Logistics rents affordable but other costs force introspection

Although the interaction of supply and demand means that logistics rents have increased by as much as 20% in the last year, rents remain affordable because they are a relatively small component of overall supply chain costs according to Tritax Group head of asset management Petrina Austin.

She pointed out that 70 to 80% of logistics occupiers’ costs are attributable to labour and distribution. The approximately 40% spike in utility costs is a significant unforeseen cost, as is England’s rates  revaluation which in some areas has meant a 30% hike in this property tax.

“The upshot of all of these costs are that a number of our customers are looking at how they can benefit from better economies of scale,” Austin told Real Asset Insight’s Richard Betts. Consolidation from several smaller and older, less efficient units into a larger single platform can be the answer because of economies of scale in terms of management and the improved specification which provides better thermal insulation and can reduce operating costs.

“It gives them more flexibility for their businesses, thus is a long-term investment but does have knock-on financial benefits too,” she added.

Strategic asset management can help too, she said.

“Standard asset management just relies on lease events like rent reviews to generate a conversation with a customer. We actually like to partner our customers and bring more lateral thinking,” she said.

Austin said that ESG is embedded into everything Tritax does and the company does not shy away from assets which don’t meet the company’s ESG criteria.

“Most of our customers have been very public in their agenda and also set key milestones and deadlines for which item of their strategy they are to meet, especially carbon net zero time timetables.” She said there is a need to work collaboratively between landlord and tenant to be able to achieve those ideals and initiatives such as roof-mounted solar, EV charging points, wind turbines, rainwater harvesting may be included.

But also important are initiatives that help them attract and retain the right labour such as good cafeteria space, breakout space, internal gyms and outside seating areas. “We even have one occupier who has a barber on site which is very well received by their employees,” she said.

“We see that as linking in with the “S” of ESG,” she said.

Please click on the video above to watch the full interview or listen to the podcast below.