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
163%
240%
28%
Top 3 Trends
e-commerce/
multi-channel retail
emerging
markets
new technology
implementation
173%
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
3Russia
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
alexandra.tornow@eu.jll.com
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

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

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