Opportunities abound: trends and challenges impacting on logistics and industrial real estate

Opportunities abound Trends and challenges impacting on logistics and industrial real estate

Key observations

1

Continuity of trends and challenges Continued strong pressure on companies to align real estate portfolios = continued high levels of occupational demand = significant opportunities for landlords, developers and investors.

An intriguing paradox Slow on-take of many trends and challenges experts sustain will have a significant impact on businesses in the future = supply chain alignment not future-proof?

Source: JLL 2013 logistics and industrial occupier survey Europe in cooperation with CoreNet Global

2

Trends & Challenges

Driving the logistics and industrial sectors in the next

3-5 years

3 3 2

The major trends and challenges identified were unsurprising…

3

1 63%

2 40%

28%

Top 3 Trends

e-commerce/ multi-channel retail

emerging markets

new technology implementation

1 73%

47%

40%

rising transport costs

shorter order lead times from customers

rising energy costs

Top 3 Challenges


… but are respondents neglecting the next big thing?

4

Changing customer demand 17%

New product introduction

15%

Near-sourcing/ re-sourcing

15%

Transport collaboration

20%

Evolution in maritime transport

15%

Increasing urbanization

11% Outsourcing

19%

End-user demanding

sustainability 11%

Urban logistics 22%

Increasing customer returns 17%

Labour availability

15% Labour costs

17%

Aging transport

infrastructure 23%

Reducing real estate costs

15%

Regulatory measures

17%

Improving operational efficiency of

facilities 15%

Rising supply chain risks

26%

Supply of land/logistics

buildings 15%

€

Trends

Challenges


5

Q. Is current network realignment in manufacturing and logistics

adequate to sustain companies competitiveness over at least the next five

years?

6

1 Today’s supply chain alignment will sustain operational needs for at least the next 5 years as current major trends and challenges will remain the main driving force.

2 There is some risk that a number of trends and challenges could become more significant than currently expected – but this will not impact significantly on network alignment over the next 5 years.

There is a significant risk that businesses are missing important trends and challenges. Today’s network alignment is not adequate to remain fully competitive over the next 5 years. 3

7

Occupational demand

Business and real estate strategies and requirements that will impact future occupational

demand

Continued elevated occupational demand over the next three years

8

Respondents indicating expected change in their logistics and industrial portfolio occupied over next 3 years


65% of companies expect to

increase occupied logistics floorspace

36% of companies expect to

increase occupied industrial floorspace

Pressure to service increasingly demanding customers and to reduce costs drives occupational decisions

9

65% Level of customer

demand

57% Improving

customer service

37% Service growth in

online retail

37% Reduce overall

occupancy costs


% of respondents indicating their top 3 drivers of change in occupational portfolios over the next three years

10

38% Very large

(30,000-50,000 sq m)

32% Medium sized

(10,000-30,000 sq m)

30% Small

(below 10,000 sq m)

25% Mega-sheds

(above 50,000 sq m)

26% High number of loading doors


% of respondents indicating their floorspace requirements

No size fits all … but big is beautiful

Real estate obsolescence is not as big an issue as many market players fear

11

36%

16%

48%

Required standard of facilities


Standard modern general

specifications

Build to suit or specific standards

Both types are needed

Medium term contracts are becoming increasingly the norm

12


Less than 3 years

3-5 years 5-7 years 7-10 years More than 10 years n/a

16%

43%

18%

8% 6% 9%

13

But what markets will actually be successful in attracting future real

estate demand?

High emphasis on cost reduction and customer satisfaction will favour locations with excellent connectivity …

14

2.1 Reduce real estate costs

2.4 Reduce transport costs

through location strategy

2.3 Enhance

customer service

Index from 1 = very important to 5 = less important


Respondents stating the importance of their company’s business strategy

… in this context, low importance given to multi-modal and port-centric operations is surprising

15

3.6 Enable modal shift locating

at a multi-modal site

3.6 Expand floorspace at a major seaport


A contrast to anecdotal evidence seeing rising corporate interest in multi-modality, rail freight and ‘portcentric’ logistics.

Index from 1 = very important to 5 = less important

Respondents stating the importance of their company’s business strategy

16

Q. Do you agree that emphasis on multi-modality, rail freight and

port-centric logistics will increase going forward -

favouring rising occupational demand across locations

providing these attributes?

17

1 Yes, all three will see occupational demand taking-off significantly over the next few years.

2 Yes, at least one out of the three locations will see rising occupational demand over the next few years.

No, none of these locations will gain significant increases in occupational demand over the next few years. 3

18

Q. Which of the three locations

are likely to see the highest occupational

demand?

19

1 Multi-modal sites

2 Major seaports (port-centric logistics)

Sites offering direct rail access 3

20

And how important is the integration of

sustainability measures to logistics

and industrial real estate?

Respondents focus on a narrow set of sustainability measures that offer the highest immediate potential for cost reduction

21

73% Heating energy

reduction 61% Electrical power

reduction 55% On-site waste segregation


% of respondents stating the top 3 sustainability measures implemented in existing real estate portfolios

Largely the same sustainability measures will remain the dominant focus for companies over the next 3 years

22

50% Heating energy

reduction 36%

Renewable carbon power generation

59% Electrical power

reduction


% of respondents stating the top 3 sustainability measures likely to be integrated in real estate portfolio over the next 3 years

By contrast, companies do not expect to place high importance on mitigation against climate change driven events over the next 3 years

23

16% Overheating

mitigation

5% Reinforcements to roof to cope with extreme weather

16% Flood risk prevention

9% Biodiversity

enhancement measures


A limited short-term cost effect?

% of respondents stating the top 3 sustainability measures likely to be integrated in real estate portfolio over the next 3 years

24

Emerging markets

High potential to achieve growth in logistics and

industrial markets drives corporate interest

The same three growth markets came out on top for both logistics and industrial

25

High market potential … but in particular Russia and Turkey present companies with a range of risks and challenges

% logistics / % industrial


1 2 3 Russia 64% / 41% Turkey

48% / 26% Poland 43% / 24%

COPYRIGHT © JONES LANG LASALLE IP, INC. 2014

Thank you

Alexandra Tornow Head of EMEA Logistics & Industrial Research Frankfurt +49 (0)69 2003 1352 [email protected]

Survey methodology Conducted via online questionnaire and through telephone interviews Over 60 respondents from the logistics and industrial sector located in Europe Survey period: Sep – Dec 2013

Real Estate

Opportunities abound: trends and challenges impacting on logistics and industrial real estate