Logistics: When the word ‘shed’ no longer covers it

A distribution center in Japan demonstrates how technology and demographics are changing the face of logistics buildings.

Not many years ago, it was common for industrial developers and brokers to claim – with a touch of self-deprecating humor – that theirs was a simple business because it was, when all was said and done, about “crinkly tin sheds next to motorway junctions.”

Even ten years ago such a statement had become barely credible since it was not uncommon for those ‘sheds’ to approach one million square feet in size. But in 2018, the reality at the cutting edge of logistics real estate has rendered that characterization laughably obsolete.

E-commerce, automation and the need for greater sustainability has transformed the sector, and few buildings better exemplify how far the asset class has come than logistics investment manager e-Shang Redwood’s Fujiidera distribution center in Osaka, Japan.

It is not just the speculatively developed building’s scale – although 1.9 million square feet of gross area over five floors, two of which are now let to e-commerce giant Amazon, is pretty big even by today’s standards – that makes it unique. Nor is it the building’s environmental credentials – it has been built to grade A standard under the CASBEE (Comprehensive Assessment System for Built Environmental Efficiency) green building management system, including photovoltaic panels on the roof that produce two megawatts of energy. It even has a mini-museum display in the entrance hall dedicated to historic artefacts discovered during the construction process, which was completed last summer.

What really sets Fujidera apart from the vast majority of distribution buildings are the amenities it provides for its workers, including a free children’s day nursery and club lounge. ESR chief executive Stuart Gibson says: “The preconceived idea of a warehouse is a concrete box with no windows. It’s a soulless place to work. The sort of place where you will be offered a job if you have no qualifications. We are trying to give people dignity and pride, to make them proud of where they come to work every day.”

Nursery places in the ‘Barnklübb’ are allocated to tenants according to how much space they take, and if they do not use the places they are donated to the local community. Gibson claims the lounge “would shame most airport executive lounges.” He describes it as “somewhere between an airport lounge and a sports café. You have giant screens everywhere showing premier league football – or if it is Osaka, the Hanshin Tigers baseball team.”

Fujiidera distribution center

Investment value: Approx $430m (when fully let)

Capital source: Redwood Japan Logistics Fund 1

Occupancy: 60% (at press time)

Exit plan: Floatation as J-REIT

ESR has committed to providing such facilities in all of its buildings of 1 million square feet or bigger at its own expense. The policy is not prompted purely by altruism, however. Gibson argues that it future-proofs buildings against demographic trends. Japan’s working age population is shrinking, and labor supply is a top priority for many employers.

The Japanese government has launched initiatives to increase the number of women in the workplace, but progress has been hampered by the scarcity and expense of childcare places. “There is a massive untapped resource of stay-at-home housewives who cannot get their kids in a nursery,” says Gibson. The lounge, meanwhile, is aimed at attracting millennials who want a “cool” working environment.

ESR is among the first developers to invest so much in amenities for warehouse workers. It is perhaps unsurprising that Japan, with its declining workforce and extremely high-value, intensive land use, is proving to be the testbed for these ideas, but Gibson believes the trend will soon spread: “It is definitely the way the industry has to go,” he predicts. “You are going to see it in Europe at some point because it will come up against the same demographic problems as Japan.”