A version of this article first appeared in the CNBC Property Play newsletter with Diana Olick. Property Play covers new and emerging opportunities for real estate investors, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. Register to receive future editions, go straight to your inbox.
There are certainly some large, centralized warehouses, but the growing demand for faster delivery and resilient energy supplies has companies rethinking where their warehouses are located.
In fact, 91% of business leaders say retailers and logistics providers “urgently” need a more decentralized fulfillment network to meet delivery expectations, according to a new survey from Prologuein partnership with Harris Poll. Responses came from more than 1,800 business leaders in the US, UK, Germany, India, China and Mexico.
“Our focus is the end of consumption, so we have narrowed our focus not only on the most dynamic consumption centers, the most dynamic population centers in the world, but we are very specific about the sub-markets in these cities that we want to focus on? Because all of this is closer to the roof,” said Dan Letter, CEO of Prologis.
According to the survey, fewer companies plan to maintain their existing global footprint, with their shares down 14 percentage points from a year ago to just 36%. They are looking for faster delivery, most importantly, as consumer expectations rise. Same-day delivery is the goal, with parts of the company offering to double it starting in 2019. Fastest prices when it comes to competitive advantage, according to the survey.
As a result, companies mix relocation strategies, with more than half diversification and regionalization and about a third nearshoring and reshoring.
“That’s why we’ve focused a lot on where our portfolio is. We talk a lot about the size of our portfolio, but we’ve actually sold the same properties for the past 15 years as well. Just the properties we’ve heard from customers that are not a long-term vision. So, even though we have 1.3 billion feet, we’ve actually sold more than 200 million feet,” also because we’ve seen.
Energy infrastructure is also increasingly driving strategy, with energy sustainability becoming a major concern thanks to artificial intelligence. Power reliability ranks number one in logistics location decisions. Just over a quarter of executives surveyed said they expect landlords and industrial developers to lead or finance on-site energy resilience infrastructure. That includes solar, energy storage and fleet charging.
“We really doubled down on the energy side about five years ago, and we’re in business,” Letter said. “We have over 1.4 gigawatts of power that we generate from our solar and our storage business. And then we have been focusing on how we help our customers electrify their fleets.”
AI helps companies become more competitive, especially in logistics and warehousing. Demand forecasting and agent AI systems, respondents said, are some of the most “transformative technologies” when it comes to reshaping supply chains over the next three years. Three-quarters of those surveyed said they are planning large investments in AI demand forecasting as well as increasing inventory.
“As we’ve gone deeper with AI, we’ve gone deeper with them,” Letter said. “We’ve made investments together with our customers to understand what we’re going to do, and that helps us in all aspects of our business and getting out in front of our customers.”