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The warehouse stores your resources. The higher its level the more resources can be stored.

It is where you store the resources such as wood, clay and iron. The higher the level, the more resources can be stored. If you play the game all the time and are always using up the resources you will not need a massive warehouse. On the other hand if you take, for example, 4 day breaks between plays or have a highly upgraded timbercamp, clay pit, and/or iron mine you would need a big warehouse to avoid wasting valuable resources.