The property industry can have a tendency to be somewhat short sighted. We often underplay the extent and significance of change over the long-term and fail to focus our minds fully on those issues that might have the greatest potential impact on the future.
Admittedly, future gazing is not an exact science. We often find that the headline grabbing issues often fail to have the impact that was initially envisaged, whilst less sensational themes can foster a more profound transformation.
This is particularly true of the industrial and logistics sector. We have, therefore, undertaken a piece of research that gazes into the future of the industrial and logistics sector and maps out the market landscape ahead to 2025. In doing so, we stress the importance of thinking about the longer-term changes that could affect our market as well as the sheer range of issues that have the potential to shape the sector.
The industrial and logistics sector, along with those businesses who utilise supply chains, is being fundamentally disrupted and transformed in ways unlike anything we have seen before.
Disruption is a modern reality and is an especially prevalent issue for industrial occupiers and across every link in the supply chain. We have identified those factors which we believe will shape the future of both supply and demand. These fall into six themes, each categorised by their potential magnitude, level of impact and the speed at which the market will adopt or adapt to them.
We predict significant disruption between now and 2025. It is evident that the demand drivers will emerge from technology, notably automation and robotics; the evolution of consumer demand as e-commerce penetrates and matures further and raises expectations of right now rather than next day delivery; and of course the wider operating environment. On the supply side specification; location; and the labour needs of the industrial occupier will all be subject to tumultuous change.
While the onslaught of automation and robotics seems inevitable, it won’t necessarily be as quickly or widely adopted in the market as many assume. This is particularly true of automation which is hugely capital intensive. What it will do, however, is rapidly broaden the gap between the occupational winners and the losers within the sector. Robotics on the other hand will become far more widespread in e-commerce. The technology is easily scalable and more adaptable both in terms of investment and implementation leading to a faster and broader impact.
At a more mundane level, we believe that data and analytics will become more commonplace. As the Physical Internet or Internet of Things becomes a reality, plant and property will generate a wealth of data that will inform decision making and bring efficiency gains. The key limitation here may well be the ‘digital fitness’ of industrial occupiers and how adept they can become at capturing, analysing and utilising large volumes of data.
Shift in labour requirements
Another key theme is the labour market. It has been a clear driver in asset and site selection in the industrial sector for more than a decade. However, with Brexit placing even more tension in an historically tight labour force, occupiers will be pushed further into the adoption of robotics and automation. This, in turn, will bring new labour requirements.
Subsequently, there will be a shift in labour requirements towards computing and technical skills. This will bring industrial occupiers firmly into the wider war for talent. In time the adoption of these technologies will reduce the quantum, if not cost, of staff required by occupiers. In our view it will also loosen the role of labour as a dominant factor in the identification of industrial hot-spots over the next 10 years.
There is no doubt that the future will require a significant cultural change and an evolution in industrial development, particularly in London and the South East where there are pronounced space and environmental pressures. More broadly, we anticipate the continued rise of urban logistics facilities close to urban centres and increasingly within the context of mixed-use development schemes.
“Land capacity is not going to increase and this will lead to greater innovation in the siting of industrial property”
One thing is clear, land capacity is not going to increase and this will lead to greater innovation in the siting of industrial property. Multi-level, multi-use and mixed-use will all play a role in fulfilling the various distribution requirements, along with a growing longer-term interest in both underground and underwater facilities.
The next phase of the industrial property cycle will be one where bespoke product will come increasingly to the fore. As technology takes hold there will be a divergence of occupier requirements that will be difficult to satisfy speculatively. Occupiers will be prepared to work in partnership with the supply side and make long-term commitments to a product that suits their current and future operational requirements - one specification doesn’t fit all.
What is clear is that change will be incremental, surprising and constant. The new industrial landscape will be shaped by a huge variety of forces changing both the dynamics of those industrial occupiers who will win and those who will lose and the attractiveness or otherwise of assets.