The market has changed significantly in the last year and a half. While logistics is one of the sectors experiencing growth, it is also facing many challenges - the coronavirus crisis, fluctuations in demand, subsequent changes in the supply chain caused by material shortages and transport problems, the emerging energy crisis... There is indeed a lot for manufacturing and logistics companies to deal with at the moment. Companies are therefore constantly looking for more ways to optimise all areas of their business. This time, we focused on optimization from the perspective of logistics centers and asked Chris LaRue, Director of Industrial Agency at Savills Czech Republic and Slovakia, for an interview.
The market has changed significantly over the last year and a half. While logistics is one of the growth industries, it also faces many challenges - the coronavirus crisis, subsequent supply chain changes, the emerging energy crisis .... Therefore, logistics companies are and will continue to look for further ways to optimise. How are these developments reflected in the customer requirements of the logistics centre segment?
One of the biggest shocks to the industry has been the huge increase in demand for warehouse space as companies move sales online and stock up on inventory to build resilience into their supply chains. This has led to the lack of available warehouse space as demand has outstripped supply. The result has been an increase in rental prices together with operating costs and lack of available premise in the most desired locations. This has pushed many companies to focus on making their operations as efficient as possible while reducing costs to make the most out of their space. For production companies, this could mean freeing up underutilized areas to make room for external storage areas, or in some cases the opposite, by pushing storage to external companies to focus higher value operations such as adding more production lines. For logistics companies, this can increase the density of storage through mezzanines or and automation to increase productivity. For some the lack of space is so acute, companies are being forced to search spaces in areas they would not have normally considered in the past.
How can Savills assist its clients in optimising the use of logistics centres?
Savills takes a holistic approach to supporting our customer’s needs. We typically start by helping our customers find the right warehouse for the operation and help to negotiate terms that best suit their specific situation. We can also help design the layout of the warehouse, implement and monitor fitout and help with any short term needs that may arise during the process. If a customer already in a building, we can support by helping our customers find tenants or subtenants for unused space, dispose of units no longer needed, or help them expand and consolidate facilities.
To what extent does modern technology play a role in the optimal use of logistics centres?
Modern technology plays an increasingly important role in every part of the warehouse and its operation, which make this a very exciting for the sector. Traditionally warehouses have been viewed by many as unsophisticated buildings and operations, but today warehousing, fulfilment and returns are in many cases on the bleeding edge of technological innovation. Take Amazon for example, whose warehouses work like well-honed machines. Their warehouses are highly automated, they are among the world’s most advanced and prolific users of AI technology, they have redundancies for redundancies for redundancies, and their systems are tuned and calibrated down to the second. Technology is so crucial for their operation, they bought Kiva Robotics in 2021 for nearly 1 billion dollars, with for the sole purpose of design and building robots for their warehouses. While we understand not everyone can or wants operate like Amazon, but we are seeing requests from customer who are increasing using technology in there warehouses.
The European Green Deal was signed in the summer. For many years, logistics and industrial properties have been built to meet the most stringent sustainability requirements. Where do you see further scope for companies to further minimise their carbon footprint within building operations?
We have seen been tremendous progress in the sustainability of warehouses, but today’s real estate is still predicted to consume around 40 percent of global energy and account 20% of the world’s greenhouse emissions according to Savills research. Thankfully we see opportunities everywhere. The first step is for firms to make the commitment and set sustainability goals. Indeed, earlier this year Microsoft made a public commitment to be carbon negative by 2030 and, by 2050, to remove from the environment all the carbon it has emitted either directly or by electrical consumption since it was founded. It is partnering, for example, with the company Climeworks, which is a Swiss based carbon capture start-up, and who have just launched the world’s first carbon-negative power plant in Iceland called Orca. Locally the industrial CTP is looking to lower their overall carbon footprint, by buying and planting forests. Other leading companies have made similar pledges, including I am happy to say Savills, who plans to be carbon neutral by 2030.
As for how to reach these goals, companies will need to devise ways to construct and operate buildings better using the latest technologies such as improved LED lighting, solar panels, green facades, white reflective roofing and smart building systems, and locally sourced sustainable building materials like laminated wood or recycled concrete. They will also need be able to invest in retro fitting existing buildings, for example replacing adding heating and lighting systems, or adding charging stations to docks, if and when trucking becomes electrified. Like the shift to using more sophisticated technology, the shift towards lower carbon footprints and greener buildings will push the industry represents a very exciting time for this segment.
The automotive industry, which is significantly represented in the Czech Republic, is currently going through a major crisis. In your opinion, will this also affect the logistics real estate market?
Yes and no. It is true that the automotive sector is going through difficult times due to lack or parts, most famously chips. At the same time the industry is also transitioning to electric vehicles. As a result, some projects have been put on hold or shelved, but other automotive suppliers are showing higher demand. Overall we see a less of a demand from auto production companies and more broadly productions companies of all types, but this drop in demand has been more than compensated for from e-commerce, logistics and retail demand. So the composition of companies has changed, but overall demand for warehouse space remains strong.