The Evolution of Logistics Real Estate
The recent pandemic and the war in Ukraine demonstrated how fragile both our supply chains and our energy supply are
The supply chain issues were addressed by stepped-up warehousing as well as via re- and near-shoring strategies. This in turn raised the pressure on the market for sites and plots of land, which are scarce anyway.
The energy policy mandate was to reduce dependence on Russian gas and oil as soon as possible. As a short-term solution, Germany principally met this objective by constructing LNG terminals on its seaboard. It is, of course, not the same as a sustainable solution. It will not help to reach the goal of sourcing the country’s energy solely from renewables by 2035. Logistics and industrial properties with their vast roof surfaces, however, could provide considerable leverage in the production of solar power. Instead of tapping this potential in pragmatic and purposeful ways, such ambitions continue to be hampered by red tape and regulatory constraints. And this even though the ESG strategy of the real estate industry demonstrates its high level of motivation to play its part in the implementation of the energy policy shift.
In addition to land and energy shortages, there is a whole array of problems besetting the German economy. Digitization, for one, is making slow progress. The industrial sector is facing the Herculean task of having to prepare the transition to hydrogen as an energy source. Taking a visionary approach, logistics properties and their sites could take over new functions in addition to distribution and photovoltaics, and thereby become part of the solution to these areas of concern. Results would include the reduction of soil sealing while increasing the security of supply and acting as catalyst in the necessary transformation of Germany as a business location. Also part of the package would be a visible increase in broadband capacity and the production of hydrogen.
In their final evolutionary stage, these assets would cease to be just logistics real estate but would become infrastructure properties that serve far more purposes than just goods distribution. What sort of visionary new functions are we talking about?
1. The Importance of Distribution in Logistics Real Estate
Distribution as the lifeline of the economy: The classic core purpose of logistics real estate, including all of its depth-of-service variants and every conceivable manufacturing stage within the value chain, will remain its defining characteristic. Demand for it will keep increasing due to the flourishing bread-and-butter business of goods distribution, the resurgence of the e-commerce trend including full-scale quick-commerce offers, and incipient re- and nearshoring strategies that are supposed to minimize off-shore dependence.
2. Utilizing Solar Power in Logistics and Industrial Facilities
Ample solar power to fuel the energy transition: Roof surfaces of logistics and industrial facilities offer enormous potential for photovoltaic systems. But the expansion of such systems is not up to speed yet, and the reasons for the sluggish progress are too diverse and complex to be discussed here. Meanwhile, façade areas have increasingly moved into focus in addition to rooftops. While this form of energy production is not very effective yet, technological advances will be sure to change that. The production of solar power will keep gaining in relevance and become the new normal – assuming that existing obstacles are consistently dismantled.
3. Utilizing Wind Power in Logistics Properties
Adding wind turbines turns logistics properties into power plants: In Germany, regenerative energy production is usually understood to mean photovoltaics or wind power. The expansion of photovoltaics has stalled lately, and wind power capacity is barely being expanded. This is ominous insofar as the country’s electricity needs are about to grow drastically by 43% to around 1,000 Terawatt hours by 2045. Logistics properties have barely played a role in wind power production so far. That is because wind energy relies strongly on standard rotor systems that are virtually incompatible with logistics buildings. What prevents the installation of such systems are regulations governing separation distance rules, cast shadow and noise emissions, among other aspects. But logistics properties could exploit wind energy in other ways, given their long and comparatively tall façades. Since multi-level properties will be the wave of the future, their height and with it their potential for this kind of use will probably increase. Their façades generate up-drafts that innovative roller systems can convert into electricity. Installed on roof edges of a given property, generators of this new type will barely interfere with roof-mounted PV systems. Although these models are still in the prototype stage, they do have the potential to increase the significance of logistics properties as small power plants.
4. Utilizing Battery Storage in Renewable Energy Production
Battery storage to solve the base load dilemma: Once Germany shuts down its last fossil-fuel power plants and relies exclusively on regenerative energy production, at the latest, a base load dilemma could present itself. After all, the sun does not shine all of the time nor is wind always available to ensure uninterrupted power generation. Battery storage could be one solution and ensure, on the one hand, that the maximum potential of renewable power generation can be exploited, and that no system has to be shut down because the grid’s accommodation capacity is exhausted.
5.Hydrogen Production – Ideal for Implementing the “Green Deal”
Policymakers and businesses are striving to make manufacturing increasingly sustainable in Germany and elsewhere in Europe. The use of green hydrogen (e.g. in steel production) offers significant leverage to achieve this. However, the production of hydrogen requires plenty of energy while also generating waste heat. There is reason to assume that future HGV fleets will largely be powered by fuel cells. Logistics properties present an opportunity to directly combine power generation with hydrogen production because the production factors neatly dovetail with on-site consumer structures.
Hydrogen not used in-house could be passed on to production plants in the area or else to municipal consumers. Another option would be to feed part or all of it into a natural gas or hydrogen pipeline network. In any case, combining logistics facilities with hydrogen production could effectively support the ambitious goals of the “Green Deal” pursued by the EU or the EU hydrogen strategy.
6. Logistics facilities could host cell towers to plug broadband cable gaps
Digitization is progressing at break-neck speed. The main keywords in this context include Industry 4.0, digitization of the automobile industry, and e-commerce, including widespread quick-commerce concepts. Just like for other use classes, having broadband internet access is becoming increasingly important for logistics and industrial properties. That is because autonomously operating mobility will become a reality in the medium term and strongly influence logistics, too. There is a dire shortage of lorry drivers even now, subject to an upward trend. For this reason alone, introducing autonomous mobility will become inevitable. However, autonomous driving relies heavily on data, with Germany barely ready to provide the required bandwidth.
Part of the issue is the expansion of the fiber-optics network, which involves underground engineering and is therefore slow and costly. It might actually be faster and more effective to opt for a comprehensive expansion of modern mobile wireless technologies. But finding suitable locations for the necessary cell towers keeps getting more difficult. Again, logistics properties could serve as an alternative for areas currently undersupplied. Support base transceiver stations could be mounted on rooftops or directly on buildings that are tall enough. In this configuration, a logistics warehouse would become a base station of sorts. The widespread network of logistics properties, which covers even remote locations, could extend broadband access into regions well outside the core cities.
7. Logistics facilities for bits and bytes – data centres urgently needed
In addition to the outlined digitisation of the German economy, the grown demand for video telephony and streaming services further increases the need for data centres. Implementing the urgently required digitisation necessitates not just the transportation of data packages but also the processing of data in data centres. For security reasons and to minimise latencies, their number will have to increase rapidly in the future. Data centres occupy plots that are amazingly similar to those of logistics warehouses. The two types also face similar issues. Especially land and power capacities tend to be in short supply for either type of real estate. Why not combine the two uses and reduce soil sealing at the same time? Energy produced on the roofs of logistics properties could be fed directly to nearby data centres. It would be a hand-in-glove arrangement combining the transportation of goods and data.
8. Not a waste product but an urgently needed resource – district heating
Many buildings in business locations produce thermal energy as a waste product of sorts. Yet the gas shortage experienced last year highlighted the urgent need to consider alternative energy resources. This makes it sensible to use district heating concepts to exploit thermal heat potential. If the rollout of hydrogen production via electrolysers gathers momentum and includes logistics facilities, it will inevitably bring up the question whether the waste heat of these installation should not be taken into account from the start and be used to supply the surrounding neighbourhood. The same goes for data centres.
Does This Still Qualify as a Logistics Property or Is It Not Rather an Infrastructure Property?
There is no reason to assume that every logistics property will soon feature all of the characteristics outlined above. Some of the technologies are still in their prototype stage. Plus there are plenty of the “typical” roadblocks to clear in terms of economics, building law, tax laws and technology. That being said, it would also make sense to bundle various functions in logistics properties for other, similar reasons. Above all, it would defuse the main objection often levelled against logistics real estate, namely the consumption of land. Instead of dispersing the various infrastructure assets across different locations, they could share a single site, to the extent possible. Logistics as the traditional main type of use remains relevant but is to some degree upstaged by other types of use. In addition to goods and parcels, logistics facilities also transport electrons, bits and bytes. It will require the cooperation of all stakeholders, more so than their capital, to makes the idea of an “infrastructure property” a reality. There is, in any case, a demonstrable need to adopt a different mindset, and quickly so.
Download PDF:
From Logistics Property to Infrastructure HUB