The path ahead for logistics and industrial real estate

Logistics and industrial property is on a new trajectory coming out of the global pandemic. We examine the key drivers that are shaping future opportunities in the sector.

September 02, 2022

While the pandemic accelerated behaviour changes that forced the retail, hospitality, and office sectors to change tack, the logistics and industrial sector has been riding a tailwind straight out of this period of global disruption. Jolyon Thomson, NZ Head of Logistics and Industrial at JLL, weighs in on the path that lies ahead for logistics and industrial real estate.

With occupier and investor demand at record levels across New Zealand, the biggest challenge the sector faces is meeting that demand, says Thomson. And it’s a challenge that will only increase with population growth.

“We forecast that even the most conservative estimate of one percent population growth by 2025 will require an additional 1.1 million square metres of logistics and industrial space,” predicts Thomson. This increase would require the full current development pipeline of projects across Auckland, Wellington and Christchurch to be completed.

While the new trajectory is still in its infancy, we examine the key drivers that are shaping future opportunities in the sector.

Future proofing through sustainability

An increasing number of occupiers are demanding environmental, social and governance (ESG) features in the spaces they take on to meet corporate and social targets. This means the occupier push factor has become a critical driver in moving the sustainability agenda from a marginal consideration to a pivotal one for developers and investors.

From an investment perspective, sustainable buildings are also inherently more defensive. “Although evidence of a green premium beyond nominal levels is probably yet to be established, an increasing number of investors are starting to have the conversation around a brown discount on buildings that have lower energy efficiency and lack notable ESG features,” explains Thomson.

Further to this, market factors and regulatory requirements will eventually make ESG features standard across prime logistics real estate. This is worth bearing in mind given retrofitting buildings is typically more costly than developing new buildings on a per-square-metre basis.


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The right mix of tech, location and size

Shifting occupier requirements, rapidly changing technology and evolving supply chain networks will remain key factors impacting building design over the next three years.

Key to building design is finding the right mix of technology across the most productive building footprint. With e-commerce players typically operating on low margins, automation and robotics can have the most direct impact in terms of increasing throughput and maximising productive capacity. Advancements in automation and robotics that can increase operational efficiencies will be increasingly adopted by a larger pool of occupiers.

Incorporating more automation and robotics solutions will result in buildings with smaller footprints because occupiers will be able to use the cubic capacity of their buildings more efficiently. This will lead to increasing demand for taller buildings to permit Automated Storage and Retrieval Systems (ASRS). ASRS technologies provide high-density storage and can save up to 85 percent of occupied floor space.

Increasing supply chain agility

The pandemic has highlighted the weak points in global supply chain networks.

While globalisation of supply chains has enabled cost effective and efficient movement of goods around the world, the past few years has underscored the need for more agility and flexibility across supply chains.

A consequence is the expansion of the supply chain network – and this may accelerate as some occupiers seek a different cost/resilience trade-off and look to localise production and sourcing. 

Occupiers may also look to diversify their supply dependencies to improve resilience. The reorganisation of supply chains will impact the occupiers’ overall footprint, location of their facilities and how buildings are designed.

The biggest challenge the sector faces is meeting record level demand.

Incorporating people

While technological solutions will be increasingly adopted, people will remain critical to the operations of occupiers in logistics real estate.

There are two key aspects to this: The first is to ensure that operations are located in close proximity to a large labour force with the right skill sets and knowledge to work alongside technological solutions in buildings. Secondly, but equally crucial, is to ensure the wellbeing of employees. The logistics sector has typically lagged behind the office sector when providing employees with attractive, productive, comfortable and safe workplaces. However, with tight labour markets and changing skill sets of warehouse employees, the push towards human-centric design in order to attract and retain employees will only increase.

Some key features that are increasingly being incorporated into building design and amenities across Asia Pacific include high-quality cafeterias, retail, childcare centres and exercise amenities.

Contact Jolyon Thomson

Head of Logistics and Industrial

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