Cost pressure and multi-channel distribution on top of supply chain mangers agendas

A recent Jones Lang LaSalle survey of European supply-chain professionals revealed that respondents considered pressure to reduce supply-chain costs and speed of change in consumer markets will be the most important drivers of the logistics sector over the next five years. With 71% and 61% of responses respectively, these two were significantly ahead of growth in internet retail (at 39%). Meanwhile, respondents ranked rising energy and transport costs (95%), changing consumer demand (76%) and transport infrastructure constraints (66%) as the three biggest challenges over the same period.

While the responses do not reveal completely new trends – but rather endorse existing market sentiment – they confirm a sensitivity to supply chain risks and a shift towards multi-channel distribution. Floorspace requirements expressed by respondents are clearly shaped by these top opportunities and challenges. This is reflected in a strong focus on big box units (10,000 sq m and above), with most respondents requiring either new build or modern units and insisting on flexibility, with a majority unwilling to commit to leases longer than five years.

These survey results are supportive of Jones Lang LaSalle’s view that demand for large modern units is likely to remain above the 10-year average in the coming years, driven by supply chain re-alignment. Nevertheless, in a period dominated by uncertainty in the Eurozone and weak global economic growth, occupiers are adopting a cautious approach. As a result, real estate decisions might be temporarily postponed in certain cases – albeit  that this inertia could mean losing out to the competition.

Furthermore, demand will pick up quickly once economic recovery kicks in. By that time, however, modern logistics floorspace will be in short supply in the majority of European markets, with build-to-suit developments involving a longer lead time than speculative supply. This could present an excellent opportunity for those equity-rich developers willing to take a more opportunistic approach, building speculatively to capture returning demand ahead of the competition.

For more information on our survey, please click here.