Building up adds 80 per cent more floor but almost doubles the cost per m², so the rent has to pay for the ramp before the land does.
A multi-storey warehouse makes sense only where it supports a higher land bid than a single-storey shed on the same site, and that depends on rent, not on land price alone. On illustrative costs, stacking a second floor with a ramp adds 80 per cent more floor area but costs 1,680 per m² against 952, and the stacked scheme only outbids the shed once rents reach €186 per m² a year, where both support land at about €1,318 per m² of site. Below that rent, the single-storey building pays more for the land.
Worked in full in Logistics and Industrial Real Estate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Multi-storey logistics is usually explained by land scarcity: if land is expensive, build up. That is half the argument. Land is expensive because of what can be built on it, so the comparison has to be made the way a developer bids for a site, with a residual land value for each scheme at the same rent and the same profit target.
| Input | Single-storey | Multi-storey |
|---|---|---|
| Site area, m² | 40,000 | 40,000 |
| Ground floor, m² | 20,000 | 18,000 |
| Upper floor with ramp and deck yard, m² | 0 | 18,000 |
| Build cost, ground floor, € per m² | 850 | 900 |
| Build cost, upper floor incl. ramp, € per m² | 2,100 | |
| Upper-floor rent, share of ground-floor rent | 85% | |
| Exit yield | 4.50% | 4.75% |
| On-costs / developer's profit on cost | 12% / 15% | 12% / 15% |
The stacked scheme loses some ground floor to the ramp, takes a lower rent upstairs because every pallet has to go up a ramp, and trades on a wider yield because fewer buyers know how to price it. Each of those is a judgement for a real site; the method holds whatever values are used.
Land = value ÷ (1 + profit) − build cost × (1 + on-costs), with value = rent ÷ exit yield.
At a ground-floor rent of €150 per m²:
Single-storey. Rent 20,000 × 150 = 3.00m; value 3.00 ÷ 4.50% = 66.67m; cost 20,000 × 850 × 1.12 = 19.04m. Land = 66.67 ÷ 1.15 − 19.04 = 38.93m, 973 per m² of site.
Multi-storey. Rent 18,000 × 150 + 18,000 × 127.5 = 5.00m; value 5.00 ÷ 4.75% = 105.16m; cost (18,000 × 900 + 18,000 × 2,100) × 1.12 = 60.48m. Land = 105.16 ÷ 1.15 − 60.48 = 30.96m, 774 per m².
Excel, rent in B1: =B1*20000/4.5%/1.15-20000*850*1.12 and =(B1*18000+B1*0.85*18000)/4.75%/1.15-(18000*900+18000*2100)*1.12, then Goal Seek the difference to zero by changing B1.
At €150 the stacked scheme adds 38.49m of value over the shed, before any profit is taken, but 41.44m of cost, so the stacked scheme bids less for the same land. A developer who paid the single-storey price of 38.93m and then built multi-storey would make a 5.8 per cent profit on cost instead of the 15 per cent target.
| Rent | Single-storey | Multi-storey | Multi minus single |
|---|---|---|---|
| 100 | 490 | 12 | −478 |
| 125 | 732 | 393 | −339 |
| 150 | 973 | 774 | −199 |
| 175 | 1,215 | 1,155 | −60 |
| 200 | 1,456 | 1,536 | 80 |
Each euro of rent lifts the stacked scheme's land value faster, because it has 80 per cent more floor to earn it on, but the scheme starts from a much larger cost. Solving for equality gives a rent of 185.7, with an upper-floor rent of 157.9, at which both schemes support 52.73m of land, about 1,318 per m² of site. That is the sense in which "land value" decides: multi-storey is the answer only in markets where rents already justify land above that level, and there it is the only scheme that can pay it.
| Upper-floor cost, € per m² | Upper rent 80% | Upper rent 85% | Upper rent 90% |
|---|---|---|---|
| 1,800 | 171 / 1,179 | 159 / 1,056 | 148 / 951 |
| 2,100 | 201 / 1,461 | 186 / 1,318 | 173 / 1,195 |
| 2,400 | 230 / 1,744 | 213 / 1,580 | 198 / 1,439 |
Every €300 per m² on the upper floor moves the break-even rent by roughly 25 to 30 euros. The yield matters too: priced at the same 4.50 per cent as the shed, the stacked scheme breaks even at a rent of 161 and land of 1,082. Much of the case for multi-storey therefore rests on investors pricing it like any other institutional warehouse.
The usual mistake is to compare cost per m² of floor with land cost per m² of floor: land of 973 per m² of site is 1,946.55 per m² of floor on the shed's 20,000 m² but only 1,081.42 on the stacked scheme's 36,000, which makes stacking look like a saving of 865 per m². It ignores that the upper floor costs 1,200 per m² more to build than the ground floor and earns less. Bid the land on a residual for each scheme, at the same rent and the same profit, and take the higher.
Build up when the rent, not the land price, says so: at these costs, above roughly €186 per m². Site coverage for the single-storey scheme is worked in how much land a warehouse needs, build costs in what a warehouse costs to build per m², and the development and letting models in the free workbooks for this book.
The upper floor needs a structural slab rated for racking and trucks, a ramp and a deck yard. In the illustrative case the upper floor costs 2,100 per m² against 900 on the ground floor, so the stacked scheme costs 1,680 per m² of floor with on-costs, against 952 for a single-storey shed.
Usually some discount is assumed because goods have to travel up a ramp. With the upper floor at 85 per cent of the ground-floor rent, the break-even rent for the illustrative scheme is 186 per m²; at 90 per cent it falls to 173, and at 80 per cent it rises to 201.
Compute a residual land value for each at the same rent and the same profit target, and take the higher bid. At a rent of 150 per m² the illustrative shed supports 38.93m of land and the stacked scheme 30.96m; at 200 per m² the stacked scheme supports 61.44m against 58.25m.
This article is one calculation from Logistics and Industrial Real Estate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
Get the book on Amazon →Free companion files
Also on Amazon UK · Amazon Germany · Amazon France · Amazon Canada
Reading guide: real estate investing, finance and fund management → · All 1682 articles →
If this book helped, or didn’t, a few lines on Amazon are worth more than they look: they are what the next reader goes on. Write a review. The workbook stays free either way.