Global demand for logistics space to continue, with standout growth in e-commerce

74% of respondents to JLL’s (NYSE: JLL) new research, The Future of Global Logistics Real Estate, expect that demand for logistics space will grow over the next three years, even when compared with recent elevated levels. JLL’s survey, conducted in April 2021, consulted 720 logistics experts in 43 countries and territories on a range of issues that could affect future occupier demand in this highly dynamic sector. 

Digital retail evolution

The e-commerce sector, in particular, is where 71% of respondents anticipate demand will increase significantly. Strong growth for warehouse and distribution facilities is also forecasted from express and parcel delivery; third-party logistics; healthcare and life sciences; and construction and materials.

While retail was already in a digital shift, the pandemic has accelerated the change and pushed companies to change their decision-making process to focus on speediness, inventory stocking and new technology. Last year, e-commerce was the overall standout performer in the logistics sector, marking the highest year-on-year growth in take-up by any occupier group globally. It represented over 16% of 2020 total logistics and industrial leasing in the United States, 22% across Europe and as much as one-third in China. Survey respondents expect the e-commerce sector to drive demand in logistics but global growth across all warehousing sectors is predicted.

Adopting sustainable solutions 

The survey highlights that the sector must be faster to adopt sustainable solutions, as the pressure to decarbonize continues to mount. Currently, the sector’s focus is mainly on solutions that yield cost savings, like improving energy efficiency. In fact, 73% of respondents rated energy efficiency as the highest priority globally.  Europe is however ahead of the curve, and could be signaling the direction of travel, with the highest share of respondents stating that they observe some occupiers already taking ‘significant action’ (40%), with the Netherlands (69%) and France (55%) taking the global lead.

Jon Sleeman, Director of Research, Industrial and Logistics EMEA, JLL, said: “Sustainability is now a key decision factor for leading corporates and developers/investors, and we will see growing demand for sustainable logistics buildings. As a result, buildings that are not very sustainable from an environmental perspective, will lose their appeal in both occupier and investment markets. In addition, more companies are taking a broader approach to sustainability, with well-being and social value rising up the agenda.”

Addressing limited land supply

Survey respondents expressed concern that the limited supply of entitled land for logistics could constrain momentum in the sector, with firms already delaying decisions because of a lack of space. For example, 65% of respondents in Germany, China, the Netherlands and Australia deemed limited availability of entitled land as the biggest constraint on occupier demand. Interestingly, workforce shortages are considered to have a lower impact than other factors on constraining future demand.

The survey also identifies building size as a key consideration for occupiers because of its impact on throughput and storage capacities and flexibility. Globally, buildings between 10,000 and 50,000 square meters are expected to be the most in demand over the next three years, relative to current demand levels. Around 27% globally replied that occupier demand will be significantly higher (+20%). However, for EMEA a densely built-up environment and higher land costs make larger buildings economically less feasible for many developers and occupiers. According to our survey, 39% anticipate significantly more occupier demand for buildings of less than 5,000 square meters. Notably, 50% expect more demand for such facilities in Germany. The trend toward smaller centers correlates with increasing demand for urban logistics solutions.  Around 40% of EMEA respondents believe that this will be the typical size requirement for an urban logistics centre in the region. 

Transformative technology

Looking ahead to the sector’s future, technology will play a major role in transforming building design and supply chains, helping to resolve the concerns about land supply and sustainability solutions. Currently, only the larger occupiers and developers with global and regional networks have adopted advanced technologies and automation solutions, but 90% of global respondents agree or strongly agree that investing in automation and robotics is the clear option for improving supply chains in the future. E-commerce companies are expected to lead the way in the adoption of technology.