Value Beyond Real Estate

‘Eurobuild CEE’: Are customers’ needs and their attitudes to modern distribution changing?

Paweł Sapek, Prologis: We know that as a product, warehouses are becoming a bit ‘old hat’. These days, the focus tends to be on accompanying services, from the design work to the handover of a building ready to be used; and later on, the management of the property and its leasing over a period of many years. It’s vital to provide a full range of services, delivered with professionalism, and capable of meeting the evolving challenges faced by businesses. In this way, warehouse space is increasingly seen as a service – or, to put it more accurately, as a combination of services, products and solutions capable of meeting customers’ changing needs. These solutions must be delivered in the quickest time and at the best possible price, including implementation and ongoing customer care. We’ve given a whole new meaning to the term “made to measure,” as designing and building a warehouse to meet the present needs of a customer is no longer enough. Buildings must be prepared for the future too, and they have to make use of innovative solutions that, in a year or two, will become logistics park standards.

Such an approach has redefined the role of the developer in warehousing. What does this mean in practice?

The warehouse developer is the main partner in the construction and development of warehouse and distribution centres, which form a crucial part of the overall supply chain. Our knowledge and tried-and-tested solutions allow us to act as a partner and consolidator of warehousing and distribution services – from providing forklifts and other necessities when equipping warehouses, to providing comprehensive warehouse management systems. We have witnessed this evolution of warehousing into a service first-hand. This model brings benefits not just to our customers, but to us as well; it provides a basis for the trust that cements our long-term partnerships with customers. This was the motivation for the establishment of the Prologis Essentials platform.

What exactly is this service, and is it popular with customers?

Prologis Essentials delivers next generation solutions to address some of the most critical logistical challenges faced today building resilience, innovation and growth into our customers business. It is the first complete warehouse solutions platform that lets our customers run, optimize and grow their business. It conveniently brings them all the set-up and operational equipment needed for a cost effective, quick and carefree start. It is their source for replacements, upgrades or temporary solutions as well – making life easier and giving them back valuable time. We can provide all these thanks to our global scale and our partnerships with trusted suppliers. Equipment and services provided through the platform includes racking, forklifts, elevators, pallet trucks and shelving systems, along with other equipment to facilitate customer operations and allow them to make optimal use of their space, such as shelving security and safety systems, and LED lighting with motion sensors. Such lighting systems save on both energy costs and CO2 emissions while enhancing worker wellbeing. All the solutions on offer can be tailored according to the particular needs of the customer.

How much have customers’ needs evolved? What do they expect today?

According to the ‘Journey to the Warehouse of the Future’ report commissioned by Prologis and published in September this year by the Łukasiewicz Institute of Technology in Poznań, customers today expect warehouse spaces to perfectly meet their essential needs. This means they should provide access to all necessary utilities, while including office and social spaces as well as warehouse areas. Another fundamental requirement is that warehouses should be in the right locations. Location has been key for many years; but a superb location doesn’t necessarily mean the same thing for every customer. A closer look at the study shows that a key requirement today is not just access to roads and close proximity to consumers, but also access for workers. This accounts for the growing demand for city warehouses, and logistics centres on the outskirts of large urban areas. Warehouses in such locations help customers attract and hold onto talent; the ability of workers to drive to the warehouse, and the length of their journey, are crucial. Leasing conditions are meanwhile key for every other customer, and technical specifications are vital to fewer than one in ten of our customers.

Does this mean the technical specifications of a building are unimportant?

Absolutely not! If we had asked the same question five years ago, the percentage of companies seeing technical specifications as a deciding factor would have been even less. There has been a major change in customer awareness; they are paying more attention than ever to how their warehouse is built and what materials were used in its construction. They want to know if it has been constructed in a sustainable manner ensuring good thermal insulation, and whether it has been equipped with innovative solutions to make utility usage efficient while improving the comfort of workers.

So four walls and a roof are no longer enough?

That’s exactly right. Today, warehouses play a significant role in improving the efficiency of supply chains. You have to remember that the efficient and economic flow of goods and materials is part of the definition of logistics. This, in turn, necessitates innovation, which has measurable benefits by limiting costs on the one hand, and by increasing efficiency on the other. We asked logistics operators why innovation is necessary in the warehousing industry, and the answers didn’t surprise us. They said innovation is vital because every time a company can reduce its logistics space, this results in a saving – which leads to better profit. When you take into account rising rents and the severely limited supply of space, it’s hard to disagree. Moreover, the further growth of e-commerce – a sector in which every minute and even every second counts – depends on further improvements to logistics. Operators also raised a shortage of labour as an issue. Innovation in automation is key here, as some tasks may be performed by machines. But there’s something else as well. People actually want to work for modern companies employing the latest technology and innovative solutions.

Environmental issues are now in focus. How should we approach this topic?

Limiting the harm we do to the environment and operating in a sustainable way requires a change in approach and the use of innovative solutions, such as re-using rain water and implementing solar-powered electric vehicle charging stations. At Prologis, we incorporate sustainable solutions at the building design stage to ensure that they are appropriate to the geographical location. As a result, harmful emissions are reduced and the overall running costs borne by customers are lower. Solutions include cool roofs, energy-saving lighting, parking facilities for hybrid vehicles, carpooling, and bicycle storage spaces, as well as recycled and locally-sourced glue, carpeting and construction materials. We are making significant strides in this area, and all the solutions I just described can be found in Prologis warehouses in Poland.

Where in particular can you find such solutions in operation?

They can be found, for instance, in a space at Prologis Park Janki designed and built for Euro-net, the owner of the RTV Euro AGD brand. Each detail was designed specifically for this development. As a result, a modern distribution centre was built which meets all sustainable development criteria for both traditional retail and e-commerce operations, while at the same time being a truly worker-friendly space. The centre also stands out for its significant energy savings and low emissions, while at the same time maintaining the highest construction standards. It was submitted for BREEAM certification, and achieved a rating of ‘Very Good’. This was down to the use of advanced environmentally-friendly technology, such as photovoltaic installations, with lighting powered by hybrid wind and solar energy, as well as our partnership with EKO Premium from Tauron for the use of energy exclusively from renewable sources. Meanwhile, the walls of the centre have enhanced thermal insulation, and the space is ergonomically designed to ensure the right temperature for workers while reducing the energy required for heating and cooling. This means a significantly reduced carbon footprint, making the park even more ‘green’. The pride and joy of the centre is an 8,000 sqm bio-park, which was built as part of our European PARKlife™ programme. This outdoor wellbeing zone is open to everyone who uses the distribution centre, making the space even more friendly for couriers and suppliers. Applying such solutions at our parks brings us closer to achieving our ambitious ESG goals.

The talk around ESG is becoming more frequent and louder. What are the ESG policies that Prologis is pursuing?

Over the last four decades, Prologis has implemented environmental management practices, social responsibility and corporate governance (ESG) throughout our operations. We have committed ourselves to achieving net-zero emissions by 2040. We want to achieve this by ensuring 1GW of solar power generation by 2025 and reducing our net operational emissions to zero by 2030. These goals underline our sense of responsibility as a leader in ecological construction. We also continually support our customers in achieving their own sustainable development goals. Since 2016, LED lighting has been offered as a standard solution, and by 2020 we had already fitted out almost half of our buildings with such lighting solutions. By 2025, we want our entire global portfolio to be 100 pct lit with high-quality energy-saving LED lighting. This will be made possible by the global scale of our activities, and by setting up the special Prologis Essentials LED programme as part of the broader Prologis Essentials platform. Moreover, in association with the Cool Earth charity, we finance activities throughout Europe to protect the world’s rainforests, compensating more than five times over for the inevitable C02 emissions resulting from the construction of Prologis buildings. The construction of Prologis warehouses in Central Europe over the last year alone has saved 784 ha of rainforest.

Your work clearly goes far beyond what happens in the parks themselves. So what should customers pay attention to when leasing warehouse space?

If you’re thinking about leasing warehouse property, you have to take into account not only the cost of the rent, but also all associated operating costs, including maintenance and utilities. Currently, the total cost of leasing a warehouse space comes to between 5–10 pct of the total costs in the supply chain. A typical monthly itemised bill for customers is made up of around 65 pct for leasing costs, and 35 pct for service charges and the use of utilities such as electricity and gas. Unfortunately, we have to expect that the latter share of the cost will grow over the coming years in line with increases in the price of electricity and gas. As such, Prologis is prioritising the management of this set of costs, since they closely affect both landlord and customer. In 2022 and for the years to come, Prologis has taken the decision to only purchase renewably-sourced energy via EKO Premium from Tauron, meaning our parks in Poland are already 100 pct powered by renewables. This allows us to significantly reduce our carbon footprint, making our operations and those of our customers more green.

To sum up, what are the warehouses of the future going to be like?

Without a doubt, the warehouses of the future will be modern and filled with innovative solutions. They will feature a significant level of automation, while also being worker-friendly and good for the planet. Green construction has been a reality for us for many years, and our priority is to focus on technology that generates savings while improving the well-being of workers. Warehouses should be attractive to future and current workers, with their comfort and safety given top priority. This is already happening at Prologis. The future is here today!