[Edaily Marketin, Reporter KIM SUNG-SOO ] Insurance premiums for logistics center investors are snowballing. This is due to a significant increase in comprehensive property insurance rates following a series of major fires at logistics centers.

With insurance premiums—which used to be in the 70 million won range annually—now soaring to nearly 300 million won in some cases, voices in the real estate management industry are saying, “It’s difficult to meet return targets because of insurance premiums.”

'1 Trillion Won in Property Damage' from Warehouse Fires Over the Past 6 Years

According to statistics on warehouse fires compiled by the National Fire Agency on the 4th,

property damage

caused by warehouse fires from 2021 through last month totaled approximately 1.4558 trillion won.

Furthermore, from 2021 through last year, more than 1,000 warehouse fires occurred annually. This year alone, 759 warehouse fires were confirmed through June, averaging 4.2 fires per day.

In particular, logistics centers are considered assets that are more vulnerable to fire risk than other office or commercial facilities. If a fire breaks out in a large logistics facility, the scale of damage can extend not only to the building itself but also to the inventory stored inside. This is why insurance companies classify logistics centers as high-risk assets.

Recently, there has been a string of fires at large logistics centers. In the case of the fire at the Coupang 32 Logistics Center in Seoknam-dong, Seohae-gu, Incheon, which occurred last July, it took more than 60 hours just to extinguish the blaze. The cause of the fire remains unknown to this day.

Similarly, it took approximately 60 hours to fully extinguish the fire at the Cheonan E-Land Fashion Logistics Center in Pungse-myeon, Dongnam-gu, Cheonan, South Chungcheong Province, which occurred last November. With large-scale logistics center fires occurring in quick succession, insurance companies are raising premiums for such facilities to reflect the increased risk.

Comprehensive property insurance, which is typically purchased when acquiring a logistics center, is generally structured as “package insurance” that covers multiple risks at once. It is broadly divided into four sections: Sections 1 through 4.

Section 1 covers damage to the building itself. Section 2 covers equipment-related losses, such as mechanical breakdowns. Section 3 covers business interruption losses incurred when operations are suspended due to accidents such as fires. Section 4 covers liability to third parties arising from fires or facility accidents.

Premiums are typically calculated by applying a monthly rate per pyeong based on the total floor area. For example, if a monthly premium of 600 won per 3.3 square meters (pyeong) applies to a logistics center with a total floor area of 10,000 pyeong, the annual premium would be approximately 72 million won. This is the amount obtained by multiplying 600 won by 12 months and 10,000 pyeong.

Cash Flow at Logistics Centers Declines Due to Surge in Insurance Premiums

The problem is that insurance

premiums

have recently skyrocketed to up to four times their previous levels. Using the same 10,000 pyeong logistics center as an example, if the premium quadruples, the annual cost rises to the late 200 million won range. From an investor’s perspective, this means that a cost that used to be in the tens of millions of won has suddenly increased to hundreds of millions of won.

Insurance premiums are recurring annual operating expenses. If premiums skyrocket, the logistics center’s net operating income (NOI) decreases accordingly, which directly and negatively impacts the rate of return investors expect.

For example, even if other conditions—such as rent and vacancy rates—remain the same, if insurance premiums increase from tens of millions of won to hundreds of millions of won annually, the cash flow generated by the asset decreases accordingly. This structure inevitably creates a gap between the rate of return anticipated at the time of purchase and the actual rate of return achieved during operation.

Along with rising insurance premiums, concerns about the scope of coverage are also growing.

In particular, the scale of inventory assets stored inside logistics centers is a major issue. While the inventory held by companies leasing space in a logistics center can amount to tens of billions of won, the typical coverage limit for third-party liability insurance is often only between 1 billion and 2 billion won.

“Third-party liability insurance” refers to insurance that compensates for damages when the insured incurs legal liability for bodily injury or property damage to a third party resulting from an accidental incident occurring during business operations or daily life.

If the actual damages resulting from a major accident exceed the policy limit, it is difficult to cover all losses through insurance. However, raising the coverage limit leads to a sharp increase in the insurance premium burden.

Consequently, investors in logistics centers now find themselves in a situation where they must manage not only fire risks but also “insurance premium risks.” It has become difficult to decide whether to purchase a property based solely on asset price and rental yield.

An official in the real estate management industry stated, “Logistics centers are assets subject to significant pressure to raise insurance premiums because, in the event of a fire, damage can extend beyond the building to the inventory inside,” adding, “As the impact of insurance premiums on returns grows, there has recently been a strong trend toward evaluating insurance terms right from the initial acquisition review stage.”