Unpacking the future of logistics:

How community, energy and technology are transforming the sector

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Introduction

Logistics is fundamental. It's so important to us individually, nationally and globally. An efficient logistics function is essential for improved productivity, something all our governments crave. A net zero, socially responsible supply chain is what our legislative frameworks demand. Logistics delivers all this in an increasingly disrupted world. Achieving this needs a future-focused approach where disruption is seen as opportunity.

Our research and our conversations with some of the best logistics businesses across Europe indicate that the key considerations for ensuring the long-term resilience of logistics are energy supply and security, the use of technology and data, and the growing influence of local communities. At Osborne Clarke we have already seen how these issues have shaped other sectors, allowing us to offer additional insights.

While we cannot have full clarity on what the future holds, thriving in tomorrow's world will require an understanding of the drivers of change. This report identifies those drivers and a direction of travel for the future. With this information, logistics can continue to build resilience and you can find success amidst the disruption.  

Headshot of Ian Wilkinson

Ian Wilkinson

International Head of The Built Environment

Methodology

From November 2022 to January 2023, Osborne Clarke, working alongside Meridian West and Brook Intelligence, undertook a mixed-method programme of research, consisting of desk research and in-depth interviews. The research focused on the future of logistics, with a particular focus on three trends:

Technology and data

Energy

Social impact

Eleven real estate and logistics industry experts were interviewed: a mix of developers, occupiers and researchers. Internal experts at Osborne Clarke were also interviewed, to provide comment on the findings of the desk research and in-depth interviews. This report is a summation of the research findings.

Acknowledgements

This report would not have been possible without the generous support of so many individuals. Most importantly, we would like to thank those market leaders who generously gave their time to this project. Secondly, we would like to acknowledge the guidance and support from the team at Meridian West. Finally, we would like to acknowledge the many experts from across Osborne Clarke who contributed their expertise and market insights.

Logistics unboxed

The global warehouse landscape is evolving. The business model that for decades revolved around ‘build, lease, sell and build again’ is being unboxed, re-shaped and re-imagined.

There is, as we explore in this report, a shift from a purely transactional relationship between owners and occupiers to one that is collaborative. With logistics facilities increasingly complex, it is no longer enough simply to build and then sell or lease a box to an occupier.

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Now that the relationship is collaborative, a partnership where developers, often backed by institutional funds, will work alongside the occupier to shape a building, creates relationships underpinned by technology solutions that are designed for the needs of today with a keen eye for tomorrow.

It is a technology-enabled, energy-efficient and energy-secure relationship and one where social impact is a priority. It is shaping what happens both outside and inside the box and a building’s performance. Offering automation or transportation as-a-service will become increasingly commonplace.

“Logistics has metamorphosed over the past decade,” says Natali Cooper, Head of Portfolio and Asset Management and Head of ESG at GLP Europe. “The logistics sector is quickly adopting new technologies to measure a range of environmental and social data to maximise efficiency and operations.”

We are, she says, in a “transitional phase” that will “future-proof” logistics.

“The logistics market has matured in a way that is much longer term in its thinking,” adds Kevin Mofid, Head of EMEA Industrial and Logistics Research at Savills. “It is in all our interests to make sure properties are fit for purpose not just now but in the future.”

Driving change

The drivers behind this evolution are varied, reflecting what Luke Buchholtz, Head of Construction UKI and EMEA, DHL describes as a “complex eco-system”.

Online retailing continues to accelerate at pace, driven in no small part by the Covid pandemic. That demand is shaping the size and scale of the sector in ways that a decade ago were almost unimaginable.

A recent British Property Federation report, Levelling Up - The Logic of Logistics, points to an industry that employs 3.8 million people generating £232 billion for the UK economy. It is a picture echoed across Europe, where e-commerce sales jumped 150% between 2015 and 2020. In 2021, European logistics investment volume was up 48%, reaching €62 billion, according to the 2022 CBRE report European Modern Logistics: primed for sustained growth.

Yet demand is just one factor.

Net zero targets set by governments around the world and agreed in the Paris Climate Accords, alongside supply chain sustainability goals, are shaping the whole-life efficiency of buildings. Corporate ESG (Environmental, Social, Governance) agendas also demand environmentally responsible buildings. How facilities are built, their impact on communities and how they are used is under much greater scrutiny.

Energy security and efficiency are defining factors and will remain so for many years to come. Limited access to energy grids and soaring costs means developers and occupiers look to alternative power sources and energy independence. Increased automation, just-in-time delivery and a move towards electrified vehicle fleets will see energy pressures become more acute. It is powering exciting innovation.

Photovoltaic (PV) panels are now seen as standard with payback in less than four years. Lightweight PV wrapping will give older buildings a new lease of life. Hydrogen, geothermal and infrared heating are increasingly commonplace. Different approaches are being tested around the world and closely watched.

Political instability and access to labour add further complexities. Occupiers across Europe are looking to nearshore logistics operations with a notable cooling of enthusiasm for buildings in authoritarian regimes.

Logistics Plus

It is no longer possible to separate investors, funders, owners, developers and occupiers from the communities in which they operate. A true partnership based on openness, understanding and collaboration is emerging, where commitments that will last decades are made.

Occupiers have long wanted adaptability in their buildings. But what does adaptability now mean? Where once that might have meant flexibility to accommodate warehouse and office functions, it now also means the ability to incorporate automation, changing transportation methods and facilities for community interaction.

Placemaking, once the preserve of master developers and urban regeneration schemes, is beginning to inform and underpin that flexibility in development.

This new era of evolution and innovation will open new revenue streams for developers and the emergence of what we call Logistics Plus...

Logistics Plus… Automation

Logistics Plus… Mobility

Logistics Plus… Data

Logistics Plus… Energy

Logistics Plus… Community

Logistics tomorrow will look very different from today, just as today looks very different from a decade ago. A decade of further and deeper disruption is ahead.

The evolving building

The “real magic happens in the building,” says Kevin Mofid, Head of EMEA Industrial and Logistics Research at Savills.

Logistics is often characterised as little more than giant sheds, serviced by near continuous truck movements. The complexity of the sector is hidden by those four walls and a roof.

The reality is, of course, far more complex. It is a dynamic and rapidly changing ecosystem with buildings becoming bigger and smarter, accommodating greater levels of automation and with energy security and efficiency front of mind. Development is not always welcome, but that too is changing with placemaking practices creating wider employment opportunities and better neighbour relations.

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Size and function

In many parts of Europe, land resources are scarce and costly. Access to labour often faces the same challenge. Pressure to intensify sites is high, particularly when located close to densely populated cities. Together with growing demand for increased automation and infrastructure for electric vehicles, logistics developers are responding, creating larger and taller buildings, adopting placemaking principles that push the boundaries of schemes delivered today just as they did a decade ago.

“We have to anticipate future trends operationally and future-proof assets from a design and asset management perspective,” explains Bruce Topley, the UK Managing Director at GLP. “Integral to this are ESG initiatives for the long term.”

Demand from occupiers will see developers working to headquarter specifications, delivering a building that boasts a “wow factor” with multi-functional spaces.

These buildings increasingly house a more varied workforce that includes staff in both warehouse and office roles, who demand access to attractive outside spaces. “We have a job in all of that, making sure buildings are warm, bright places to work with a nice external environment that people can enjoy,” says Nicki Whittaker, Senior Director Customers and Markets at St Modwen.

When investing €100m or more, occupiers want the assurance they can expand and grow safely without having to move in a year or two’s time. From a functional perspective, that means mezzanines, wider stairwells and space for future automation. From an amenity perspective, occupiers want full height glazing and more natural light.

The changing function of logistics assets is also having a dramatic impact on the design of the wider environment. Attractive open spaces need to be balanced against the need to accommodate the electrification of vehicle fleets and the significant charging infrastructure required, ensuring that it does not interfere with vehicle movement patterns.

More power

Energy security is a high priority for all logistics developers, as gaining access to energy grids is slow and expensive. A potent mix of increasing demand, soaring energy costs and geopolitical instability has created a “perfect storm”. It is, says one owner, “right at the top of things that keep us awake at night”.

Onsite energy generation is now a must for new buildings and increasingly a retrofit to older stock.

“A lack of grid supply is a very real issue,” says Richard Bains, Managing Director at Chancerygate. The [UK] National Grid does not provide enough energy to facilitate new development and, as one developer explained, “if you don’t know where your power is coming from, well that’s a massive risk”. It is a picture familiar across continental Europe.

“It directly affects the bottom line of occupiers and developers,” says one developer, adding that “we would pull out of a transaction over power risk”.

Rooftop solar is the go-to answer in most instances, with investors pointing to energy bill savings of between €100,000 and €150,000 a year for occupiers. It is increasingly viewed as part of the base specification on speculative developments over 6,500 sq m (70,000 sq ft), with occupiers often pushing to include it on smaller buildings.

“It’s a win for the landlord and the tenant, with more control over energy price fluctuations reducing operational costs and improving control of the source of energy. It is the biggest opportunity we see for our portfolio,” says Marco Fok, Head of Portfolio Management at Mileway.

Yet for developers operating a build and sell model, solar continues to raise challenges. “Solar payback only comes if you hold a building”, says one developer.

A potent mix of increasing demand, soaring energy costs and geopolitical instability has created a “perfect storm”. It is, says one owner, “right at the top of things that keep us awake at night”.

While there is a desire for logistics assets to achieve the ultimate in energy security and be ‘off-grid’ – and some may even achieve that – a grid connection is always required just in case. A hybrid approach is the more common reality, with renewable energy providing 50% or more of a building’s energy demand. As we have seen in other sectors, district power and heating schemes will emerge.

While developers are clear they are not currently energy providers, it does raise an interesting proposition. “If developers have sites of sufficient scale… then we can think about on-site power generation…. can landlords then sell occupiers the power?” asks Kevin Mofid, Head of EMEA Industrial and Logistics Research at Savills. How does that sit with the wider real estate and utilities industry?” He adds, “it starts to open up new business opportunities for the developers of large-scale sites.”

The green premium

The move to decarbonise logistics facilities is seen in development, operational use and end-of-life decommissioning. It is, in many instances, driven by legislation, but also by ESG requirements of investors, occupiers and developers “wanting to do the right thing”.

“It is about delivering buildings that are minimising the use of scarce resources", says one developer, with another adding “doing good is good”.

The speed to decarbonise understandably varies from country to country, with some making steeper commitments than others. It is leaving developers and their investors at risk of being left with “stranded buildings” – an asset that might be held for 20 years but which is unlikely to meet ESG requirements in a decade or so.

It is creating what developers call a “green premium”.

Investors “want the sexiest buildings possible, that are top of the range in terms of technical criteria,” says one occupier. “There will be a price disparity between buildings that are compliant, that are leading edge and those that are not.”

Any potential occupier with external investors will find it difficult to take a building that does not meet modern sustainability needs.

The desire for building efficiency is changing the way they are cooled and heated. In cold climates, buildings are airtight and insulated – “you don’t want energy seeping out the door,” says Nigel Godfrey, Head of UK Real Estate Solutions at DHL. Smart lighting and zonal heating, heating areas where people work, are commonplace. “Boxes [parcels] don’t complain when it’s cold.”

Yet it remains a varied picture, with northern European countries leading the charge and, at least in terms of the regulatory environment, with the USA “right at the back”.

Where efficiencies are not legislated, change is often driven by innovative owners and occupier demand. Alternative heating pilots in Poland by one developer will, if successful, be extended across Europe, with another owner’s first net zero building acting as a template for buildings across its portfolio.

“Buildings are not made equal, but without data you cannot convey that.”

Natali Cooper
Head of Portfolio and Asset Management and Head of ESG at GLP Europe

Tech-enabled buildings

Just as the building design is evolving, so too is the technology that manages those buildings. AI-powered warehouse management systems and building environmental analytics can show both owners and occupiers what part of the warehouse is being used, whether it is over- or under-utilised, energy and water consumption, down to individual door or dock use.

These systems are, says Polly Troughton, Managing Director at St Modwen, the “heart and lungs of the building”.

The information generated informs decisions on operational and cost efficiency, providing essential insights for ESG reporting, transparency for investors, and enabling developers to truly understand how the building is used and how it performs.

“Buildings are not made equal, but without data you cannot convey that,” says Natali Cooper, Head of Portfolio and Asset Management and Head of ESG at GLP Europe.

While it may take many years to collect data at sufficient levels before meaningful decisions can be made, technology will facilitate full life cycle assessments of a building to reduce operational carbon, operating costs and increase efficiency. Data, alongside other drivers which we explore in the next section of this report, will shape the buildings of tomorrow.

Osborne Clarke Commentary

Energy innovation – benefits could escalate if regulators catch up

The regulatory landscape

Demand for energy security, cost certainty and carbon emission reduction is driving energy innovation in the logistics sector but the regulatory and tax frameworks in the UK and Europe are failing to keep up. Governments need to take a holistic view of energy generation, supply, consumption and, critically, infrastructure. Existing regulations are not suitable for the variety of generation models that we see today including, for example, decentralised on-site energy generation.

This means that logistics owners who may intentionally or inadvertently become power generators need to be regulation savvy. They will need to choose the right business model. They will need to consider what they are trying to achieve (such as reduced costs, reduced emissions, improved energy security) and what spaces are being developed (for example, rooftops or yards). Possible business models might include, for example when opting for rooftop solar: that they lease the roof to a third party to develop, or develop and lease, or develop and operate the infrastructure themselves. Further considerations include whether or not the operator uses that energy themselves, sells it to occupiers, sells it to a third party (for example, an EV charging company), or amalgamates the energy generated across a portfolio and then sells that to an energy provider. Whichever structure is adopted there will be regulatory and tax implications.

Continued innovation in energy options and battery storage

Rooftop solar is commonplace and, when provided through a private wire, is the greenest and most easily installed power available. It is a success story for a self-generation strategy.

However, hydrogen is sparking excitement, particularly because it is perfectly suited to the logistics sector’s transport requirements. While still in trial phase, a combination of the production of green hydrogen plus renewable energy from large scale solar plus storage facilities is looking promising.

Innovation can only move at the pace of regulators, which is slow. Only recently has the EU provided draft regulations that define what green hydrogen is. Frustratingly from a hydrogen business perspective, the regulations aim to ensure that existing renewable energy facilities cannot be used for hydrogen fuel production.

Battery storage innovation continues apace, providing opportunities to release intermittent power to warehouses and also to provide secondary income streams by providing grid frequency response services and by participating in wholesale market trading. In the UK, battery storage is generally excluded from the new electricity generator levy, although receiving top ups from renewable sources could trigger the levy. Owners again need to be regulation savvy.

Energy companies

With building owners generating ever-increasing amounts of power, should they consider becoming an energy company in their own right? Today's regulatory landscape makes structuring energy supply arrangements complicated and most site owners will not find this move worthwhile.

However, the direction of travel is clear. Renewable energy and green hydrogen is being produced by an ever increasing number of new energy industry participants which means it is only a matter of time before the regulatory landscape must catch up, creating the opportunity for significant new revenue streams for logistics owners.

The evolving operating model

A new business model is evolving, creating opportunities for owners and investors to generate alternative revenue streams from their logistics facilities.

A relationship that was once transactional is changing into one that is collaborative – a partnership where owners and occupiers work together to shape a future-proofed building with future-proofed functionality, starting a relationship that will last for a decade or more.

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Increasingly, it is no longer enough to “just be a developer” or “just an investor” but more developer, investor, asset manager and fund manager all rolled into one.

It is not uncommon to see developers and investors with sophisticated customer insight teams talking to occupiers, their employees and even their end customers to “get a line of sight of what a building’s requirements look like over time”.

“It’s a true partnership between us and the occupier,” explains Abhy Maharaj, Chief Commercial Officer at Newcold. “It’s a long-term commitment where we put the capital in, provide leading automation know-how, high productivity and sustainable solutions for our customers.”

Build-to-suit is becoming ever more complex, with developers working alongside occupiers to deliver truly bespoke buildings to accommodate automation and robotics.

We can, says St Modwen’s Managing Director, Polly Troughton, deliver “whatever level of additional fit-out, enabling or occupational interior, or technology support they (occupiers) need to deliver their service or business”.

The depth and complexity of these relationships is creating the possibility of new revenue streams that are attracting considerable interest from external investors. As seen in the build-to-rent and hospitality sectors, institutional investors will look to all stages of the supply chain to drive efficiencies, customer loyalty and ultimately revenues. GLP's acquisition of Gazeley and Blackstone's acquisition of St Modwen are only the start of an accelerating trend.

It is, says Natali Cooper, Head of Portfolio and Asset Management and Head of ESG at GLP Europe “a segment of real estate which is extremely attractive”.

Automation-as-a-service

“Historically, there has been very little innovation in the logistics space,” explains Newcold’s Maharaj, “and what has happened hasn’t been at scale”. But that is changing and no more so than “inside the box”. There is a clear move towards greater automation, robotics and artificial intelligence (AI) to improve supply chains and the necessary kit is increasingly available on the basis of “technology and automation as-a-service”.

Newcold, for example, codes, designs and builds its own automation technology. “We have our own proprietary design principles, software coding business, materials handling systems and even manage the build ourselves,” explains Maharaj. “We manage the entire process from the first cup of coffee to the first pallet in.”

They are not alone. DHL has a team that designs automation, working closely with occupiers to make sure “it works for the box”. And it is inevitable that others will follow this lead.

What will the logistics market of the future look like? The traditional concerns surrounding access to land, permission to build and the actual build costs will undoubtedly shape the market. But to be a market-leading logistics developer, there is a need for expertise across AI, data, automation and robotics, energy generation and storage. The direction of travel is clear and the rate of evolution is accelerating.

“To be a market-leading logistics developer, there is a need for expertise across AI, data, automation and robotics, energy generation and storage.

Given the cost of a sophisticated fit out, which is often greater than the cost of construction of the actual building, it is perhaps no surprise that requirements around the robotics and automation are the starting point for building design. In many cases there are fully build-to-suit solutions and so it's the automation that will also shape tomorrow’s logistics assets both in the size of buildings and the scale of occupiers’ portfolios. It will offer competitive and financial advantages for both parties.

Automation, explains one developer, offers occupiers with a large building footprint the opportunity to consolidate “20 warehouses into two”, with significant cost savings and reduced carbon emissions.

Developer-led automation-as-a-service demands confidence in the relationship with occupiers. To be viable, it needs developers to really understand the technology required and occupiers who demand sophisticated automation solutions. This is not for everyone and in some segments of the market owners will be wary. “You do not want to be the guinea pig that writes that cheque,” states one developer.

Fully automated warehouses are, at present, still only scratching the surface of what is possible. While there will be a desire to standardise the automation platforms used, there is unlikely to be a one-size-fits-all approach. Different geographies, markets and products will require different solutions. We are likely to see occupiers wanting to either provide their own automation systems, or have these provided on an as-a-service basis or perhaps a hybrid of these options.

Mobility-as-a-service

Mobility-as-a-service (MaaS), or truck-as-a-service, will increasingly be available. It gives occupiers the flexibility to “dial up or down” the vehicles they need to meet seasonal peaks and/or to decarbonise their fleets. The ability, however, to provide sufficient electric vehicles (EVs) and hydrogen-powered vehicles is hampered by manufacturing availability, leading some occupiers to complete their own conversions of diesel vehicles.

The potential here is for additional revenue streams for owners and early discussions with manufacturers are ongoing. The demand is clearly there and we should not be surprised to see radical change quickly emerge.

The move to decarbonised fleets will require significant investment in infrastructure, not just at warehouse sites but also ports and last-mile distribution hubs. “We are going to need investment in that infrastructure,” says Kevin Mofid, Head of EMEA Industrial and Logistics Research at Savills. Questions remain over where that capital intensive investment will come from, but there are clear rewards for those who decide to move in this space.

“Intellectual property rights in data are not straightforward, meaning that use of contracts is crucial to weave a web of protection around its data assets.”

Data as an asset class

The data generated from logistics businesses is increasing exponentially, creating new opportunities and challenges. The data exhaust – the raw data created from warehouse management systems, automation, trackers, mobility and onsite energy generation – has potential benefit and value.

Yet non-occupiers can have a complicated relationship with the data generated. While the data is widely used to “optimise networks”, some occupiers are sensitive about the amount of data being harvested from their operations, how that data might be used and the potential for a negative impact on them. This is why some owners are opting to keep the harvesting and analysis of data to a minimum, preferring instead to prioritise cyber security and data protection.

There is also an ambivalence towards the potential value of the data buildings generate and how it might be used or shared. Some developers and owners are choosing to share data with customers and others not, leaving it up to the “customer to choose whether they act on the data generated or not”.

As the business model of owners is evolving, their relationship with data is changing. Automation and mobility-as-a-service, smart warehousing, energy generation and collaboration generates enormous amounts of data that has value to both developers and their investors and, of course, occupiers. It is an emerging asset class in its own right.

Osborne Clarke Commentary

Data – understanding and protecting its value

Sophisticated warehouse systems can generate vast amounts of data, capturing staff movements, heating and power consumption, intelligent lighting, water use and traffic movements. As owners’ business models evolve, with an increasing focus on technology-enabled aspects such as warehouse automation, energy-efficiency and mobility-as-a-service, data is increasingly important.

Data issues can be complex, especially where data is managed and used by various management chain players (fund managers, property managers, facilities managers). Who owns it? Who can use it and for what? Is it secure? These questions ought to be front of mind for logistics owners and occupiers, who need to understand data, wherever it sits in their management chains.  The question is: which of them will benefit?

At one end of the spectrum, owners may look to directly monetise data, by packaging and selling access to their aggregated data. Less eye-catching, but potentially of wider importance, is the internal value of their data to property owners and occupiers. For example, data about vehicle movements can inform decisions about where to site distribution centres or electricity infrastructure; data about which parts of buildings are accessed at which times can optimise the design of future building layouts; information from heating and lighting systems allows prediction of energy demand and better design of building control systems.

Rapid improvements in data analytics, enhanced by machine-learning and AI systems, will transform the quality of insights that can be gleaned from a building's data, but for these systems to have maximum effect, they should be trained on high quality data: accurate, up-to-date, well-structured and rich in contextual detail.

Where both owners and occupiers are aware of the potential value in all this data, each may look to protect and restrict it. Building owners need to make sure that tenancy and management agreement terms ensure that they hold this data, or at least have wide rights of access and use, alongside tenants. Otherwise, they may find that others may have access to data unexpectedly, or worse, that owners themselves don't have access to all the data they expect, or can't use it for their own purposes. Intellectual property rights in data are not straightforward, meaning that use of contracts is crucial to weave a web of protection around its data assets.

Increased use of data is not without risks: surveillance of warehouse staff has attracted widespread criticism and the tracking of vehicle movements may not exactly thrill those in communities neighbouring logistics parks. Logistics owners need to be on top of those risks, particularly as they look to build more positive and collaborative relationships with the communities in which they operate.

In addition, regulators around the world are increasingly alive to the challenges data collection presents, with the EU leading the way. The EU's Data Governance Act and draft Data Act will have far-reaching implications for the use of data, including some of that from buildings. And of course, some buildings data will be personal data subject to data privacy laws, such as the General Data Protection Regulation in the UK and EU.

The evolving perception of logistics

Logistics parks with their large faceless buildings and high traffic movements have not always been desirable neighbours. Regardless of whether they are in city centres or out of town, they are often accused of being dirty, noisy, industrial spaces that attract a low-skilled and poorly paid workforce.

It is a catch-22 that while consumers want quick and cheap access to goods, they do not want the enabling infrastructure close to where they live or work.

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This potential for conflict with neighbours has traditionally hampered developers’ ability to get building permit / zoning approval for industrial use. Recognising this constraint, developers across the industry are beginning to work together to proactively change perceptions. They are increasingly community-minded, adopting placemaking approaches more commonly seen in residential and mixed-use development schemes. Co-location logistics is finally finding acceptance in the community.

Just as owners work in partnership with occupiers to deliver the spaces they need, so too are they collaborating with local communities. There is good reason for them to do so. Evolving business models see investors owning and managing buildings for longer periods, often decades and wanting “positive relationships not just with the occupiers of their sites, but with the communities surrounding those buildings”.

With logistics facilities often now housing multiple functions, the make-up of co-location logistics parks across Europe is changing. Warehouse shift patterns are very different from office-based roles, but both sets of employees want easy and quick access to attractive outside spaces and a pleasant working environment. Often these outside spaces are accessible to the public and it is no longer the case that a few picnic tables on a scrappy piece of grass are enough to generate good-will with local communities.

“As a sector, we have not been as quick to placemaking as retail or office developers,” explains Nicki Whittaker, Senior Director Customers and Markets at St Modwen. “But a great place to work is very high on the agenda of occupiers. We have a job in making sure that buildings are bright places to work with a nice external environment that people can enjoy.”

“It is a catch-22 that while consumers want quick and cheap access to goods, they do not want the enabling infrastructure close to where they live or work.”

Building permits and zoning requirements often necessitate developers entering into formal engagement with local communities. That requirement sits alongside the push from investors, owners and occupiers who have social impact high on their agenda.

The ESG agenda “is at the forefront of minds,” for owners, occupier and investors says Richard Bains, Managing Director at Chancerygate. “Investment yields will be lower for assets with strong sustainability credentials and that will justify the initial investment.”

Increasingly, the shift to a more pleasant working environment is being driven as much by owners and developers wanting to do the right thing as it is by regulation. From day one, developers are actively approaching the community to ask what it needs or wants.

There is, says Bains, a genuine desire by developers to “do better… and that will get stronger”. Logistics developers and owners want to be good citizens and good neighbours.

Support goes far beyond passive contributions to local charities or community groups. It extends to creating community assets, such as football pitches and sports facilities, educational outreach programmes, formal training and development programmes during construction phases, through to community wetlands and nature trails.

Owners should look to make a long-lasting impact and put in place arrangements that are sustained long after practical completion. Owners will need to avoid “white elephant” projects, looking to those that are self-sustaining or those they can continue to support over many years.

Logistics needs to respect and be responsive to those communities and must contribute positively.

Industry champions

The contribution logistics makes to global economies is staggering. Across Europe, more than 23 million sqm of new space was under construction at the end of Q2 2022, up 31% year-on-year, according to a recent European Logistics market update from JLL. The sector is however “not very good at recording and communicating the benefits development brings to local and national economies”.

“The sector has not put its head above the parapet and shouted about what it does and can do for the local and national economy,” says Whittaker. “Lots of good stuff happens, through the entire life cycle of a building and we need to do more to promote the positive social, economic and environmental benefits our sector brings.”

The industry needs to be better at planning, measuring and managing its social impact. This will necessitate going beyond traditional metrics of square metre rents and values achieved, to also talking about jobs created and specific benefits delivered. Forward looking participants are already changing the language adopted and others will follow.

“I often say that warehouses are a little like Charlie and the Chocolate Factory… most people have no idea about the wonderful things that happen inside the building,” adds Whittaker. “People only see the façade and don’t really understand the entire ecosystem and its benefit. That is changing as we become more vocal and start to lift the lid on what really happens inside the buildings.”

“The sector has not put its head above the parapet and shouted about what it does and can do for the local and national economy.”

Nicki Whittaker
Senior Director Customers and Markets at St Modwen

Developers are often working alongside customers and stakeholders to “lift the lid” on logistics. GLP, for example, at its UK Magna Park Lutterworth site and working in collaboration with Wincanton, North Warwickshire & South Leicestershire College and Harborough District Council, has created the Centre of Logistics, Education and Research to educate and upskill people to provide a longer and more fulfilling career. It is supported by a £2m fund for local communities.

Measuring social value is fundamental if the perception of logistics is to change. It has to be collaborative, involving local authorities, communities, owners, developers and occupiers, measuring many metrics, including improvements to the natural environment, community involvement and economic contribution.

And diversity, says Marco Fok, Head of Portfolio Management at Mileway, starts at home. “There has to be a diverse and vibrant culture in our businesses.” Abhy Maharaj, Chief Commercial Officer at Newcold agrees: “Logistics is not about trucks and warehouses, it’s about people that make it happen.”

Osborne Clarke Commentary

Social impact – a push for better benefit

A growing logistics sector in an instant delivery world requires more and bigger assets, often in constrained geographies. Logistics operations will need to more closely and more comfortably co-exist with the communities in which they are sited.

To do that successfully requires the logistics sector to think more about its impact on those communities. Logistics needs to respect and be responsive to those communities and must contribute positively. We have spoken to some sector exemplars in compiling this report, but to drive further improvement, logistics might look to other sectors that are already creating high quality communities, like regeneration.

Having a positive social impact brings the "S" in an ESG policy to life and usefully intertwines with net zero commitments to bring collateral benefits, for example, hybrid electric vehicles are less polluting, quieter and less disruptive to nearby homes.

Across The Built Environment team at Osborne Clarke we have seen that positive social impact also delivers tangible business advantages including:

  • Better access to responsible capital, plus the cheaper debt supporting it.
  • Better alignment to the targets of those authorities who permit development, for example: supporting improvements in skilled jobs, education, equality, green energy and sustainable transport. This often accelerates building permits.
  • Better alignment to local communities, promoting positive adoption rather than costly objection.
  • Reputational benefits which help raise capital, attract the best occupiers at the best rents and the very best employees.

Placemaking is key to regeneration expert Argent, whose commitment to community starts before development and continues throughout the life cycle of their schemes. At their Kings Cross site in London, Argent partnered with charity, Global Generation, to create movable vegetable plots in building skips, which were moved around as the scheme developed, finally to be located as a community asset within the completed scheme. This delivered community well-being, education and skills benefits, as well as goodwill and positive engagement from the start. This could be replicated in logistics, alongside other initiatives such as community sculpture trails, walk and cycle routes within the green fringes of a development.

Similarly, at Meridian Water (a major regeneration scheme in the UK), Countryside Partnerships has established a training hub to ensure that local people can learn the skills required to fill the employment opportunities created by the project. This, in addition to other community benefits such as the sharing of high speed broadband, the installation of off-site community EV charging points, the use of excess on-site renewables to power community facilities, and sponsorship that supports local education programmes, adds up to significant gains for the local community. Replicating these types of community benefits on logistics developments would definitely boost the reputation of logistics facilities as good neighbours.

This approach, which we are also seeing across Europe, means that the lived experience more often matches the written 'policies for good' which many logistics businesses espouse. Legally this is vital because the compliance environment is evolving beyond tick-box policy. Look at the anti-green washing statements of the Competition and Markets Authority in the UK, the European supply chain, modern slavery and forced labour legislation and the golden thread concept in the UK's Building Safety Act. There is a clear indication that in the near future we will have to demonstrate not just that we have a policy, but that our lived experience matches or exceeds that policy.

The future-proofed logistics asset

What will the logistics assets of tomorrow look like? There will be a complex ecosystem where owners and operators work hand in hand to address the challenges that exist today and that are likely to continue to dominate the decade ahead. Energy security, mobility, automation, technology and data will open new revenue streams and operating models for owners, with community often at the front of their minds.

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Tomorrow’s energy

Energy will remain front and centre for the sector and will have a marked impact on tomorrow’s logistics assets. Increased use of automation and the rise of electric and alternative fuel vehicles will demand more power. Energy self-sufficiency will be the gold standard and onsite generation a must, with reduced dependency on fossil fuels and geopolitical instability accelerating that ambition. Logistics owners will be significant energy generators.

While a back-up grid supply will remain desirable, the aim will always be towards a reduced dependence on centralised power. “Energy self-sufficiency is the goal,” says one developer. Abhy Maharaj, Chief Commercial Officer at Newcold agrees: “New sites will be designed in a way” [so] “that they are off the grid.”

For micro logistics facilities, solar and battery storage as part of the base build will be a key part of the mix. New solar technologies will see older buildings wrapped in lightweight and flexible panels – think clingfilm – extending their lifespan. At the macro level, district power and heating will be commonplace.

Data will fundamentally change the relationship between developer, owner and occupier, leading to a “true partnership [with] the customer”

Abhy Maharaj
Chief Commercial Officer at Newcold

Tomorrow’s technology

Occupiers will seek developers that can offer turnkey solutions. Technology platforms will be considered standard in base builds, together with the flexibility to meet the demand for new and greater levels of automation.

Robotics and mobility-as-a-service are already a standard offering for some developers but this will become commonplace, alongside the ability for the occupier to dial up or down to meet demand peaks. “Automation, automation, automation” will define the next decade.

“We will see more efficiency gains in logistics through more efficient sorting, just-in-time delivery that will ultimately reduce the footprint of logistics,” says a developer. We expect to see wider spread use of AI to accelerate these improvements.

Coders, data scientists and software engineers will be the logistics jobs of tomorrow. It is these roles that will interrogate “the huge amounts of data” to generate the insights around logistics operations. And it is these insights that will shape the sector for decades to come. As a first step however, many owners of logistics assets will need to become much more data conscious.

Data will fundamentally change the relationship between developer, owner and occupier, leading to a “true partnership [with] the customer,” says Maharaj. “It’s a long-term commitment where we put the capital in, provide leading automation know-how, high productivity and sustainable solutions for our customers."

Occupiers are also looking for more technology and innovation in transport. Decarbonising transportation is paramount and while the demand is there, technological advances are slow to materialise. That will change. “I am pretty sure some interesting solutions will come… it could be autonomous transport vehicles, it could be a whole bunch of other things, but first get the basics right and focus on great customer service,” says Maharaj.

Just as the past 10 years have dramatically re-shaped the logistics landscape, the next decade will be defined by greater levels of technology-driven disruption. As-a-service models of automation and mobility will create new business lines and occupier partnerships. There is, developers agree, a lot more to do.

Tomorrow’s community

Quiet warehouses with fully autonomous electric fleets will be commonplace within the next two decades, with warehousing and residential communities making happy neighbours. Placemaking principles will be prevalent in development and will be the bedrock on which relationships with communities are built.

That change will be underpinned by a new awareness of the benefits that logistics brings to communities and its contributions to the wider economy. “Being passive is not an option,” says Nicki Whittaker, Senior Director Customers and Markets at St Modwen. “As an industry we have to come together to share best practice and champion the needs of our sector and our customers.”

And while technology will reshape the industry, it will remain fundamentally a “people business”. Logistics will develop a strong voice, able to convincingly “tell its story”, encouraging a workforce into “wanting to spend their next 10 years in the sector”.

“We will need to recruit differently, look outside our industry and bring different insights,” explains one developer.

The industry needs governments to acknowledge the fundamental role an efficient logistics function plays in creating improvements in productivity. And then give the sector the vital support it needs around power supply, zoning and building permits for development and integration with the rest of the built environment.

“New build in 2035 will be a very different beast.”

Logistics Plus

We believe the next decade will be the most disruptive to the global logistics industry, changing its identity and role in society. We call it Logistics Plus...

“Being passive is not an option. As an industry we have to come together to share best practice and champion the needs of our sector and our customers.”

Abhy Maharaj
Chief Commercial Officer at Newcold

Logistics Plus… Automation

Automation and robotics as-a-service will be increasingly commonplace, with owners collaborating with occupiers to design and create bespoke automation and AI solutions.

Logistics Plus… Mobility

Decarbonising transportation is paramount. The demand is there, but the technological advances from truck manufacturers are slow. Owners are beginning to take the lead investing in and providing mobility-as-a-service.

Logistics Plus… Data

A new asset class is emerging from the data created from smart buildings, automation, mobility and energy generation.

Logistics Plus… Energy

Energy security and efficiency are seeing developers become significant energy generators and providers.

Logistics Plus… Community

Where owners, occupiers and communities come together to deliver high quality environments, jobs and infrastructure.

Osborne Clarke Commentary

A more tech-enabled future – wider benefits

While the vast majority of today's logistics facilities will still be in use in 2035, the new build in 2035 will be a very different beast. Just as the industry has transformed since 2010, so it will have evolved completely again by 2035.

Technology will play a significant role in delivering the speed, efficiency and automation required in the movement of products from large regional warehouses to the urban distribution centres while also enabling faster picking, loading and delivery of these products.

The facility of the future will have:
  • Internet of Things ('IoT') systems to collect and share vast amounts of data. IoT will be fundamental to the improved visibility and connectedness of full supply chains.
  • AI and data analytics will be used to identify problems, predict maintenance need, optimise loading or unloading patterns and enhance the predictability of supply requirements.
  • Metaverse applications such as virtual reality visualisations of the planned building and internal layout options. Augmented reality technology will offer a digital overlay of data and analytics to those on the warehouse floor, or for managers overlooking activity, allowing them to make faster and better informed decisions.
  • Digital twins, offering a virtual mirror of the building and what happens inside it.

Digital twins will be the building blocks of the industrial metaverse, a powerful tool in the design and construction phase. The twin will be the default, used not only to model the physical shape of the building, but to optimise energy consumption and the movement of goods and staff. Both building design enhancements and fit out changes will be improved as precise placement of robotic systems will be perfected in digital form.

While early investigations are taking place into the boost available from quantum processing, gateway technologies appear to be well suited to optimising tasks that have numerous variables. A warehouse pick is a good example with the need to identify the 'fastest' and 'most efficient' routes but also with consideration given to, for example, cold storage or delicate items.

Whether classical or quantum, complex processing tasks will take place in the cloud, not on site. Fast, secure and resilient connectivity is therefore fundamental. Developers will need to embrace cutting edge digital infrastructure as an integral part of the base build. The availability of plug and play superfast cabling will be a draw for occupiers.

There will also be greater environmental and social integration

Accessing powerful processing that is off-site in the cloud will also reduce the energy consumption of the building itself – a positive if the building is to be capable of operation entirely off-grid. And the more sophisticated use of data will further optimise the use of energy.

The use of advanced technology and robotics will require upskilling of the workforce, generating a positive social impact through developing staff and equipping them for a tech-enabled future.

Logistics facilities will be both environmentally and socially aware, constructed to net zero without utilising off-sets, attracting green financing and social impact investors to the market.

Acknowledgements

Acknowledgements

This report would not be possible without the support of a wide group of people from across the logistics industry landscape and our colleagues at Osborne Clarke.

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An enormous thank you to those we interviewed

We would like to thank these individuals for having generously shared their thoughts and experiences on this topic.

Headshot of Richard Bains
Richard Bains
Managing Director at Chancerygate
Headshot of Luke Buchholtz
Luke Buchholtz
Head of Construction UKI and EMEA, DHL
Headshot of Natali Cooper
Natali Cooper
Head of Portfolio and Asset Management and Head of ESG at GLP Europe
Headshot of Rory Finnan
Rory Finnan
Head of Asset Management at Chancerygate
Headshot of Marco Fok
Marco Fok
Head of Portfolio Management at Mileway
Headshot of Nigel Godfrey
Nigel Godfrey
Head of UK Real Estate Solutions at DHL
Headshot of Abhy Maharaj
Abhy Maharaj
Chief Commercial Officer at Newcold
Headshot of Kevin Mofid
Kevin Mofid
Head of EMEA Industrial and Logistics Research at Savills
Headshot of Bruce Topley
Bruce Topley
UK Managing Director at GLP
Headshot of Polly Troughton
Polly Troughton
Managing Director at St Modwen
Headshot of Nicki Whittaker
Nicki Whittaker
Senior Director Customers and Markets at St Modwen
Headshot of Richard Bains
Richard Bains
Managing Director at Chancerygate
Headshot of Luke Buchholtz
Luke Buchholtz
Head of Construction UKI and EMEA, DHL
Headshot of Natali Cooper
Natali Cooper
Head of Portfolio and Asset Management and Head of ESG at GLP Europe
Headshot of Rory Finnan
Rory Finnan
Head of Asset Management at Chancerygate
Headshot of Marco Fok
Marco Fok
Head of Portfolio Management at Mileway
Headshot of Nigel Godfrey
Nigel Godfrey
Head of UK Real Estate Solutions at DHL
Headshot of Abhy Maharaj
Abhy Maharaj
Chief Commercial Officer at Newcold
Headshot of Kevin Mofid
Kevin Mofid
Head of EMEA Industrial and Logistics Research at Savills
Headshot of Bruce Topley
Bruce Topley
UK Managing Director at GLP
Headshot of Polly Troughton
Polly Troughton
Managing Director at St Modwen
Headshot of Nicki Whittaker
Nicki Whittaker
Senior Director Customers and Markets at St Modwen

An enormous thank you to those we interviewed

We would like to thank these individuals for having generously shared their thoughts and experiences on this topic.

Headshot of Richard Bains
Headshot of Luke Buchholtz
Luke Buchholtz
Head of Construction UKI and EMEA, DHL
Headshot of Natali Cooper
Natali Cooper
Head of Portfolio and Asset Management and Head of ESG at GLP Europe
Headshot of Rory Finnan
Rory Finnan
Head of Asset Management at Chancerygate
Headshot of Marco Fok
Marco Fok
Head of Portfolio Management at Mileway
Headshot of Nigel Godfrey
Nigel Godfrey
Head of UK Real Estate Solutions at DHL
Headshot of Abhy Maharaj
Abhy Maharaj
Chief Commercial Officer at Newcold
Headshot of Kevin Mofid
Kevin Mofid
Head of EMEA Industrial and Logistics Research at Savills
Headshot of Bruce Topley
Bruce Topley
UK Managing Director at GLP
Headshot of Polly Troughton
Polly Troughton
Managing Director at St Modwen
Headshot of Nicki Whittaker
Nicki Whittaker
Senior Director Customers and Markets at St Modwen
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Our Osborne Clarke core logistics team

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Bas Beenen
Partner, The Netherlands
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Louise Cartright
Partner, United Kingdom
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Stephane Catays
Partner, France
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Fran Claes
Partner, Belgium
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Julián Matos
Socio/Partner, Spain
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Emma McPeake
Associate Director, United Kingdom
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Thomas Schnabel
Partner, Germany
Headshot of Richard Wilkinson
Richard Wilkinson
Partner, United Kingdom
Headshot of Berend Zwart
Berend Zwart
Partner, The Netherlands
Headshot of Bas Beenen
Bas Beenen
Partner, The Netherlands
Headshot of Louise Cartwright
Louise Cartright
Partner, United Kingdom
Headshot of Stephane Catays
Stephane Catays
Partner, France
Headshot of Fran Claes
Fran Claes
Partner, Belgium
Headshot of Julian Matos
Julián Matos
Socio/Partner, Spain
Headshot of Emma McPeake
Emma McPeake
Associate Director, United Kingdom
Headshot of Thomas Schnabel
Thomas Schnabel
Partner, Germany
Headshot of Richard Wilkinson
Richard Wilkinson
Partner, United Kingdom
Headshot of Berend Zwart
Berend Zwart
Partner, The Netherlands

Our Osborne Clarke core logistics team

Headshot of Bas Beenen
Bas Beenen
Partner, The Netherlands
Headshot of Louise Cartwright
Louise Cartright
Partner, United Kingdom
Headshot of Stephane Catays
Stephane Catays
Partner, France
Headshot of Fran Claes
Fran Claes
Partner, Belgium
Headshot of Julian Matos
Julián Matos
Socio/Partner, Spain
Headshot of Emma McPeake
Emma McPeake
Associate Director, United Kingdom
Headshot of Thomas Schnabel
Thomas Schnabel
Partner, Germany
Headshot of Richard Wilkinson
Richard Wilkinson
Partner, United Kingdom
Headshot of Berend Zwart
Berend Zwart
Partner, The Netherlands
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