ESG is “the biggest driver of change in the Logistics sector”

The need to be sustainable is the biggest driver of change in the Logistics sector, experts agreed at Real Asset Media’s Transport Logistic: The Future of European Logistics Real Estate, which took place online recently.

Jan Dietrich Hempel, CEO, GARBE Industrial Real Estate.

“The sector is changing and becoming ever more ESG-compliant, it is the dominant trend,” said Jan Dietrich Hempel, CEO, GARBE Industrial Real Estate. “The environmental component is the most important element, but carbon reduction is easy for new developments and more complex for older assets.”

More and more investors and lenders are looking at how assets are performing against CRREM (carbon risk real estate monitor) rules and basing their decisions accordingly.

“The fact is, most logistics assets are not performing well and they risk becoming stranded,” said Hempel. “But we need to contribute to the change that’s happening in the industry. Garbe is now building the largest ever all-wood logistics asset near Munich as an experiment.”

Construction of the 27,000 sq m flagship project, built entirely in timber, will start later this year in the port of Straubing in Lower Bavaria.

“ESG has to be a focus, because if you don’t tick all the boxes you get punished by the capital markets,” said Ingo Steves, managing partner, logistics, Swiss Life Asset Managers. “It’s also a way of future-proofing developments, and it helps with keeping a good relationship with municipalities, which means you get land, permits and the best occupiers. The market is becoming ever more selective, but that is a good thing.”

The land shortage issue

There is competition for land between logistics developers and also across asset classes in Europe, with some logistics hotspots already at full capacity.

“Multi-storey developments could be part of the solution,” said Raimund Paetzmann, independent advisor and keynote speaker, Voice of the Occupier. “They are becoming an inevitable necessity, given space constraints.”

Garbe’s “experiment”: Europe’s largest all-timber logistics asset being built in Lower Bavaria

In some cities like Cologne, Rotterdam, Amsterdam or Frankfurt, where space is at a premium and land prices are high, multi-storey logistics assets are becoming normal.

“It depends on the location whether it makes economic sense or not,” said René Buck, president and CEO, BCI Global. “It’s a trade-off between land costs and operating costs. In Asia distribution centres are all multi-storey, but they are 35% more expensive to run on average.”

Local building regulations can also make building multi-storey assets unfeasible.

“We will need a wide range of solutions for different demands and different locations,” said Hempel. “The sector will evolve, but the classic shed will continue to have a role.”

Competition for labour increasing

Another problem the logistics sector is facing is labour costs and workforce availability.

“There are huge disparities in labour costs in different countries and we are seeing competition between regions but also within markets and between companies”, said Inga Schwarz, head of research, BNP Paribas Real Estate Consult. “In the Netherlands, for example, logistics companies actively compete for staff.”

Labour is set to remain a challenge for a while, because there are no immediate solutions.

“Automation is not a solution to labour issues in the short term”, said Buck. “It involves high investment costs at a time of economic uncertainty. High financing costs are also hindering the acceleration of automation and robotisation.”

That could change if, as expected, the macroeconomic climate improves later this year and the ECB starts lowering interest rates.

“Unfortunately, in times of uncertainty managers prefer to postpone decision-making,” said Schwarz. “We hope that, as financing becomes cheaper, stability will return to the market and progress will be made.”