Foresight | Macro Trends
How logistics facilities can accelerate decarbonization
March 27, 2023 15 Minute Read Time
Logistics facilities are critical elements in the overall supply chain, as proven during the COVID-19 pandemic. The logistics real estate sector helped facilitate household consumption demand during the extended lockdowns worldwide. However, rising energy costs, labor shortages, geopolitical concerns and macroeconomic uncertainty have challenged the logistics industry’s resilience. We believe that modern logistics will overcome these broader headwinds and can support the sustainability objectives of investors, tenants and lawmakers. In this article, we explore how logistics facilities can foster decarbonization through helping to accelerate the adoption of electric trucks and adding power to the grid through rooftop solar panels.
Yet even before the current inflationary environment took hold, 15 governors across states in the United States, and the mayor of Washington, D.C., pledged in 2020 to reach 100% electric truck and bus sales by 2050. With California leading, New York, New Jersey, Massachusetts, Oregon and Washington soon followed in adopting zero-emission vehicle requirements by adopting the Advanced Clean Truck (ACT) rule. This requires a growing percentage of medium- and heavy-duty trucks sold to be zero-emission starting in 2025, with manufacturers increasing their zero-emission truck sales in those states to between 30% and 50% by 2030, and up to 75% by 2035 (Bliss 2022).
In the coming years, an increasing proportion of electric-powered trucks will be used in the supply chain. Together, these six coastal states are home to around 20% of the nation’s trucking fleet.1 As the share of states with ACT requirements grows, the likelihood increases that truck manufacturers in other states will comply or at least increase their electric trucking production. Understandably, companies like UPS and Amazon have placed orders for hundreds of thousands of electric delivery trucks.2
The U.S. is certainly not alone in these efforts. The EU’s European Green Deal aims to attain net zero GHG emissions by 2050. The U.K., Netherlands and Chile are global leaders in electric truck adoption. As the share of electric private passenger vehicles has increased rapidly, we anticipate that the share of electric trucks will experience a similar trajectory. Market shares are growing for zero-net-emission vehicles across the globe, and hard targets show a clear upward pattern (Figure 2).
Prime logistics facilities can serve this important function by creating infrastructure to support charging of electric truck fleets while simultaneously on- and offloading cargo. This creates significant time efficiency and convenience, although some challenges remain. So-called ”fast chargers” can fully power a delivery van battery in under an hour, but a tractor-trailer may take 2-3 hours, much longer than filling a diesel truck. Simultaneous fleet charging with cargo on- and -offloading capabilities and spaces for drivers’ meal. rest and sleep breaks raises the prospect that responsive logistics facilities can help address these needs. For example, facilities could include more food and beverage amenities and offer motel-like facilities for driver rest. Logistics site design to accommodate simultaneous uses becomes even more critical.
Although the focus on this article has been on employee safety and wellness is also becoming increasingly important in the design and operations of logistics facilities. Manual warehouse labor is deserving of a focus on wellness as their office employee counterparts have experienced in recent years. Given the currently low unemployment rates and the difficulty of recruiting and retaining workers in some logistics functions, facilities with employee amenities and employee wellness programs may edge out their competition. As logistics operations increasingly automate, there will be a need for high-tech, white-collar professionals to manage such operations and these professionals are used to office environments. Creating logistics facilities that provide more amenities will help occupiers compete for talent.
The logistics real estate sector has provided investors with stellar returns in recent years. In an era of rising interest rates and more challenging economic conditions, the record-low vacancy rates in many logistics markets worldwide may begin to tick upwards. Our five-year forecasts suggest most logistics markets will post vacancy rates below long-term averages and deliver rent growth and total returns above all-property averages in most markets that we track. However, there will likely be a bifurcation of performance: older real estate stock is more likely to become obsolete, while more modern stock with higher sustainability credentials will outperform. Those logistics facilities with the ability to generate solar electricity and use it to charge EV fleets and provide energy for the facility and the grid, will fare especially well, contributing the most to making supply chains more sustainable.
Leading the way
In the U.S., transportation is the largest source of greenhouse gas (GHG) emissions, accounting for 27% of the total, according to the Environmental Protection Agency (Figure 1). Rising oil prices, particularly since Russia’s invasion of Ukraine in February 2022, and the subsequent weaponization of energy, added to transportation costs and unpredictability. The retail cost of diesel in the U.S.–a critical element in trucking costs–remained close to record-high levels as of November 2022.Yet even before the current inflationary environment took hold, 15 governors across states in the United States, and the mayor of Washington, D.C., pledged in 2020 to reach 100% electric truck and bus sales by 2050. With California leading, New York, New Jersey, Massachusetts, Oregon and Washington soon followed in adopting zero-emission vehicle requirements by adopting the Advanced Clean Truck (ACT) rule. This requires a growing percentage of medium- and heavy-duty trucks sold to be zero-emission starting in 2025, with manufacturers increasing their zero-emission truck sales in those states to between 30% and 50% by 2030, and up to 75% by 2035 (Bliss 2022).
In the coming years, an increasing proportion of electric-powered trucks will be used in the supply chain. Together, these six coastal states are home to around 20% of the nation’s trucking fleet.1 As the share of states with ACT requirements grows, the likelihood increases that truck manufacturers in other states will comply or at least increase their electric trucking production. Understandably, companies like UPS and Amazon have placed orders for hundreds of thousands of electric delivery trucks.2
The U.S. is certainly not alone in these efforts. The EU’s European Green Deal aims to attain net zero GHG emissions by 2050. The U.K., Netherlands and Chile are global leaders in electric truck adoption. As the share of electric private passenger vehicles has increased rapidly, we anticipate that the share of electric trucks will experience a similar trajectory. Market shares are growing for zero-net-emission vehicles across the globe, and hard targets show a clear upward pattern (Figure 2).
(Yet more) new roles for logistics facilities
Despite their benefits, electric vehicles have one major challenge: charging. While electric cars have surged in popularity worldwide, journey planning is needed to ensure vehicles can access charging stations enroute. Boosting EV charging infrastructure and generating electricity are critical for wider EV adoption.Prime logistics facilities can serve this important function by creating infrastructure to support charging of electric truck fleets while simultaneously on- and offloading cargo. This creates significant time efficiency and convenience, although some challenges remain. So-called ”fast chargers” can fully power a delivery van battery in under an hour, but a tractor-trailer may take 2-3 hours, much longer than filling a diesel truck. Simultaneous fleet charging with cargo on- and -offloading capabilities and spaces for drivers’ meal. rest and sleep breaks raises the prospect that responsive logistics facilities can help address these needs. For example, facilities could include more food and beverage amenities and offer motel-like facilities for driver rest. Logistics site design to accommodate simultaneous uses becomes even more critical.
Does the location of logistics facilities matter for a more sustainable supply chains?
Logistics facility sites must be optimized for maximum efficiency for the goods flowing through them. CBRE Investment Management has found that transportation costs account for 45% to 70% of a typical logistics occupier’s total cost.3 In an environment of high oil prices, fuel efficiencies are even more important. The premium for proximity to consumers and critical infrastructure is even greater at times when transportation costs are high. The oil price volatility in 2022 may inform the decisions of more risk-averse supply chain managers to switch from diesel-powered vehicles to EVs.The logistics facility as a generator and distributor of power
Obsolescence risk in the rapidly evolving logistics sector is pronounced in stock built prior to 2000. In the U.S., more than 70% of logistics assets were built before 2000, and over 30% are at least 50 years old. Newer facilities are more responsive to sustainability considerations, especially if they are incorporated early in the design stage. Vast roof space able to support the load of solar panels, for example, offers enormous solar power generation potential. Logistics assets themselves require large amounts of energy, including heating, cooling and, increasingly, the powering of electric truck fleets. There is significant untapped financial potential in the investment of on-site energy production that aligns with sustainability requirements and resonates with investors, managers and developers at a time of high energy costs.Aside from on-site EV charging…
The potential for modern logistics facilities to help decarbonize the trucking industry and help companies meet their climate change goals is one way they can address sustainability challenges. Solar-paneled roofing for electricity production may be used not just for EV charging, but also for lighting, heating and cooling and for some mechanical processes. Roofs can also be used for rainwater harvesting, an attribute not lost in Australia, which suffers from periodic droughts and where the water may be refined to drinking quality or used for bathroom facilities or landscape maintenance.Although the focus on this article has been on employee safety and wellness is also becoming increasingly important in the design and operations of logistics facilities. Manual warehouse labor is deserving of a focus on wellness as their office employee counterparts have experienced in recent years. Given the currently low unemployment rates and the difficulty of recruiting and retaining workers in some logistics functions, facilities with employee amenities and employee wellness programs may edge out their competition. As logistics operations increasingly automate, there will be a need for high-tech, white-collar professionals to manage such operations and these professionals are used to office environments. Creating logistics facilities that provide more amenities will help occupiers compete for talent.
Conclusion
Electrification of the transportation sector is critical in reaching carbon neutral goals. The rollout of incentives and regulations should see trucking following electric passenger vehicle adoption trends in the U.S. We expect electrification penetration rates to climb rapidly in the coming years, with logistics real estate assets playing a key role in providing on-site EV charging and electricity generation. The energy-generation capacity of some assets may surpass that needed for fleet charging, allowing the excess to be sent into the wider grid for use by the surrounding community, supporting social impact initiatives. These trends will transform logistics facilities into charging hubs and renewable power generators not just for EVs, but also potentially for entire neighborhoods.The logistics real estate sector has provided investors with stellar returns in recent years. In an era of rising interest rates and more challenging economic conditions, the record-low vacancy rates in many logistics markets worldwide may begin to tick upwards. Our five-year forecasts suggest most logistics markets will post vacancy rates below long-term averages and deliver rent growth and total returns above all-property averages in most markets that we track. However, there will likely be a bifurcation of performance: older real estate stock is more likely to become obsolete, while more modern stock with higher sustainability credentials will outperform. Those logistics facilities with the ability to generate solar electricity and use it to charge EV fleets and provide energy for the facility and the grid, will fare especially well, contributing the most to making supply chains more sustainable.
1 Natural Resources Defense Council, 2022.
2 Truck and Engine Manufacturers Association, 2022.
3 Council of Supply Chain Management Professionals (CSCMP), 2022.