The six most important factors for the future of logistics properties
The explosive growth of online commerce means serious changes for retail logistics, and a current study reveals the trends and developments that the real estate industry must prepare for. The study’s six core factors have explosive implications for metropolitan regions.
E- commerce is booming; revenues at Amazon, Zalando and other ‘e-tailers’ are soaring. Yet delivery services have a challenge. Addressees in cities are often not at home when the carrier rings the doorbell. And second or even third delivery attempts cost time and money. As such, logistics service providers have been looking for new options. Recipients can specify desired time windows or preferred neighbors for delivery. DPD offers real-time package tracking; DHL offers delivery to Pack station self-service parcel booths or parcel mailboxes in the front yard. Not everyone has a front yard – but it is possible that they have a car parked on the street. Deutsche Post subsidiary DHL has developed a technical solution together with Volkswagen that arranges for packages to be delivered to a car’s trunk. Only practical testing – which will begin soon in Berlin – will show how well that really works. But even so, it probably still won’t cover the logistics sector’s expanding need for space. Modern, efficient space is in high demand and comes with short supply almost everywhere, and in cities it’s getting more and more expensive.
So it’s only logical that the study published in July 2017 by the Logix logistics real estate initiative – whose sponsors include PATRIZIA Immobilien AG – addresses the future of logistics properties and locations. The study found six core factors that developers, occupiers, investors and especially municipalities should take into account in their spatial planning.
1. City logistics: e-commerce is the growth driver
The steady growth of online commerce and consumers’ increasing preference for speedy deliveries are the drivers of ‘last-mile’ logistics centres that occupy 2,000 to 10,000 m² and provide a shared hub and pivot point for a variety of logistics service providers and/or internet platform providers under a single roof. The result is the growth in demand for space in and around cities, especially large metropolitan areas. To meet that demand, innovative forms of modern, technologically advanced buildings such as micro-depots, hybrid properties and multi-level facilities will prove to be essential as they are efficient and cost-effective for occupiers.
2. The changing image of the logistics business
Another factor is the ongoing change in the image of the logistics business. Now that government and society are dealing with e-commerce every day, the way they perceive logistics is changing. The industry is no longer regarded as a ‘pariah large space consumer’: It’s seen as a worker bee and facilitator. The increasing automation of logistics buildings, especially for e-commerce, doesn’t automatically lead to more jobs, of course, but rising robotization still “can’t replace” manual work in picking, labelling, and packing, according to Arthur Tielens and Roger Peters, Managing Directors PATRIZIA Logistics.
3. No more free space?
Available space is dwindling, so developers will be compelled to look harder at alternatives like brownfield uses or a revitalisation of existing obsolete properties. “We think that land scarcity, the need for employment, sustainable transportation options and the demand for increasingly speedy delivery to consumers will compel larger cities and municipalities to designate special urban and suburban areas for logistics, especially for last-mile facilities and fulfilment centres,” says Tielens. He adds that he expects that zoning will need to be revised to allow higher densities of logistics centres and retail and wholesale warehouses.
4. Digitalisation yes, but stay realistic!
For all the promise of digitalisation, market participants should keep their feet on the ground. Neither drones, nor 3-D printing, nor Industry 4.0, nor the intermeshing of production with the latest IT and communications technologies will make significant changes in logistics properties and their locations. But, as Peters explains, “In an urban environment, we’ll see a growing need for sustainable means of transportation such as e-bikes or electric delivery vans, and an expansion of multimodal transport options like rivers, subways, airports and railway terminals. Robotization and automation will also cause logistics properties to get more tech-savvy in their layout, usage and construction.”
“Larger cities and municipalities will have to designate special urban and suburban areas for logistics, especially for last-mile facilities and fulfilment centres.”
Arthur Tielens, Managing Director PATRIZIA Logistics
5. Upward automation
Building concepts will also change. In the mid term, construction will head upward to make room for automation solutions, while location factors like wage costs and the availability of labour will become less crucial. At the same time, new structures – especially in the large metropolitan areas– will get more ambitious in their architectural aspirations.
6. Sustainability will become standard practice
Sustainability as well as accessibility will continue to be highlighted as a basic economic requirement and social argument in the process of choosing a location. Similar to the office sector, demand for sustainability will become “the norm” in logistics real estate as well, say Peters and Tielens.
City logistics to become more ambitious
The study’s authors, Prof Christian Kille and Dr Alexander Nehm, expect structural and design deviations from standard logistics properties in some cases. But established logistics locations will not lose their significance, on the contrary they will probably continue to cluster. Nevertheless, in metropolitan areas logistics buildings are expected to develop into multimodal-use variants with multiple dimensions similar to those in Asia.