (OTI), about current and future projects.
ECE is primarily known for shopping centers. For many years, however, it has been equally active in the development and construction of hotels, office buildings, and logistics facilities. How did this come to pass?
Werner Otto founded ECE in 1965 as his own real estate company. At the time, almost every single one of his construction projects that was carried out by external service providers ended up causing problems because they were not completed on time, were of poor quality, or went far over budget. Through ECE, Mr. Otto then simply developed and built the first shopping centers in the German market himself. The company took advantage of a pause in growth in the shopping center sector during the oil crisis in the mid-1970s to comprehensively consolidate and decided to expand its business activities to include office buildings and logistics facilities. Further asset classes were added later.
Decades of know-how in project development and construction projects
What special skill makes ECE stand out today?
We offer our partners all of the relevant services from a single source. ECE possesses extensive planning expertise and has all of the key project participants, like architects, civil engineers, and lawyers, in house, which means we are extremely well positioned to meet the requirements of various different asset classes. We have also gained a wealth of knowledge from the numerous construction projects carried out over the years and have established ourselves as a reliable partner to building contractors. This means that at a time like today, when the construction market is extremely tight, contractors still maintain capacity for us and we benefit, among other things, from better terms for technical equipment like elevators and escalators.
Intelligent Quarters in der HafenCity Hamburg
How broadly is ECE positioned in the office, residential, and logistics sectors and can you tell us about the company’s latest achievements?
Initially our focus was on Hamburg, but we’re now successful nationwide. We have developed and built around 1.2 million m² of office space and 1.8 million m² of logistics space to date – together this is equivalent to approximately 420 soccer fields. In the logistics sector, we just successfully completed the seventh Hermes logistics center within three years – from finding the right site to planning, awarding contracts, construction, and sale on the investment market. We also recently held the groundbreaking ceremony for a state-of-the-art office complex in Hamburg. Bank Deutsches Kraftfahrzeuggewerbe and Hanseatic Bank, two companies of the Société Générale Group, will be the main tenants. In addition to offices and logistics space, this property will also feature around 3,000 apartments and over 3,000 hotel rooms – making us the third-largest hotel developer in Germany.
Do you have a personal highlight you can tell us about?
During the summer of 2018, we developed the “Intelligent Quarters” ensemble in Hamburg’s HafenCity neighborhood together with STRABAG. In this project, we combined modern working and living space with high-quality architecture. The fact that we were the first to build completely speculatively here – i.e. without having any anchor tenants already under contract – simply because we were impressed by the location and the concept was truly remarkable. Today the buildings are fully occupied.
ECE plans to continue expanding its activities in your area. Where will the focus lie?
The planning and construction volume in our segment has increased over the past few years to around 1.8 billion euros. And we want to keep growing here. At the moment, office space accounts for 50% of our activities, logistics for 25%, and residential and hotel space for 25%. But this allocation isn’t set in stone. If a project makes sense and we like the concept and it offers the right balance between risk and reward, we’ll do it.
In Köln-Deutz entsteht die MesseCity Köln (Urheber: Ingo Fischer)
ECE implements multi-party rental agreements for the first time in Germany
Can you give us a preview of any new projects you are currently working on?
ECE and STRABAG Real Estate are currently developing an urban office and commercial district, MesseCity Cologne, on a 135,000 m² site. The new district will feature office space, hotels, dining options, and small-scale retail outlets. The first four buildings, which account for about half of the total floor space, are already fully leased. The two eastern sections with another 50,000 m² of leasable space will soon follow.
We are also busy planning a conference hotel with over 600 rooms on the Elbe bridges in Hamburg and are actively working on residential projects. Furthermore, we’re developing several logistics projects in the greater Berlin area and in Baden-Württemberg.
Can you give us a specific example?
In Königs Wusterhausen, southeast of Berlin, we’re currently building the Berlin-South I Logistics Center. The 50,000 m² facility is located on a 90,000 m² site in an industrial park without any noise restrictions directly adjacent to the A10 freeway. We deliberately decided to build the facility speculatively and are currently looking for tenants for units starting at 5,000 m² while completing construction work. The properties stand out thanks to their variable sizes and flexible lease periods and are suitable for both single and multi-tenant use. We plan to finish construction and have the first tenants move into the spaces by Q4 of 2020.
How the construction industry deals with rising construction costs
Are you currently facing any particular challenges in project development in your area?
Like many developers, we are also faced with the challenge of finding suitable properties at reasonable prices. Many areas are overpriced and ultimately do not represent a viable investment opportunity. In addition, building costs are rising because construction companies are operating at full capacity. This obviously also prolongs the time needed to complete construction projects.
What impact are rising construction costs having?
The reason behind the increase in construction costs is simply a lack of construction capacity. This means that the process of awarding contracts also takes longer and we have to look for suitable contractors early on. No one knows how building costs will develop. If you project the increases of recent years into the future, however, it will soon become increasingly difficult to build due to skyrocketing costs.
Das Milaneo in Stuttgart: Paradebeispiel für ein multifunktionales Quartier
And how are you and your team dealing with this?
We are now going in other directions when it comes to awarding contracts, focusing more heavily on partnerships in order to continue achieving attractive terms for users. Multi-party contracts are one such option, where several partners intend to complete a project together. ECE is implementing this cooperative model for the first time in Germany.
In order to meet these challenges, you are also working closely with the shopping center segment. What synergies are resulting from this?
We want to leverage the potential around our shopping centers more effectively by analyzing opportunities for consolidation and alternative use. In Berlin, for example, we recently built a hotel on the unused top level of a parking garage. At other shopping centers, we’re looking into adding residential units to the properties. The idea here is to create vibrant urban neighborhoods, such as in Stuttgart’s Milaneo, which deliberately combine shopping, residential, office, and hotel space, thereby helping holistically revitalize downtown areas.