How can logistics real estate market take advantage of e-commerce retail sales growth trend? ( Part One )
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In recent years, retailers and investors have continued to make large investments in industrial real estate. According to the Xinyi Global Assets Research Report (issued in year 2018 and year 2021, Note 1), the total value of large industrial real estate transactions has increased by 76% from 47.5 billion yuan in 2018 to 83.6 billion yuan in 2021. The proportion of industrial real estate properties investment in total real estate investment has also increased from 43% to 50%. In fact, large-scale retailers in Taiwan such as PXMart, FamilyMart, Momo, and Uni-President are all actively purchasing logistics real estate now. Among all of them, PXMart is the most active one and has recently again invested in the construction of a cold chain logistics center, following an investment announced in 2020 of nearly one billion TWD in Kaohsiung City to build the largest automatic warehouse in Taiwan.
Such trend is likely to continue to grow its momentum as JLL forecasts that over the next three to five years, investment in industrial real estate in Asia Pacific will increase from $25-30 billion USD per year in 2019-20 to $50-60 billion USD per year in 2023-25 (Note 2).
Among those industrial trends, warehouses that focus on "decentralization" are most popular logistics products right now. International retail giants such as Amazon and Walmart are expanding their investment in similar area, while Momo, a large domestic e-commerce company in Taiwan who seeks to follow the footsteps of those international retail giants ,have also built over 25 decentralized warehouses in the country. Why are logistics real estate and decentralized warehouses so favored by large retailers and investors under the current Pandemic?
COVID-19 boosts the growth of e-commerce
As the Pandemic has repeatedly disrupted the world, consumers have gradually become accustomed to online shopping. According to recent research made by Statista in 2021 (Note 3), the proportion of e-commerce revenue in the total retail revenue has increased from 8.6% in 2016 to 18% in 2020, prompting retailers to reconsider the strategy of their sales channel distribution between e-commerce and brick-and-mortar stores, and accelerating investments in e-commerce services.
For example, Carrefour has invested 2 billion euros globally in technology and digital transformation since 2018, and has established its own e-commerce platform. During the Pandemic, the sales of supermarkets has increased by 50% and the sales of e-commerce grew by 178% (Note 4). The group expects to invest an additional 3 billion euros in digital installments from 2022 to 2026, to enhance its e-commerce platform services.
Take Family Mart in Taiwan as another example. Family Mart launched its revised membership APP at the end of 2021 by adding new function of its own e-commerce platform "Quan +1 Mall". This function aims to connect the shopping needs of its users by combining its online shopping platform with Family Mart’s existing logistics and store pickup services, in order to meet the Online-Merge-Offline (OMO) omni-channel trend.
Shifts in consumer perception
The accelerating growth of e-commerce sales has increased consumers’ expectations for delivery speed and reliability of online orders. According to the delivery expectations survey results carried out by PWC (2021, Note 5), 41% of consumers are willing to pay more for same-day delivery, compared to a proportion of 25% five years ago, which shows that consumers have attached much greater importance to the value of "timeliness" than before; at the same time, consumers have also raised their standards due to the logistics speed that has been practiced in recent years. Statistics from EY Future Consumer Index (2021, Note 6) state that only 20% of consumers are willing to forgive delivery delays (even if the delay is caused by the Pandemic), leading to the fact that stores with supply chain problems are losing customers. Thus, it can be found that in addition to the quality and price of the product itself, logistics speed has also become the key to retail success in the OMO era.
Therefore, major retailers have increased their investment in logistics business, further driving up prices in the logistics real estate market. Decentralized warehouses that are closer than traditional large logistics warehouses to the consumers market have become the investment focus of many domestic and foreign retailers. For example, Momo has established a competitive advantage by changing the arrangement of a large-scale warehouse logistics chain to a core-satellite warehouse, while its competitor, PChome, another large e-commerce platform in Taiwan, had a different approach by implementing the freight cost reduction strategy. Following the above logistics strategy adopted by major local e-commerce players, how can the logistics real estate owners and investors take advantage of the accelerating e-commerce business growth trend to maximize its logistics real estate asset value?
Method 1: Adoption of a new location strategy
First, developing real estate in the right location creates property value. In the past, when choosing a logistics real estate location with lower land costs, owners preferred suburban areas easily accessible by vehicles and lorries. However, as consumers increasingly value delivery speed, logistics real estates that are close to consumers are becoming more valuable and more likely to be favored by retailers and investors.
We can see that large retailers and e-commerce players’ choice of logistics location today is being reflected in the above-mentioned consumer’s change of perception on delivery speed. For example, the retail giant Walmart announced last year that it would invest in small-scale logistics centers across the US; while the well-known local e-commerce company Shopee in Taiwan is seizing the similar business opportunities of the stay-at-home economy by setting up more than 270 physical stores in locations with a relatively concentrated online shopping population in Taiwan. Similar to Amazon's offline pickup store, Shopee Storefront Service is also an e-commerce service station that penetrates into the community, bringing the retail brands closer to consumers and giving consumers a different choice of delivery pickup channels.
Therefore, unlike the traditional warehousing and logistics investment in the past that considers primarily "shortening the cycle of the logistics chain", we can see that nowadays when investing in industrial or logistics related real estate assets, asset owners and investors starting to pay more attention to the social structure and overall consumption behavior data associated with the logistics site, and choosing areas easily accessible by large population with online shopping needs for its preliminary real estate development planning. Even some high street retail storefront assets are beginning to be utilized as part of temporary physical logistics space for providing shelves, smart lockers, etc., by potential tenants such as Shopee for their (online) store to (offline) store delivery.
Method 2: Digitalization of management system and automatic logistics equipment
With the advancing technology of the internet of things (IOT) and artificial intelligence (AI), large retailers such as Amazon and Walmart have introduced digital systems and automatic equipment in their the logistics and warehousing centers. An integrated management system can increase the operational efficiency of logistics and strengthen the synergy in the operating process. Real examples include integration of conveyor belts with automation equipment, integration of warehousing systems with logistics equipment, and integration of inventory monitoring with customer-end system. Ensuring the smooth connection of each process will make the logistics operation smoother, and can help users detect and debug errors at any time.
In addition, logistics real estate owners and investors can gain benefits from the adoption of robots in their logistics centers. According to Quartz’s research in 2016, robots not only can improve efficiency and save space in high-frequency and complex orders, allowing 50% more inventory to be stored in the space, but also spend 75% less time than humans on finding, packaging, and picking up goods (Note 7, Note 8). Amazon uses smart devices at all stages of the logistics process: AGVs are used to move the shelves; the automatic sorting system is used to determine the destination of the goods; the information of the goods is automatically scanned and recorded; the goods are placed on the pallets by the automatic palletizer. From Amazon's smart logistics case, we can find that the introduction of automatic equipment and digital systems tailored to tenants' logistics needs in logistics real estate can improve the efficiency and safety of operators, speed up the processing of goods, and increase the value of their logistics real estate assets.
Method 3: Adaption of new trends towards spatial planning
On the other hand, land costs in urban areas are generally higher than suburban areas. Therefore, it is difficult to obtain large-scale logistics storage centers in urban areas. However, with the prevalence of short-chain logistics today, retailers can choose to rent and purchase smaller scale decentralized warehouses which are closer to consumers. Due to the limited floor area and the emerging demand for stocking from e-commerce, logistics real estate owners and operators now reconsider the stock arrangement from a vertical perspective, and utilize the ceiling space of the property to increase space efficiency for their load capacity. In fact, the height of US logistics real estate has gradually increased from 36 feet to 42 feet (Note 9). Raising the ceiling height can help meet the needs of retailers for the use of logistics space, can store more products and save land costs, and therefore increase the value of real estate assets.
Also, prior to setting up AGV robots in logistics centers, it is necessary to arrange a suitable layout. Amazon divides the storage space in the logistics center into three areas: mobile shelf units, robot access areas, and employee workstations, while each area has a different setup plan. Taking the robot passage area as an example, Amazon establishes AGV path markers and tracks in this area so that robots can follow instructions to deliver goods. Therefore, it is believed that making product positioning in advance, estimating what kind of equipment the target customer group may need, and giving suitable space planning, can enhance the value of the logistic real estate products.
Although the development of retail e-commerce has brought many opportunities for logistics real estate owners and investors, the logistics industry is bound to face some challenges under the rapid development, which needs to be overcome by logistics real estate owners and investors.
TO BE CONTINUED......
# 物流地產規劃 # 不動產開發
# 不動產產品定位 # 資產價值最大化