The power of the e-pedal
04 / 08 / 21 - 3 minute read
Table of content
Staying indoors and ordering online during the coronavirus hasn’t just led to a surge in parcel deliveries. It’s also brought about the unwelcome consequences of more congestion and pollution. So, it’s no surprise that calls are growing for the whole distribution process to be rethought to meet ambitious sustainability goals, reduce greenhouse gases and lower traffic volumes.
Many logistic providers are turning to more environmentally-friendly modes of transport. The American logistics giant, UPS, for example, is introducing e-cycle delivery to navigate dense European urban areas, such as Heidelberg and Dublin, as part of its growing fleet of more than 10,300 alternative fuel and advanced technology vehicles worldwide.
Meanwhile, electric vans and robots are set to accompany e-bikes along city cycleways as logistic companies try to tackle the problem of the “last mile” – the final journey from warehouse to customer. This may only represent a fraction of the journey a product makes from factory to customer but entails typically 40-50% of delivery costs.
Nowadays, potential risks to supply chains aren’t just about natural disasters. Instead, logistic companies are stressed about potential long lead times and trade bottlenecks, which might prevent goods from reaching end consumers as quickly as desired. This means that supply chain decisions have become more holistic, more data-driven and more urgent than ever, states Prologis a logistics real estate investment trust in a report on future demand for logistics real estate.
As a result, location matters more than ever for logistics real estate customers. Growing urbanisation means that the city centre is still the favoured location. Currently, 80% of the population in developed economies live in cities. And this proportion is set to increase to 87.6% by 2050. “Ongoing urbanisation is driving the need for logistics space along the main supply corridors of cities, while the risk of vacancies for assets located remotely from these routes might increase,” says Nicolai Soltau, Fund Manager of Logistics at PATRIZIA.
Those unable to afford premium inner-city rents might look to abandoned shops or even empty office blocks, left vacant after COVID-19, which could be repurposed for logistics.
Another solution is to go underground. Changes in urban mobility are set to free up underground car parking space for other uses - such as logistics facilities.
For others, things are looking up – literally. Logistic firms are turning to vertical or multi-storey facilities, mainly powered by automation, such as racks, conveyor belts, and lifts. In fact, automation is set to play an increasingly important role within the sector.
“Automation isn’t affecting the functional obsolescence of logistics facilities, but rather by decreasing the need to locate close to labour, is opening up newer and more productive locations close to end consumers. In this way, automation is helping supply chains move more quickly into the future,” states Prologis, a supply chain logistics firm.
So far, the adoption of automation has been slow due to high costs and low flexibility. Adoption of one or more types of automation technologies is as low as 20-25% across logistics real estate facilities, estimates Prologis.
Yet, when successfully deployed, automation can unlock scale, improve productivity and increase capacity. As technology continues to improve, automation should gain more ground. As a result, costs should shrink, capabilities grow and flexibility increase.
Ongoing urbanisation is driving the need for logistics space along the main supply corridors of cities, while the risk of vacancies for assets located remotely from these routes might increase
Route to investment
Europe’s main logistics corridors run from ports in the north, such as Antwerp, Calais and Rotterdam, to urban centres at the heart of the continent. The importance of these key corridors is set to increase due to growing intra-EU trade, bolstered by companies increasing their European inventory and securing their supply chain in the aftermath of the COVID-19 crisis.
Prime locations along the main corridors are obvious targets for logistics investments. Take, for example, PATRIZIA’s acquisitions in Bergen op Zoom, Moerdijk and Rotterdam.
Diversifying investments across Europe’s main logistic routes also helps to increase performance by taking advantage of the differences in prime yields across Europe, says Brook. Active fund management can ensure broad diversification to mitigate higher risks, increase asset performance and boost overall returns.
Going forward, logistics should continue its favourable rental development, outperform other asset classes and provide a strong yield compared to other real estate sectors - in particular, government bonds. As economic, demographic and technological megatrends continue to dominate retail and supply chain planning, the long-term growth rate for logistics real estate should continue to rise throughout the next decade and beyond.
To learn more about the market, download the PATRIZIA report, The future of logistics: 7 distinct trends to watch.
