As a long-spanning result of the pandemic, the logistics industry is facing challenges right now. However, it’s also been a period of record growth and expansion for warehousing and the industrial sector.
Let’s take a look at the recent growth experienced by the logistics sector, as well as the issues pressing the industry, and how this situation is set to impact warehousing and the physical buildings occupied by the sector.
Logistics is Commercial Real Estate’s Hottest Sector in 2021
The logistics sector closed off last year with record-setting performance, quickly becoming commercial real estate’s best performing sector.
According to JLL, logistics made up nearly one-quarter of all corporate real estate investment across the globe in 2021. Demand for logistics was at a record-high, with prime yields at 4.4% and net absorption peaking at 183% in Asia Pacific markets.
Looking ahead, a survey conducted by JLL, “Global Logistics Real Estate,” reveals that:
- 74% of respondents expect the logistics sector to grow.
- 71% expect e-commerce to drive demand for logistics services.
- 43% identify the lack of entitled land for logistics assets.
Challenges Facing the Logistics Sector
Based on the data, the logistics sector has the momentum to continue growing and evolving to meet the immense consumer demand for warehousing space and services. However, the supply of real estate is posing to be one of the most significant challenges pushing back on logistics.
JLL’s survey notes that developers across the globe are having issues with allocating land that’s suitable to house logistics facilities. In addition, developers and project planners are having difficulties gaining the required land planning permissions needed to kickstart new projects. It’s also important to consider that the pandemic’s disruption to the supply chain and construction industry has postponed development projects that have been pent-up since the onset of COVID.
In addition to a low supply of entitled land and regulations, survey respondents also identified a lack of existing buildings and assets as an issue disrupting the supply of logistics facilities. In another research article on the topic, JLL identified that in the United States, available industrial inventories are aging quickly and in need of updates to revive the assets.
According to JLL,
- Almost 75% of industrial assets in the U.S. are 20 years or older.
- Over 25% of industrial inventory is 50 years or older.
As industrial buildings continue to age and there is a stall on new logistics developments, the supply of real estate is too tight to keep up with the industry’s fast-paced growth.
New Demands for Logistics Facilities
The commercial real estate spaces allocated for logistics require new, trending amenities and on-site building features to be able to accomodate modern demands.
Another result of the pandemic was an increased dependency on e-commerce. Consumers have opted for the ease, speed, and convenience of online shopping during market closures and pandemic restrictions.
While this shift did not lead to the demise of physical retail stores — as shoppers are returning to stores upon market recovery — the increase in logistics activity has pushed for optimization within warehouses.
Warehouses and logistics buildings need to foster faster operations while increasing proficiency to handle the increased order volumes.
Meanwhile, logistics facilities are challenged with reducing waste and becoming more environmentally friendly in order to keep up with commercial real estate’s climate change initiatives. Logistic facilities also need to create safe, wellness-oriented work environments to attract and retain on-site team members.
Trends Changing Logistics Facilities Operations and Buildings
To meet the challenges of 2022 and beyond, logistics operations and buildings are relying on these two critical trends.
#1. More Sustainability
As the commercial real estate industry continues to try and reduce the carbon footprint of the built environment, developers and occupiers are working to eliminate waste and leverage sustainable resources as much as possible.
According to JLL’s research, many building occupiers are still not prioritizing sustainability. However, new builds and refreshed assets are expected to rely on sustainability efforts. As of 2021, the countries taking the most action to create sustainable logistics infrastructures were the Netherlands, France, Singapore, the United Kingdom, and India.
#2. More Technology
Adopting new innovative technologies will be essential in shaping the logistics sector's ability to keep pace with the growing demand.
Both back-end organizational tools and on-site robotics will be pivotal for enabling a facility's optimum performance. Expect to see smart building technologies implemented to help reduce energy consumption and safeguard warehousing assets.
As streamlining, optimizing, and future-forward additions to logistics operations, these trends are setting the tone for the entire commercial real estate landscape. Technology and sustainability are expected to be pivotal for the industry in 2022 and beyond.
For more coverage on industry trends, explore the RealNex Blog.