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Logistics real estate across both the US and Europe had a record breaking year in 2021. Followed by a strong 2022. Are the long term trends that drove these record years in tact and sustainable in 2023 and beyond?
The two core demand driven long term structural drivers of these record breaking years - e-commerce growth and supply chain reconfiguration - may continue to sustain low vacancy rates and drive rental growth in 2023. But as demand has increased, occupier ESG preferences have evolved. Investment managers are starting to reflect this in the assets they seek for their portfolios. But the interest in Logistic facilities for institutional investors has taken another turn.
As part of their transition to net zero portfolios and an increased focus on decarbonisation, institutional investors see an enhanced role for logistic facilities. They are particularly interested in three routes to decarbonisation that can be unlocked by logistics facilities.
The majority of logistics facility stock is decades old, particularly in the U.S.. They were not designed or built with sustainability in mind. Yet the function they perform is energy intensive by necessity. They cool and they heat. But given their age, they have not been able to benefit from advances in building insulation materials that are available today.
Obviously, new logistics facilities need to be better insulate. And designed to accommodate vast solar roofs that can generate and supply enough energy to heat or cool the facility. But this just scratches the surface of what is possible.
The contribution of transportation to greenhouse gas emissions is substantial. Therefore, and not surprisingly, governments have put in place targets for firms to move over to zero-emmission, electric-powered trucks. From a logistics company perspective, the cost associated with the fuel required to truck goods is a large component of their wider cost base. If they can reduce these costs without losing the benefit due to high electric truck acquisition values, they will align with these target. But what does this have to do with logistic facilities?
The most profitable logistics companies are arguably the most efficient at serving their clients. By decomposing the logistics value chain the cost and efficiency bottlenecks can be easily identified and tackled. The logistics facilities of the future will have a different form and expanded function. They will need to facilitate:
Simultaneous Electric Truck Charging, Offloading and Loading - Integrates the time needed to charge an electric truck into the time lost loading and offloading.
Enhancing Staff and Trucker Wellbeing - By creating better health and wellness in-site facilities, a happier and more efficient workforce can be created. Taking this one step further, overnight sleeping and comfort facilities can allow drivers to refresh adequately, whilst their vehicles are recharged, offloaded and loaded.
Water Collection - In areas where water is scarce, on-site rainwater collection tanks can be installed to ensure the new employee and drive facilities are clean and modern.
Locations - A network of logistic hotels in non-prime locations could keep the chain linked. Or even function as charging stations for non-commercial transportation, or as a power supply for local communities. This relieves the capacity pressure on more expensive prime locations that are needed to serve a more localised distribution of goods.
The institutional investors inside RFPnetworks are doing out-of-the-box research. Looking for new ways to decarbonise their portfolio. The investment research they found on logistics, opened their eyes to new possibilities, and ideas for conversations with investment managers.
