Logistics facilities are currently hot property in Bremen and the rest of Germany. Online business is the greatest driver of growth, even for a post-pandemic future. What developments can we still expect?
The Internet giant Amazon represents the triumphal progress of the online boom like no other company. Thanks to the coronavirus crisis, its progress has become turbo-charged: in 2020 alone, its revenues grew from just under 386 to 419 billion dollars. In Germany, the entire eCommerce sector expects to see revenues to increase by 18 percent, year on year.
To fulfil the demand for even faster delivery times, the logistics infrastructure must also keep pace with these figures. The real estate consulting group Jones Lang LaSalle has calculated that the space take-up in Germany in 2020 was between 6.5 and 7 million square meters (German), which, despite the obstacles presented by the Covid crisis, was at a similar level to the previous year, which was itself a record year.
"There's still plenty of space for expansion in the logistics market. The Covid crisis has clearly shown that the shipment of products and the associated demand for logistics facilities will continue growing in future", stated Hubertus Schwanebeck, Manager of the Hamburg and Bremen subsidiaries of the BREMER AG project development group(German).
The e-commerce sector will therefore continue to experience strong growth, even after the Covid crisis, and remain a major driver of demand (see also Immobilien Zeitung (a specialist weekly journal for the German real estate industry) special edition, p. 33)(German).
The Bremen-based property developer Robert C. Spies KG has come to a similar conclusion. In his end-of-year review, he identified stable, high demand in Bremen in 2020. eCommerce is responsible for the lion's share of space take-up. "The background to this is not only an increase in the levels of goods stored locally, but also an increased acceptance of e-commerce, accelerated once again by the Corona pandemic", said Björn Sundermann, Area Manager for Logistics and Industrial Real Estate at Robert C. Spies. Experts believe this trend will continue into the future (German).
The boom in e-commerce has triggered a change in the type of logistics facilities required. In contrast to previous years, where towering logistics centres were the sources of greatest growth, this year it is major conurbations such as Berlin, Munich, Hamburg and Düsseldorf (German) that took the top places when it came to site expansion. One of the reasons for this, in addition to the increasing lack of space in traditional logistics centres, was also e-commerce.
This is because e-commerce needs facilities that are located as closely as possible to the consumers. "This requires small facilities as much as larger buildings. There is a trend towards logistics facilities being sited close to city centres, to complement larger existing logistics and distribution centres. Services such as same-day delivery need a smaller-scale infrastructure where the delivery warehouse is located close to the consumers", said Jörg Lachmann, independent real estate expert in Bremen (German).
A survey conducted by Garbe, the industrial real estate company, also confirms this trend. It is in local and regional logistics centres that we will see the greatest growth potential in the next few years (German). These are not just located in the conurbations: they are all over the country.
The creation of inner city logistics facilities is where the greatest number of innovations will be needed and where new challenges will arise. This is because insufficient new space is available to build the inner city distribution centres required. A number of creative solutions have already been found, such as the conversion of disused hardware stores into distribution centres (German), empty retail units, or completely new approaches to inner city logistics that use cargo bikes and delivery containers (German).
The logistics real estate sector is experiencing other drivers of growth, alongside e-commerce. "Many companies are restructuring their delivery methods to meet the challenges of achieving just-in-time processing. Due to the pandemic, pharmaceuticals companies in particular have been required to keep certain stock levels available. As a result, greater storage capacity will be required", prophesied Bredenkamp from the Bremen subsidiary of Logivest, the logistics real estate company (German).
The Covid crisis has brought about a change in thinking in some sectors, when it comes to warehousing. The requirement to hold medical products in store, in case of catastrophic events, is now joined by the increased need to store vaccines.
In March, the pandemic also highlighted just how vulnerable the supply chain in other sectors was. Supply chains were interrupted, cargoes were stranded in harbours and just-in-time logistics were in danger of coming to a standstill. What has the industry learned from this? As early as spring 2020, numerous studies and articles were talking about deglobalisation, increasing the amount of goods stored in domestic sites and how to design more resilient supply chains. The extent to which these pronouncements become reality remains to be seen, at least, that's the opinion of the global logistics group Dachser (German). Greater resilience entails higher costs and fundamental changes in processes.
The idea that the remodelling of global supply chains will take time and involve additional costs is also the opinion held by Dr. Herbert Kotzab, Professor of General Business and Logistics Management at the University of Bremen (German). "Global logistics structures have evolved in such a way that making rapid changes to them is no simple matter. Long-term strategic decisions are involved. This is particularly true for extremely complex industries such as the automobile industry" said Dr. Herbert Kotzab. Changes to these structures would not happen so quickly just because of the Covid pandemic. Rather, they would be the result of long-term trends such as electro-mobility which would also change the supplier structures. However, he does see potential for localising supply chains for industries that are closer to consumers, such as the grocery sector. The producers are also often based locally, and there is already a trend to more regional consumption.
Changing global supply structures in the long term is still also a question of competition. "It's similar to the prisoner's dilemma. If not everyone takes part, the companies that do participate and make greater investments in more regional supply chains will be at a competitive disadvantage", said the Professor, who has been teaching and conducting research in Bremen since 2011. However, legal regulations such as the German Supply Chain Act, could act as an incentive.
Yet another development comes from an entirely different sector, logistics using electro-mobility: "Logivest also consults and advises on new construction projects, for example, for customers in the electro-mobility industry. The batteries the technology involved requires must be stored in protective fireproof environments. Many existing premises are unsuitable. Some facilities can be upgraded to comply with fire service and insurance requirements, but in other cases, building a new facility makes more sense", stated Bremen's Logivest Site Manager, Sven Lehmann.
A number of other trends in the logistics properties industry are affecting buildings and logistics operations themselves. The market, investors and also operators are increasingly requiring a logistics facility to be sustainable. At least, this is the conclusion of Bulwiengesa, the consulting company (German). Important ways to achieve this are photovoltaic systems, LED lighting and insulation.
Creating more sustainable logistics systems is also an important strategy for overcoming one of the greatest challenges the logistics sector will face in future: social acceptance. Criticism is often levelled at the industry's need for large premises, the relatively low-skilled jobs on offer, the high volumes of traffic involved and the environmental impact associated with them. These issues could cause communities to reject applications for urgently needed logistics facilities, further exacerbating the shortage of suitable sites in future.
How can the acceptance of logistics sites be improved? "The key issues here are the sustainability of construction methods, support for ecological issues, digitization and the reimagining of processes so that existing sites can be used as efficiently as possible and having everyone involved be part of the decision-making process", said Andreas Heyer, Chair of the Board of Wirtschaftsförderung Bremen (Bremen Economic Development Ltd.).
Reconfiguring sites with existing buildings, either by repurposing existing buildings or building new structures, will be an important option, as also confirmed by the Bulwiengesa consulting company (PDF, page 44)(German). This strategy will also involve consultation processes that involve local people and increased levels of investment to improve the sustainability of transport routes, process and the workplace environment.
As Bremen is one of Germany's foremost logistics centres, these trends can also be clearly seen here. In 2020, the take-up of space in this sector reached a new record level, even if it didn't quite reach the extraordinary heights of the previous year. At the same time, the number of properties standing empty due to the stagnation of prime rents fell, as they did across Germany as a whole. Processes designed to address the future of commercial premises, including logistics, are also being initiated in Bremen.
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