During the pandemic, industrial and logistics was highlighted as an important part of urban infrastructure. The sector performed well in 2020, with the crisis highlighting its defensive characteristics, including better than average rent collection, fewer delinquencies than other asset classes and strong leasing performance.
Fear of contagion, social-distancing laws and lockdowns accelerated the uptake of online shopping and the online share of worldwide retail sales grew from around 10% to around 20% last year. Growth is forecast to increase twofold over the next decade1 further increasing the volume of industrial and logistics space required.
More e-tailers are making promises of same day or next-day delivery and increasingly broad visibility to inventory pools, meaning there has never been greater interdependency between what happens on the retail floor (whether it’s virtual or physical) and what happens in the supply chain.
With inventory turnover often measured in days or hours, the ability to move freight rapidly to the end customer continues to drive a rent premium for last-mile facilities close to densified, growing urban populations.
In a recent research report, Hines, one of the world’s largest privately held real estate investors and managers, commented the “logistics and industrial sector is on the cusp of redefining the modern-age warehouse”. When it comes to choosing sites, there appears to be a shift in mindset away from pure square-footage metrics. Instead, conversations are centred around functionality.
Amongst other things, this means industrial and logistics real estate is being designed with movement rather than storage in mind; ceiling heights and ‘door-to-square-footage’ ratios - which allow freight to move through buildings quickly – are required.
More automation means heightened focus on building services. It requires greater mezzanine space, reliable IT infrastructure, increased power capacity and access to fibre networks - putting power and high-speed internet access front-and-centre for prospective tenants.
Distribution sites are not just being designed with robots in mind. Labour shortages are a big challenge for the sector and local labour pools a key determinant of location.
Even where highly automated, e-commerce warehouses require people in both light and highly skilled roles to interact with robotics. The best modern-day distribution centres globally are becoming employee-centric and include amenities such as cafes, outdoor seating, dining, and sports facilities.
There will be growing demand for green warehouses over the next decade as major corporations make commitments on net-zero carbon emissions. Buildings with solar panelling and energy monitoring and management systems will be sought after.
Electric forklifts, e-trucks and automated vehicles will present opportunities for the sector to modernise and electric vehicle charging will become expected amenity, impacting the size and shape of onsite parking.
During the pandemic, the logistics and industrial sector was shown be an integral part of societies’ infrastructure. Increased demands from consumers and logistics providers mean real estate must offer more. Fibre networks, increased power capacity, improved employee amenity, and net-zero carbon emissions are all part of the future, driving building owners, developers, and occupiers to rethink ‘inside the box’.
1. Source: PMA online sales data as of YE 2019, Hines