7 December 2020
With changing consumer spending habits, increasingly stringent environmental regulations, and ambitious sustainability commitments amongst corporate occupiers, logistics assets are entering a brave new world. The growth of alternative fuels, of electric vehicles or transport flows’ optimisation will significantly reduce transport-related CO2 emissions, directly impacting the development of logistics warehouses. The global pandemic has brought to light the importance that logistics buildings play in our economy. Indeed, ecommerce conversion rates have maintained between a 3-13% increase from 2019. This has forced the development of essential technical infrastructure, hastening the movement to more digitised supply chains and increasing the demand for modern, efficient, and sustainable warehouse facilities. Indeed, on average online retail requires three times more warehouse and logistics space than a traditional brick-and-mortar supply chain. Over the course of the next few weeks, we will be exploring the future of Logistics in several different articles. First, we will look at the role of building certifications and the practical implications associated with choosing BREEAM or LEED before addressing the UN Sustainable Development Goals and why they should become the minimum baselines for tomorrow’s logistics warehouses.
Growing Demand for Logistic Facilities Across Europe
According to a Prologis survey, throughout the outbreak, deliveries are continuing without major disruption in Europe. Only a small portion (22%) of logistics operators have reported a decline in activity levels due to either a lack of products to distribute or forced closures for safety reasons — both of which are likely to be transitory in nature. By contrast, a larger portion (38%) report either no change or an increase in activity. Forrester’s latest forecasts indicate that online retail will account for 17.8% of Western Europe’s total retail sales by 2024, compared to 11.8% in 2019. Assuming industry standards of 75,000 m2 space for every €1bn spent online, this indicates a need for an additional 16.7 million m2 of logistics facilities in Western Europe to cater for the growth of online retail over the next five year. Savills recorded around £2 billion of offers that have been made on industrial property since the beginning of the lockdown period (March 2020) in Europe.
This acceleration is predicted to continue, and the related sectors to grow exponentially. Logistics investments have proven very resilient even during this time of global unrest. This international growth and the required volume represented by logistics assets demonstrates the need for this sector to uphold the highest ESG standards in comparison to other asset classes to achieve sustainable growth.
ESG Standards for Logistic Assets – Not all Standards are Equal
One way to support ESG standards is to assess logistics assets and sustainability activities against third-party standards and develop long-term targets. For new construction projects, the two international certificate leaders recognized are BREEAM, governed by the Building Research Establishment (BRE), and LEED, governed by the U.S. Green Building Council Inc. (USGBC). These two assessments manage sustainable developments in an almost equivalent way. However, their approaches remain very different. As an example, the LEED standard is very demanding in terms of its “Minimum Indoor Air Quality Performance” requirement. These ventilation requirements are often too difficult to meet for large storage facilities and highlights an issue for warehouse certification. Over-ventilating the warehouse part of a logistics building, and therefore consuming excess energy, is not in line with our energy transition efforts, which are strongly geared towards promoting “less is good”. The BREEAM standard, for its part, does not require a minimum air renewal rate to achieve any level of certification. Also, the LEED standard requires water and energy metering and a reduction of indoor water consumption for all levels, while the BREEAM scheme considers these requirements only for the Very Good level of certification. If LEED certification’s requirements appear more rigorous, the BREEAM scheme still covers all necessary areas, leaving nonetheless the responsibility of best credits’ attribution to the consultancy working on the project (therefore allowing more adaptability depending on the type of building assessed).
Such certifications can be accompanied by other complementary schemes such as BiodiverCity® or WELL labels. The BiodiverCity® label offers tailored solutions to buildings eager to promote biodiversity while WELL promotes high-level concepts of health and well-being. A good, healthy work environment results in higher employee performance, happiness, and productivity. Integrating well-being principles within the construction or refurbishments phases of a building can only benefit buildings’ users. Along with the BiodiverCity® label, such processes have been proven to lead to a higher added value and increased asset attractiveness.
Logistic Assets can support ESG standards through the use of various certifications schemes but also by achieving Net Zero Carbon goals. With immense available space – logistics assets can easily opt for renewable energy uses with wind-powered or photovoltaic solutions. Assets’ yield would then reach 15%, compare to the current 4 to 5% warehouse yield. Indeed, smart metering technology can manage an asset’s energy consumption by directly powering energy consuming devices with renewables (i.e. forklift).
Longevity Partners has more than 10 years of combined experience in these certification schemes and Net Zero Carbon strategies and can help guide its clients to make the right decisions to ensure that logistics portfolios meet the highest ESG standards in the market.
Concluding thoughts
What we know today is that the design, construction, and operation play an important role in the entire lifecycle analysis of a building. It will become increasingly difficult to meet the expectations of a carbon neutral building*. Indeed, with more and more automation, logistics warehouses will consume more energy. A new warehouse must anticipate this increase by monitoring and reporting on energy, waste, and water consumptions with a cradle to grave approach. This approach can be built up in a net zero carbon strategy.
At Longevity, we support our clients in upholding the best green building practices, through relevant sustainable certification schemes. Investors now require these certification processes for the purchase or resale of properties, as the economic appeal is undeniable. However, we must not lose sight of the objectives of an energy transition on a global scale and thus shift the focus of our project to encompass the most ambitious targets/standards of these best practices, as opposed to the “strict minimum”. This is why at Longevity, we do not limit ourselves to the certifications of your portfolios, but we also take this to the next level and work with our clients to determine how to best integrate these solutions in a full-scale long-term ESG strategy.
*nb: Having a net zero carbon footprint, which refers to the ability to emit zero CO2 emissions by significantly reducing emissions and/or offsetting persistent emissions.