The world of warehousing and logistics real estate used to be considered the unsophisticated “sheds” business, but increasing use of robotics and automation means investors in the sector need to be in tune with technology.

Pressure on logistics companies to deliver more rapidly and efficiently and at a lowest cost has driven investment in automation. This might mean warehouse storage automation, picking, sorting and packing robots, or even AI-controlled cleaning solutions. Robots can move goods through a warehouse faster and – in the long term – cheaper than humans.

Tim Wang, co-president of logistics and industrial real estate at developer and manager GLP China, says: “Many customers are looking towards robotics and automation solutions to improve operational efficiency and reduce costs to meet growing consumer demand.”

These changes in the logistics business need to be catered for by landlords and the most fundamental requirement is not quite as simple as it sounds: a flat floor, which allows robots to move as quickly and safely as possible.

Peter Holden, managing director, co-head private real estate asset management at Swiss investment manager Partners Group, says: “If there are mobile, robotic units traveling within the warehouses, they need super flat floors (SFF). That is the key specification issue which differentiates between modern warehousing and some older assets. An SFF is built to a very high specification, we are talking about a tolerance of a few millimeters spread over the entire floorspace.

“Of course, tenants also need buildings with good telecommunications, fully wired to take advantage of 5G technology. But having an SFF really enables the robotics to work. That has been a factor for some tenants for many years, but it is becoming more widely important now.”

The most notable difference between the logistics facilities of two decades ago and today is sheer size. Modern logistics warehouses need to be large in order to accommodate automated systems, says Wang. “With the rise of e-commerce and automation technology, the speed at which goods move in and out of warehouses has picked up drastically.

“Customers now require large spaces for intelligent operation centers to support business expansion instead of warehouses purely for storage purposes. Modern logistics facilities must be able to support automatic systems and production lines.”

Simon Cox, head of UK development management at sector specialist Prologis, stresses that the specific construction requirements for an automation-ready warehouse vary dependent on its eventual use. He says: “Design principles for a base build need to ensure that varying end customer requirements, defined within the fit-out process, are readily achievable.

“Having buildings that can accommodate the widest possible range of uses helps ensure their longevity”
Simon Cox

“We follow set design standards for height, floor loading and power capacity that provide the flexibility needed for automation. This includes buildings with clear heights of up to 21 meters, which create additional volumetric capacity for customers using defined movement/very narrow aisle solutions or multi-level mezzanines.

“In build-to-suit developments, a customer’s automation requirements can be factored into design and construction processes and may impact elements such as a building’s height, flooring strength and power requirements.”

Exacting standards

The ESG requirements of landlords and tenants also require high-tech solutions, such as rooftop solar panels, EV charging facilities, rainwater recycling and LED lighting. However, the power demands of automated warehouses also put more environmental pressure on landlord and tenant.

“There is something of a conflict between the increased automation and therefore power demands of a warehouse and with the ESG ambitions of both landlord and tenant,” says Holden. “So it is necessary to work together to reduce power use and the provision of onsite power is very important.”

Another ESG-linked challenge for developers is accommodating electric vehicles, which are an increasing part of the delivery fleet for a modern logistics company. Electric forklifts are also being deployed at logistics parks to support cargo loading.

Wang says this evolution means GLP needs to integrate EV-charging solutions in logistics parks. “Today we have charging stations installed across approximately 30 percent of our portfolio in China and expect installation to be the norm moving forward. We also have a joint venture with the world’s largest EV battery maker, CATL, to provide battery swap solutions across China for EV trucks to facilitate a more convenient refueling experience.”

GLP has invested significantly in technology alongside its warehousing business and also has an ongoing partnership with Libiao Robotics, which specializes in small tabletop robots that help with autonomous sorting. Similarly, Prologis and other major logistics real estate players have in-house technology venture businesses.

In the future, says Wang, the capacity to accommodate automation and robotics will become even more important for investors in logistics real estate. “The robotics-as-a-solution subscription model is likely to increase in popularity given its low barriers to entry and high flexibility to scale up or down depending on market conditions. Investors should pay attention to operators/developers who are able to provide customers with a full suite of supply-chain solutions beyond logistics infrastructure.”

As well as keeping pace with tenant requirements, automation-ready warehouses can also improve an asset’s return profile, he says. “Automated warehouses often require capital expenditure from tenants, which may lead to higher lease terms and stronger tenancy loyalty. Investors should also note that since automation is eventually a thesis of economy of scale, the additional capex for efficiency is more likely to hold true in more developed markets.”

The relatively low construction cost and time for warehousing means new buildings can replace old quickly, however for both sustainability and economic reasons, owners may wish to adapt existing assets rather than pulling them down and starting again. SFFs can be retrofitted, although this cuts floor-to-ceiling height, which might also be inadequate in an older building.

Cox says: “Dependent on the level of automation, buildings can be adapted. This is particularly true of adaptable autonomous mobile robot solutions such as Locus Robotics, which provide an adaptable and scalable solution intended to complement existing operations.”

Fundamentally, accommodating technology is future-proofing assets, says Wang, “allowing customers the flexibility to introduce new technologies and solutions to meet their business needs.” For GLP this means, among other things, making sure buildings have the capacity to generate onsite power through solar PV and also making accommodation of EVs a key characteristic of new buildings.

Cox adds: “At Prologis, we develop the buildings that we want to own long term. As a result, we value robustness and adaptability. Having buildings that can accommodate the widest possible range of uses helps ensure their longevity, which is particularly important when it comes to requirements that are likely to grow significantly in the future, like automation.”