Prologis report: How automation addresses logistics real estate crunch

A report issued late last year by San Francisco-based real estate investment trust company Prologis examined some challenges the logistics real estate sector has been up against, in the form of a shortage of skilled labor and well-located logistics space.

The report, entitled “Automation and Logistics Real Estate #2: How Automation Can Help Navigate Urgent Supply Chain Challenges,” is the second in a series issued by Prologis. The first report, “Automation and Logistics Real Estate #1: The State of Automation in Supply Chains,”  was issued last November.

In addition to the shortage of skilled labor and well-located logistics space, the report highlighted what it called a severe capacity crunch in last mile delivery, which is hindering shippers and parcel delivery providers, as the lack of capacity is limiting their ability to handle additional packages and are subsequently turning away business. And that is where the need for automation is heightened, the firm said.

And the report pointed to myriad ways in which logistics real estate and automation in customer operations are interconnected, including:

• the acceleration of structural supply chain trends like e-commerce could lead to a critical shortage of logistics real estate, with new supply in the U.S. potentially falling short of demand by up to 140 million square-feet over the next five years;
• automation has the potential to increase revenue generated per square foot of logistics space, with greater productivity able to offset a lack of available space, especially in infill locations that have vacancy rates that are often under 1%;
• e-fulfillment footprints must double in space over the next five years, with automation’s ability to enhance productivity key to meet e-commerce demand and high consumer expectations; and
• automation offers economic benefits for logistics real estate, with customers that incorporate automation signing longer leases and are more likely to renew, which reduces downtime and related costs.

With the report noting that new supply in the U.S. may be short of demand by up to 140 million square-feet over the next five years, Prologis Vice President of Research Melinda McLaughlin offered up succinct advice for logistics stakeholders so they don’t get caught in a bind.

“Our recommendation is to plan ahead and be ready to act,” she said. “Many users of logistics space are grappling with several forces at the same time: rising e-commerce volumes, the need to hold more inventory, and shortages of available space and labor. This will drive up competition for limited space and those that act first will secure a competitive advantage. The ability to incorporate automation and other technologies into operations can also aid in the transformation of supply chains and offers additional flexibility in location and labor.”

And she also pointed to ways in which automation can increase revenue generated per square-foot of logistics space, explaining how it translates into higher revenue generation of potential logistics space.

“Our research indicates that the fastest-growing segments of automation focus on labor productivity and yield minimal space efficiencies, and are concentrated within e-fulfilment operations. Companies that are bringing autonomous technology into their distribution centers are focused on shortening order lead times and improving accuracy to offer higher service levels and minimize reverse logistics costs. In addition to processing orders within a given facility more quickly, higher service levels can attract additional revenue and advance the benefits of scale.”

In order for logistics stakeholders to counter the ongoing themes of labor shortages and capacity constraints related to logistics real estate, McLaughlin observed that in addition to thoughtful site selection and incorporation of technology, there are opportunities to address the issues facing the logistics real estate sector.

“For example, Prologis’ Community Workforce Initiative will expand the talent pipeline for its customers, with an emphasis on revitalizing career pathways and creating economic opportunity in the communities where it operates,” she said. “At the same time, the company is also active in redeveloping urban infill properties for Last Touch uses, given the acute lack of supply in these highly productive locations.”