Trends in logistics real estate – high demand and limited space call for creative thinking

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The e-commerce market continues to grow rapidly as more people opt for the convenience of online shopping. This growth is leading to an increase in demand for logistics real estate, which in turn is leading to a scarcity of warehousing supply and rising costs. In this blog, we look at how businesses are adapting to these issues and what they are doing to cope with these shortages.

Author

Erik de Jonge

Sharp rent rises

Industry data bears out the fact that we are experiencing a boom. Vacancy rates for logistics space are expected to remain at historic lows. At the same time, according to the European real estate census, 47% of occupiers expect to increase their warehouse footprint over the next 12 months. Unfortunately, supply cannot meet demand, which means rents are rising quickly for increasingly scarce logistics real estate. In 2021, rents rose by 15.4% globally; by 17.6% in the USA and Canada; and by 7.2% in Europe. Real estate specialists Savills expects rents to rise further in the next 12 to 18 months, especially in core markets.

In many cases, retailers simply cannot overcome these challenges. The situation is different from country to country – and even region to region – but there is often resistance to the construction of new warehouses and distribution centres. Local planners and residents oppose new buildings if they are deemed to be a blight on the landscape or are likely to generate too much disruption. It is true that the 24/7 nature of operations at a distribution centre can change the characteristics of a neighbourhood, which is why for example Amsterdam has recently restricted the development of so-called “dark stores”, small warehouses that hold a limited assortment of goods.

Secondary locations

It is worth noting that an e-commerce fulfilment centre needs three times more space than traditional “bricks-and-mortar” models. Ideally, these operations also need to be close to larger urban areas for same-day or next-day deliveries.

As prime locations near cities and transport hubs become harder to find, retailers are looking at building logistics centres in secondary locations. This move is always a compromise, because what can be gained in cheaper rent and space can be lost in higher transport costs and a reduced supply of labour.

However, careful selection can work. A good example is Poland, where there is real growth in logistics centres, because rents are still cheap, labour is available and large population centres like Berlin are quite close. Furthermore, secondary locations often have excellent ports, such as Gdansk and Gdyna in Poland and Piraeus in Greece. This is an option to work around overcrowded and expensive port locations, such as Rotterdam, Hamburg and Antwerp.

Change of use

One solution that can keep logistics closer to prime locations is to reuse existing buildings. Redundant offices, postal sorting centres and even railway yards can be transformed into warehousing space. One good example can be found in Paris at Chapelle International, where an old railway building has been transformed into a logistics hotel. The facility also includes a data centre, offices, tennis courts and a vertical farm. This “function stacking” increasingly takes place where space is limited.

Building upwards on an existing plot is also a way around scarcity of land. Multi-storey warehouses are already popular in Asia and becoming increasingly attractive options in the USA and Europe. These buildings can be up to 25 to 30 metres high and provide logistics companies with what they need to house their automated systems. Again, companies can be in the hands of local planners when it comes to permission. For example, in the west of the Netherlands it is difficult to get permission for high warehouses, while local planners in Venlo, in the south of the country, recently increased the permissible building height to enable construction of multi-storey warehouses.

Globally, buildings between 10,000 and 50,000 square metres are expected to be the most in demand over the next three years, relative to current demand levels. The trend toward smaller centres correlates with increasing demand for urban logistics solutions.

The in-store option

In-store fulfilment also offers a partial solution to real estate scarcity. The advantage of this option is that a business already has a store it can use quickly and be close to the customer. The disadvantages are that stores often do not have a large selection of items, they are not optimised for the fulfilment process, and picking can bother regular shoppers.

In the future, the logistics real estate sector will have to take more account of environmental, social and governance issues. We are already seeing sustainability becoming more important – designs must be sympathetic with the landscape, while green energy sources like solar power are being fitted to buildings. A high-quality environment can also attract employees who want to work in a building they can be proud of and is designed to increase job satisfaction.

Opportunities for warehouse automation

According to Jones Lang Lasalle, investment in automation and robotics is considered the first choice to improve supply chains in the future. Well thought-out automation helps to retain revenues and profit, and is an answer to scarcity of space and labour. Systems such as Vanderlande’s FASTPICK can meet the needs of businesses that are building higher or multi-storey warehouses. FASTPICK is a goods-to-person system offering an extremely high storage density, up to 60% higher than conventional storage methods, thereby making maximum use of available floor space. This goods-to-person system also facilitates a high order-picking performance. AIRPICK is a solution combining efficient picking with flawless automated sortation to individual orders in our pocket sorter. This fits very well in lower buildings or in existing buildings.

Autonomous mobile robots will play an important role in the future. They are suited for use in existing sites as well as in buildings that have been converted to warehouses. We have also invested in advanced technologies, such as item picking robots, which can be used in places where there is a lack of space or it is difficult to find labour because of a warehouse’s remote location.

You can be sure our designers and engineers are thinking creatively to deliver future-proof solutions to help businesses deal with this challenging logistics real estate landscape.

Sources:
Jones Lang Lasalle, The future of global logistics real estate, 2021
Savills, European Real Estate Logistics Census, Winter 2021/2022
Prologis, The Prologis Logistics Rent Index, February 2022
Prologis, Accelerated retail revolution could bolster demand for well-located logistics space, June 2020

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