Logistics space requirements will depend on how occupiers choose to take advantage of key structural drivers, a trend towards urban living, e-commerce growth, transformation of supply chains and appetite to invest in the sector. Since the emergence of the European logistics property sector almost 20 years ago, structural trends have fuelled demand for space in the absence of any meaningful economic growth.
As we step forward into the next decade starting with 2020, a few trends - e-commerce, technology, and labour shortages - that are already transforming warehouse operations by altering internal and external space distribution, will continue to have the most noticeable short-term impact on buildings. There will be increasing competition for the best location as the retail revolution in particular continues.
A combination of a shorter construction period when compared to office and retail assets and the emphasis on cost efficient supply chains, makes the logistics sector more quickly adaptable to changing market conditions and structural trends. Furthermore, while most active markets benefit from a steady flow of demand for standard 10,000-30,000 sq m warehouses, evidence points to short-term trends that are fuelling increasing levels of demand for larger warehouses (XL & XXL). Above 50,000 sq m, XL and XXL warehouses are almost exclusively developed on a built-to-suit basis, which gives occupiers the opportunity to customize buildings.
The average transaction size in the Netherlands increased from 9,000 sq m ten years ago to 13,500 sq m in 2018. There has also been an increase in the average size for newly built warehouses to over 20,000 sq m. Countless examples of this trend are occurring across the Netherlands including a newly constructed 140,000 sq m warehouse in Bleiswijk for German eRetailer Zalando and other recently built XXL warehouses for eRetailers: Action, Bol.com, Wehkamp, Coolblue and Lidl grocery chain. The main conclusion to be drawn is that bigger warehouses are being built and e-fulfillment centres need to be a larger size to be efficient than previously seen. Further segmentation; warehouses and e-fulfillment is expected for the logistics market. Technology and growing demand for same day delivery will further impact on location, size and fit out of logistics properties.
E-commerce in Europe estimates that the EU’s B2C (business to consumer) sales grew by 12.7% or €602 billion during 2018 and forecasts that it will maintain this pace (between 12-13%) over the next few years. As Europe’s population increasingly succumbs to the convenience of online shopping, the ongoing structural shift from retail to warehouse space is gaining momentum. At 67%, Western Europe accounts for the lion’s share of online sales in Europe, with a stake on total retail sales ranging from 3% in Italy to 18% in the UK.
What about labour?
Improving the workplace experience in warehouses is requiring an increase in both internal and external space. This is emerging on new, and often more remote markets where land plots are large enough to accommodate constantly expanding European distribution centres (EDC).
In Belgium, to accommodate its EDC park, currently with 11 buildings comprising a total of 300,000 sq m, Nike was able to find a suitably sized site near Laakdal. Despite the park’s remote location, Nike succeeded in attracting a workforce of 3,000 employees.
Ownership of the total park has made it possible for Nike to expand both external and internal space, as amenities or building features are added or modified. Sensitive to a younger generation of workers who prioritize corporate responsibility, Nike took a sustainable approach to construction and warehouse operations, in addition to adding onsite amenities such as an indoor gym that includes fitness classes and personal trainers, a running track, and a basketball court. A step further, Nike makes electric bicycles available to staff with more than 15 km. commuting distance.
Increased amounts of technology often require dedicated floorspace to accommodate robots, automated equipment, charging stations, parking stations, and additional office space for equipment managers and IT specialists.
Recognising the need to customize warehouses to accommodate its Kiva robots, a major e-commerce player has taken building configuration to the next level. This new generation of eFulfillment centres, like those found in Barcelona (Spain) and Castelguglielmo (Italy) are both XXL and either multistory or multi-mezzanine.
Kiva technology requires special floors to map out ‘street and highway’ grids on smooth floor surfaces in which evenly spaced 2D bar codes are fitted to help guide robots. Customizing floors at an additional cost implies dedicated secured areas, or floors, in which Kiva robots operate. In both cases, ‘dedicated’ has translated into ‘extra’ space or XXL buildings – 150,000 sq m in Barcelona and 190,000 sq m in Castelguglielmo – both multi-level platforms.
A growing segment of the occupier market is requiring more customised space that can only be realized through built-to-suit construction. Today, these non-standard buildings represent a relatively small share of total new construction. If possible, most occupiers with immediate requirements lease existing or speculatively built buildings to avoid long lead times. However, in coming years, as more companies navigate the changing landscape of e-commerce, technology, and labour shortages, demand for nonstandard building specifications will undoubtedly increase.
What you need to know in 2020
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