USAA Real Estate explains why logistics is on a health kick

Designing assets that make wellbeing a priority is relatively new for the sector, but investors and industry leaders are starting to act, writes Karen Martinus, USAA Real Estate's senior associate.

This article is sponsored by USAA Real Estate.

For some time now, ESG issues have become an increasing focus for logistics real estate. This has been expressed primarily through sustainable design and energy efficiency. While the environmental aspects of ESG have taken prominence, social and governance concerns are also attracting significant attention. Like any other real estate sector, when it comes to ESG reporting, logistics investors and developers are forging a new path. Logistics companies and their employees are also expecting more from their workplaces. In response, the industry is demonstrating that it can design, build and operate buildings to be more efficient, healthier for people and valuable to communities.

With health taking center stage throughout the pandemic, there has never been a more crucial time for building owners and operators to implement wellbeing measures as companies and their employees adjust to a new normal. As an active player in the development of logistics real estate, it is critically important for us and the wider industry to play our collective part to create spaces where people want to work, to reduce the environmental impact of our developments and support local communities in the process.

Putting people first

Gone are the days when logistics facilities were perceived as dark sheds that existed simply to store inventory. Modern warehouses are becoming increasingly alluring places to work. New, forward-looking designs, both internal and external, are making buildings more attractive to employees and to the local community.

The logistics industry was thrust into the spotlight during the height of the pandemic. The vast majority of the logistics workforce are required to work on site. Safeguarding the industry and its workforce has emerged as a top priority, given it plays a vital role in the manufacturing and transport of essential products. Logistics will also be key to supporting long-term economic recovery – the sector accounts for about 11 percent of global GDP, according to the World Bank, and as the backbone of global trade, supports countless other industries. Key stakeholders have started taking concrete measures to support logistics infrastructure, services and workers. During the early part of the pandemic, many warehouse construction projects in the US were allowed to continue construction because they were considered critical infrastructure.

Investors are demanding more when it comes to ESG reporting and this is not limited to office and retail assets. Logistics operators and their employees also expect more of their workplaces, and not simply in terms of good air quality, ventilation, lighting or acoustics. They are also looking for opportunities to incorporate physical activity, high-quality interiors and ways to integrate nature into spaces. There are design ideas and attributes that can be borrowed from other property types, such as office and residential, and carried over to logistics.

Strong business rationale

Karen Martinus

Some investors are using building certifications to promote wellbeing. The use of health-specific certifications such as WELL or Fitwel is nascent, but interest is growing. Certifications enable building owners the opportunity to showcase how they are improving the health and wellbeing of the built environment. However, creating engaging and attractive spaces does not yet require any formal certifications. Other considerations, such as how employees get to and from the workplace, should not be overlooked; solutions may be as simple as maximizing public transport provision or supporting shared drive-to-work initiatives.

Health and wellbeing is becoming a critical issue for companies involved in logistics. This focus has been driven partly by the difficulty in recruiting labor in many parts of the world. Several recent surveys have warned of a skills shortage. A 2019 survey by the International Road Transport Union found that in the road freight transport sector there is a driver shortage of 21 percent across Europe. Around a quarter of the costs at logistics firms are staff related, and the labor shortage is driving investors, developers and occupiers to look at ways of improving the working environment in logistics facilities, according to Transport Intelligence.

The global pandemic has altered the employment landscape in some countries, which could make logistics jobs more attractive and improve labor availability, at least in the short-term. Over the long term, labor will remain a top priority. Despite technological advances and more widespread automation, the logistics sector remains a relatively labor-intensive industry. Encouraging health and wellbeing programs and incorporating amenities within the warehouse, can all contribute to improving staff attraction and retention.

The integration of ESG considerations is, in part, driven by the need to be socially responsible and create long-term value for future generations. However, a growing body of evidence suggests that in the long run, ESG integration can also have a positive impact on financial performance. For real estate investors, the long-term financial sense of ESG initiatives is becoming increasingly apparent. For logistics companies, the decision to make a relatively small investment in the workforce is not difficult. Decades of research link the health and wellbeing of staff with improved productivity, reduced absenteeism, improved morale and improved staff retention. But it is not just about financial targets. A focus on staff welfare sends a clear message that companies care about their employees and this can be a key differentiator in securing labor.

Improving for wellbeing

For any employee to flourish they need to be in comfortable and vibrant surroundings. Our buildings are where we look to provide facilities to help individuals enjoy and work to their maximum potential. This does not necessarily mean dramatic or costly interventions. Simple improvements such as providing regular placement of water stations throughout facilities can be key to ensuring employees stay hydrated and productive.

Aspects such as natural daylight and ventilation, access to green spaces, energy-efficient warehouses to ensure adequate comfort levels, all contribute to the wellbeing of occupants. Incorporating natural daylight through skylights and clear story windows, or furnishing communal areas to mimic nature, are just some of the examples within the industry. Many newly developed warehouses also include enhanced welfare facilities such as contemplation rooms, modern office facilities, open-plan cafe areas and even roof terraces. Above all, it is essential to incorporate flexible design to allow building occupiers to maximize design solutions to fit-out requirements.

Supporting mental health is also a reoccurring theme. Logistics facilities are often in regional areas, without access to many amenities or shared spaces where people can walk around to take a break. Long hours and high noise levels can also cause workers’ mental health to decline. Research findings suggest that access to biodiversity and green spaces is valuable to individuals, businesses and communities. This is putting pressure on owners and developers to provide more green space, respite areas and walking paths so workers can enjoy surrounding areas. Maintaining natural flora and fauna and leveraging sites to be more pedestrian-oriented, with on-site destinations like walking trails and landscaped areas that connect the development with nature are just some of the measures being implemented. Many occupiers also welcome the development of social facilities, childcare and retail amenities near parks to help attract and retain workers.

In designing for wellbeing, it is also important to understand worker habits to provide the most adequate infrastructure. There is little to be gained in providing cycle facilities if most employees prefer to travel by car. Of more value is a car-pooling system or working with local authorities to negotiate subsidized transport for workers. By recognizing our responsibility to our customers and the environment, investors and developers need to look to all elements of a development to engender wellbeing.

Welfare initiatives should also extend to the construction process itself. Construction safety enhancements, including the use of drones to conduct site inspections, can enhance site resilience and safety. Actively collaborating with contractors and third parties involved in the development is essential to ensure that appropriate working conditions are in place.

Successful development must meet the evolving needs and aspirations of the ultimate customers – the people that use the places and spaces created. But it should also deliver places that allow communities to thrive. There is growing recognition from investors and logistics businesses themselves of the added value in making a positive contribution to society and local communities. As an active developer of logistics space, we see opportunities to support local communities and drive social value through the entire lifecycle of our developments. Development provides a real opportunity to increase skills and employment in an area, providing a boost to the local economy.

Investing in wellbeing

The built environment has the ability to both positively and negatively impact people, communities and the environment. The results of a recent Urban Land Institute survey indicate that the wave of interest in wellbeing is expected to translate into significant investment in the coming years. The logistics sector, one of those with the greatest growth in investment recently, is embracing it.

Now, more than ever, the sector has a significant opportunity to develop in a responsible way by introducing measures to protect employee health and adapt operations to enhance wellbeing. Real estate investors and developers have adjusted to this dynamic in part because their customer base requires it, but also because it is the right thing to do and health and wellbeing can be accretive to investment performance.

As an industry we need to work with customers and partners to create developments that are timeless and add value to the occupants, communities and businesses we serve. Aside from transforming the physical environment in which we lead our daily lives, the real estate sector also directly benefits communities, serving as an important catalyst for job creation and the economy. While environmental impact is often more straightforward to quantify, the social element of

ESG is perhaps the most difficult to measure. Regardless, in the current climate, social issues are squarely in the limelight and likely here to stay.