Commentary

Smart spaces: the next generation of warehouses

The insatiable appetite of e-commerce, coupled with the arrival of Industry 4.0, is driving demand for new, high-value smart warehouse facilities.

E-commerce continues to be the dominant force for change and investment opportunity in the global logistics sector. In Asia-Pacific, internet penetration rates are on a strong upward trajectory, moving consumers online and fueling the rapid growth of online shopping.

In South Korea, for example, the e-commerce penetration rate – the share of online sales to all retail sales – was the highest in the world at 18% in 2018, and is expected to exceed 30% by 2021.(1) And in Southeast Asia as a whole the number of internet users reached  370 million in 2018,(2) with the region's digital economy forecast to hit US$240 billion by 2025.(3)     

This reshaping of the retail environment has already had far-reaching impacts for business, driving logistics operators to expand their operations and putting in new focus the location – critical for meeting same day/next day delivery expectations – and capabilities of warehouse facilities.

Now, though, there is a new and potent driver of change in the logistics space: the fourth industrial revolution.

Industry 4.0 is here

The fourth industrial revolution, or Industry 4.0, is all about intelligent production, and is fusing with e-commerce to form a 'super-driver' of demand for technologically advanced and future-proofed logistics facilities.

Technologies within the fourth industrial revolution are influencing the logistics industry's space requirements. These include robotics, artificial intelligence (AI), The Internet of Things (IoT), and autonomous vehicles. In fact, logistics tenants are already requesting capabilities such as robots, sell-driving trucks and delivery drones.

In response, developers and owners in Asia Pacific are building new properties and upgrading and future-proofing existing facilities to be the next generation of warehouse

Welcome to the smart warehouse

Smart warehouses can be defined as facilities with networked business processes. These building systems can learn from and adapt to changing situations and are able to run business operations with minimal human intervention.

Smart warehouses need less space than traditional facilities, due to improved picking efficiencies. And they are also safer workplaces, as the need for staff to operate heavy equipment is reduced.

Smart facilities development in Asia Pacific

While the majority of Asia Pacific's industrial and warehousing space is still traditionally equipped, we expect the quantum of smart space to expand. "We expect to see an increased introduction of new technologies into the logistics space, with automated storage and retrieval systems now being supported by more reliable systems and software," says Peter Guevarra, JLL's Director for Asia Pacific Research. "These systems increase efficiencies and reduce reliance on staff, but do require an investment outlay."

In China, e-commerce giants such as JD.com, Suning.com and Alibaba Group are investing heavily in building a new portfolio of smart warehouses, in order to keep pace with the breakneck growth of the China online shopping market and to create their own competitive edge in delivery times. JD.com claim that one of their new fully automated warehouses is 10 times more efficient than a traditional warehouse.(4)    

And in Hong Kong, the SAR's first fully automated and unmanned warehouse service opened at the Science Park location in 2018.(5) The facility deploys robotics and smart technologies to offer express courier and self-service storage, serving as a working showcase of smart warehouse capabilities

What does the new smart warehouse landscape mean for investors?

We expect demand for future-proofed logistics properties to grow and to create new investment opportunities. 

However, it is essential for potential investors to familiarise themselves with the specific market conditions and the stock of existing property in their targeted territory. Investors should be aware that developing a new smart facility or upgrading an existing property requires significant capital outlay on infrastructure.

There are two key factors for potential investors to consider.

Firstly, for existing properties, specifically in key locations. Here, upgrading and revitalizing facilities to perform multi-functional roles is a viable route. Investors seeking to upgrade specifications or to change the use of existing spaces can add value through additional floor-loading capacities, upgraded power supplies, and the installation of fibre-optic infrastructure.

Secondly, when considering new properties, location and design are critical. The heightened delivery expectations of e-commerce customers require warehouse and delivery facilities to be closer than ever to major population centres and transport networks. And warehouse designs need to engineer-in flexibility to avoid obsolescence. A key aspect is the use of modular units that can meet the needs of different businesses is that it can be reconfigured based on changing tenant needs. 

Read JLL’s Logistics: Beyond warehousing to find out why industrial and logistics are the next big thing in Asia Pacific. The whitepaper features in-depth, market-by-market analysis.

Source:

  1. The Investor, Why South Korea is set for a logistics boom, 28 May 2018
  2. ASEAN UP, Southeast Asia digital, social and mobile 2019, 31 Jul 2019
  3. ADWEEK, Why 2018 Was the ‘Year of Ecommerce’ in Southeast Asia, 3 Dec 2018
  4. The Wall Street Journal, Smart Warehouses Speed Up E-Commerce in China, 31 Jul 2018
  5. HKSTP, The RobEx Centre – Hong Kong’s First Fully Automated Smart Warehouse Launches at Science Park, 28 Aug 2018
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