Real I.S. Research News 08 I 2021
Producing cost effectively – consuming anywhere and everywhere – goods and commodities have to be transported all over the world as fast as possible. Logistics form the backbone of this system. However, strong global integration is what makes the system so vulnerable to disruption, as has become clearly evident since the outbreak of the Covid-19 pandemic in early 2020. At present the pandemic appears to be accelerating certain structural trends, while others are up for debate or even compromised. One thing is for sure: the Corona crisis has highlighted the importance of resilient supply chains.
As long as materials and products need to be stored, handled and distributed , logistics buildings and warehouses will function as central hubs in practically every supply chain. Despite the ongoing dematerialisation of the economy (through digitisation and miniaturisation, for instance), and many technologies for enhancing warehouse efficiency, global freight volumes are expected to triple until 2050. Consequently, the demand for logistics properties will not diminish in the future.
Due to constantly changing market and environmental conditions, however, the requirements for the logistics facility itself will also have to adapt in the future. A study commissioned by real estate service provider and property consultancy company JLL focuses on how the design and specifications of logistics buildings could change in the future. This study factors in the potential impact of four sustainable mega trends which are driving change in many regions and industries: demographic change, technological change, urbanisation and sustainability.
Demographic change as an impediment to workforce recruitment
Shifts in demographics affect economic growth, consumer behaviour and labour markets in various different ways. Above all, recruiting workforce constitutes one of the greatest challenges for the logistics sector. A 1.7% decline in the population to 734.7 million inhabitants has been forecasted for Europe, however, and countries such as Germany, Poland, Spain and Italy will be recording lower population figures in 2030 compared to 2020. Over the same period, the population’s ageing process is set to continue in all European countries, with the average age in Europe increasing from 42.5 to 45.1 years.
In most European countries an ageing population is expected to cause labour supply to grow more slowly than the overall population. Some countries such as Germany and Poland (both key logistics markets) will even see a decline in their population (see Figure 1). Whereas unemployment rates rose temporarily as a result of the Covid-19-induced recessions, in the longer term this will lead to greater challenges in recruiting workers in the storage and transport sector, especially in countries with high levels of employment and low jobless rates.
As a result of the increasing importance of social and governance factors (ESG), investors, developers and occupiers in the future will have to provide enhanced building features and amenities for their employees (quality and fitout of the working environment) in order to successfully attract qualified workers and retain them in the long term. After all, logistics buildings will continue to require a considerable amount of work and people will take center stage in terms of work processes in the foreseeable future.
Technological change will alter future building designs
Technological progress has long been a key driver for the development of new types of buildings in the logistics business. High-bay warehouses, for example, were able to evolve from the introduction of automated stacker cranes, and the need for innovative building designs (last mile logistics, urban logistics) has grown hugely, boosted by the steady growth of e-commerce in particular.
Greater deployment of automation and robots could raise companies’ productivity. At the same time, the cubic capacity of warehouse buildings could be used more efficiently, thereby allowing smaller floor areas and savings on space – instead the demand for generally more compact and higher warehouse properties would then grow in the future. A higher degree of automation could also reduce dependence on the workforce in warehouse buildings, thereby lowering the potential for disruptions to workflows, such as from social distancing measures due to Covid-19. At the same time, simple warehouse activities are likely to be increasingly replaced by automated systems, which will mean that the demand for more highly qualified personnel (engineers, warehouse system managers, data analysts, etc.) for controlling and maintaining these systems will rise.
The dissemination of technologies such as artificial intelligence, the Internet of Things and Big Data analyses is expected to produce “smart” warehouses. Future logistics properties could therefore become junctions for the flow of information in supply chain networks and function as part of a fully integrated physical distribution and information network (see Figure 2).
Urbanisation placing new requirements on logistics properties
The trend towards urbanisation is prompting an increase in the number and proportion of people living in urban areas. The percentage of Europe’s urban population is predicted to increase further, from 74.5% to 77.5% over the period from 2018 to 2030. Urban population growth is in itself a driver of the demand for online sales, whose expansion has been further accelerated since the start of 2020 due to the restrictions imposed to combat Covid-19. The share of e-commerce can therefore be expected to expand significantly in Europe in the future as well (see Figure 3).
The high volume of parcels resulting from the boom in e-commerce, and the problem of distributing them to the end customer in ever shorter cycles (same day delivery, etc.) have resulted in an upturn in the demand for urban logistics services and buildings (last mile logistics, urban logistics). The lack of available space in urban areas due to strong competition from higher-value land use, nevertheless presents logistics operators and occupiers with major challenges, while also offering opportunities to developers and investors.
In certain European cities where the availability of logistics space is in short supply and land prices are high, the need for innovative, multi-storey buildings designed for faster throughput may well arise. Collaborative approaches in the form of space sharing or on-demand space would also be feasible concepts for intensifying the use of space. Against the backdrop of the generally favourable demand situation in cities, city logistics properties open up the prospect of higher rental growth compared with traditional green-field logistics real estate, thus offering attractive investment products for investors.
Decarbonisation as a huge challenge for sustainable logistics
Given the growing concern about climate change and the ensuing impact, the topic of sustainability and the possibility of lowering CO2 emissions has gained traction in the awareness of policy makers, society and corporates. In response to progress made in creating a policy framework, the logistics industry, along with the real estate sector, has come under pressure to act. logix Initiative’s climate footprint study provides a comprehensive overview for the logistics real estate sector of the current standards (BREEAM, DGNB, etc.), methods and concepts for successfully developing and implementing sustainability criteria.
Although transport accounts for the lion’s share of around 87% in greenhouse gas emissions from logistics, the CO2 contribution of logistics buildings at around 13% should not be overlooked. Decarbonisation represents a huge challenge for the logistics industry and is likely to spawn major changes in the construction and specification of warehouse buildings. Successfully completed green logistics buildings in Europe will typically include a series of design features which are also likely to be important going forward (see Table 1). However, compliance with sustainable building standards may well pay off for occupiers and investors: According to independent analyses, savings of between 8% and 14% in operating costs are possible in the short to medium term. Owners expect the value of assets to rise by around 7%. “Green” investment costs could therefore be amortised after around seven years.
Logistics and resilient supply chains are indispensable for a functioning global economy. In view of the increase expected in global freight volumes, the demand for logistics buildings and services is not set to wane in the future either. The logistics sector is nevertheless in the throes of a profound transformation which is subject to the decisive influence of mega trends such as demographic change, technological change, urbanisation and sustainability. Mastering the ensuing challenges will necessitate revamping the construction and specification of logistics buildings.
In the future, the use of automotive and robots in the logistics business is expected to increase significantly, and technological developments will constitute a key driver for the creation of new “smart” kinds of buildings. Furthermore, the demand for logistics properties which are more environmentally compatible and climate neutral (net zero carbon buildings) is set to grow in the coming years as large corporates will commit to carbon savings in the face of more stringent statutory requirements and standards on climate efficiency, along with pressure from society and CO2 emissions pricing. Along with the construction of green logistics properties, special emphasis will be placed on refurbishing and upgrading existing stock with CO2-reducing systems. Particularly in urban areas, occupiers, developers and investors will be called upon to design logistics (space) more efficiently, sustainably and with less of a negative impact.