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Why logistics real estate is accelerating supply chain evolution

Collaborative relationships can optimise current space and unlock opportunities

By Phil Redding – 25 Sep 2023

Article first published in React News

Despite ongoing macroeconomic headwinds, the third annual European Real Estate Logistics Census, conducted by Analytiqa in partnership with Savills, suggests that occupier sentiment is improving across Europe.

Of those occupiers surveyed, 42% view the environment as more favourable than six months ago, and 37% the same, while 39% expect their take-up to increase this year despite the challenges of rising costs and economic uncertainty, reflecting the mission-critical role of logistics real estate in their supply chain.

Three macrotrends are reshaping supply chains around the world: geopolitical shifts, rapidly advancing technology, and the rising importance of ESG. As supply chains evolve, new demands place pressures on the built environment and logistics-related real estate. But with prime locations scarce and vacancy levels still relatively constrained at 4.7% in H1, can European logistics real estate keep pace? Will the built environment act as an accelerant or constraint?

Resilience is a recurring theme in conversations with our customers. The Covid-19 pandemic, US-China tensions, and the ongoing war in Ukraine have shown the inherent risk in the linear model: low-cost and efficient in times of stability but limited in its ability to withstand shock.

In response, we’ve seen businesses look to diversify their supply chains and move to different geographic locations, closer to customers, as they seek to balance cost optimisation and resilience. Our survey found that 22% of occupiers have shortened their supply chains post-pandemic, and 25% plan to do so over the next three years.

Supply chain is shifting

Even at a local level, supply chains are shifting. The dramatic increase in e-commerce has elevated the importance of last-mile logistics and its role in shaping the consumer experience.

The need to place inventory as close to the consumer as possible, supported by technology investments that optimise inventory and delivery routes, is reshaping the supply chain by driving a push closer to population centres, where quality logistics space can be harder to find. This is a priority for businesses and economically viable despite the higher-cost locations, as rent forms a relatively small proportion of overall supply chain cost. Transportation, for example, is much larger.

“Three macrotrends are reshaping supply chains around the world: geopolitical shifts, rapidly advancing technology and the rising importance of ESG”

At the same time, the “take-make-waste” nature and carbon footprint of the linear supply chain model is under greater scrutiny. Political appetite for a circular economy is increasing, with the European Commission adopting its new circular action plan in 2020. Circular supply chains require them to work in reverse.

As Maersk has highlighted, future logistics may evolve beyond transport and storage to incorporate dismantling, processing and repair. This has implications for the related real estate and infrastructure, from space to accommodate these additional tasks, to more intensive energy requirements, and greater demand for labour.

Similarly, the drive towards fleet electrification (49% of occupiers have invested in game-changing EV technology over the past 12 months) has both power demand and infrastructure implications. These include not only EV charging point technology but also space considerations, as occupiers may look to service fleets onsite.

First, through collaborative relationships with customers. Trusted real estate asset managers and developers, who are brought in on strategy, can match opportunities to meet strategic objectives and optimize locations. We recently helped a major international supermarket group to locate logistics space closer to their target market and customer clusters in the Netherlands, for example.

Increasingly, these objectives include ESG, and logistics assets are playing a vital role in helping customers transition to a lower carbon future – including through EV charging point and PV installation. Take solar as an example. We currently have 7MW of on-site solar PV across our portfolio, with the ambition to add a further 7MW every year.

These projects, undertaken in collaboration with customers, accelerate supply chain evolution by reducing the chain’s carbon footprint and enhancing its resilience by securing reliable, renewable energy –critical in the context of geopolitics and rising energy costs, and the rising power demands associated with the rapid adoption of high-density automation and fleet electrification.

Second, by working with local authorities on opportunities that deliver employment growth and social value to unlock prime new locations. A recent example for us is in Germany’s Düsseldorf region, where we worked with the local municipality to transform a brownfield former concrete factory, vacant since 2006, into new logistics space. This space is in a highly urbanised area, has good access to labour, and includes the opportunity for substantial PV investment.

Macro-trends such as geopolitical shifts, rapidly advancing technology, and the rising importance of ESG are undoubtedly placing new demands on logistics-related real estate. However, collaborative relationships can optimise current space and unlock new opportunities. When this happens, logistics real estate becomes a powerful accelerant of supply chain evolution.

Article first published in React News

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