Logistics: ESG a priority for investors but not occupiers

Investors and occupiers are at odds over ESG compliance, delegates heard at the Trends 2023 – The European Logistics Real Estate Census 2023 briefing, organised by Real Asset Media and Savills, which took place this week at Savills’ headquarters in London.

Niek Poppelaars, Co-Head Logistics & Industrial, Savills Netherlands

The 2023 Logistics Census shows that institutional investors are increasingly concerned with building obsolescence and having the right ESG credentials: 77% of investors believe it is “important”.

For occupiers, in contrast, ESG is one of the lowest priorities when they are considering space, as they are focused on more pressing short-term factors that have an impact on the bottom line.

“For us ESG is right up there at the very top, but costs are always a challenge,” said Daniel Berry, international real estate lead, Alliance Healthcare.

Implementing sustainable measures is less important to most respondents now than it was last year, the Savills Census 2023 shows.

“Now that margins are tighter there is less cash to invest in sustainable buildings,” said Niek Poppelaars, co-head logistics and industrial, Savills Netherlands. “ESG is not top of the list, especially for smaller companies, but for larger companies it has to be a priority.”

Yet there is a significant increase in the number of occupiers citing power supply and energy efficiency as significant concerns. The volatile energy and fuel prices over the past year have led companies to improve efficiency by using more renewables and energy storage. This has pushed ESG even higher up the agenda and further encouraged companies to move from ambition to action.

“We have a huge role to play in the energy transition,” said Phil Redding, fund manager and partner, Tritax EuroBox. “If we source energy from solar panels rather than the grid it’s a double benefit as we also reduce costs. It’s all about operational efficiency.”

Occupiers’ most pressing concerns Source: Savills – The European Logistics Real Estate Census 2023

The message needs to be put across more forcefully: agents and landlords who can communicate the cost saving impact of their ESG-compliant stock will achieve higher headline rents and bring occupiers on board.

A building’s carbon performance, renewable energy and energy efficiency are increasingly important  and change is already underway. In the last 12 months, 45% of occupiers have implemented measures to improve energy efficiency and 39% have done something about EV charging. When asked what measures they are likely to implement in the next 12 months, 51% of occupiers rated renewable energy generation and storage as their top priority.

“The focus seems to be more on decarbonising the transportation chain rather than the real estate,” said Kevin Mofid, director, head of EMEA industrial and logistics research, Savills. “People are investing in automation and robotics, all power-hungry technologies that require vast quantities of energy.”

EVs, automation and IT improvements are popular supply chain solutions that a majority of occupiers are either planning to invest in or already have. When asked how they plan to evolve the supply chain in the next three years, respondents’ top answer was investing in automation.

But “developers should be mindful of the greater power supply and fit-out requirements that these technologies will require”, said Mofid. “Investors are willing to spend to improve the efficiency of the business, but the availability of power is a constraint.”

Many have installed PV panels on warehouse roofs to find they cannot sell the renewable energy back to the grid. Large companies use battery storage and get together to create an internal grid and use the power they have generated.

“We have 150 acres of solar panels but the the grid doesn’t have the infrastructure for us to put that power back in,” said James Markby, managing partner, Logistics Capital Partners. “So we create additional demand by adding EV charging points and that way we don’t have to feed energy back into the grid.”