Industry 4.0 driving logistics investment opportunity
Industry 4.0 drives demand for future-proofed logistic facilities that can flexibly adapt to evolving technology and market needs.
Industry 4.0 is all about intelligent production, which is delivering scale, customization, and efficiency for industrial owners. Dating back to 1784 with mechanical production, and then on to mass production in 1870 and automated production in 1969, waves of enhanced capability have successively transformed manufacturing. Now the sector is set for a new uptick, with profound implications for logistics and industrial real estate.
The elements of the fourth industrial revolution that World Economic Forum Founder Klaus Schwab identified in 2016 include robotics, artificial intelligence (AI), nanotechnology, quantum computing, biotechnology, The Internet of Things (IoT), decentralized consensus, 3D printing and autonomous vehicles. A number of these technologies are already changing the logistics industry’s requirements for space.
Tenants are increasingly demanding new technologies such as the use of robots, self-driving trucks, drone deliveries and AI.
Many of today’s facilities are facing obsolescence, and as the pace of technology adoption quickens, landlords must consider the implications for their assets as they review their portfolios.
Demand for future-proofed logistics properties with greater flexibility for various functions and configurations is creating investment opportunities. Investors and landlords need to develop their properties to withstand the pace of technological disruption.
Existing properties: upgrade and revitalization
Facilities in key locations that can be revitalized/rebuilt to perform new multi-functional roles, and flexible build-to-suit developments that cater to tenants’ specific needs are two next generation industrial real estate opportunities.
Investors looking to upgrade specifications or change the use of existing warehouses can create value by increasing floor-loading capacity, upgrading the power supply and installing fibre optic infrastructure. For example, in Seoul, trucking hubs near the city center are being reconfigured as e-commerce distribution centres.
New developments: location and design
For new developments, the keys are location and a versatile facility design that can be modified in the future. The same day/next day delivery expectations of e-commerce customers require warehouse and delivery hubs to be near population centres and transport networks. Even with the efficiencies of automation, e-commerce warehouses and distribution centres still need to attract a talented work force, with convenient transportation and other amenities.
Flexibility needs to be engineered into the warehouse design to avoid obsolescence. For example, modular units can meet the needs of multiple business types and be re-configured as needed based on changing tenant needs. And by constructing new buildings with a floor-loading capacity above the current requirement, additional floors can potentially be added.
Similarly, modular mechanical and electrical (M&E) systems allow for future expansion as occupiers increasingly adopt Industry 4.0 initiatives. Spare risers to run M&E cables, the ability to accommodate increased power requirements, and having designated areas for additional water tanks and air-conditioning compressors are a few ways to future proof facilities. Investors need to be aware of these industry specifications in order to help the maximise value of their assets.
Read JLL’s Logistics: Beyond warehousing to find out why industrial and logistics are the next big thing in Asia Pacific. The whitepaper features in-depth, market-by-market analysis.
2. PERE "Investing in Logistics & Distribution" February 2019
3. PERE "Investing in Logistics & Distribution" February 2019
SOURCES: JLL, PERE