Greener than thou

The logistics sector is one of the EU’s big success stories. With the integration and liberalisation of European markets, significant demand has been generated for trade both within the EU and with other countries. Currently, the sector accounts for more than 14 pct of the EU’s gross domestic product. The more established major logistics markets of western Europe (Germany, France the Netherlands) are now being joined by the newer members of the EU – with Poland chief amongst them. But as is the case with any major expansion of industry, economic development is followed by increasing concern about its broader impact on society and the environment. The embrace by national governments and the European Commission of the concept of sustainable development has led to a number of white papers, discussion documents and initiatives targeted at raising consciousness about the issue and implementing measures to promote greater sustainability. Logistics has been no exception to this process, with the publishing by the EU of the ‘Keep Europe Moving - Sustainable Mobility for our Continent’ white paper of 2001 (reviewed in 2006), followed by the Freight Logistics Action Plan initiative of June last year, which is aimed at setting up and testing systems to improve efficiency by 2009 and 2010. The intention is to eventually agree on points of action for implementing certain regulations and restrictions, as well as for inspections, for example, on vehicle dimensions, loading standards and CO2 emissions.

Change of emphasis

But now a new buzzword is increasingly being heard on the warehousing market: ‘green logistics’. This may represent a shift in emphasis on to the environmental side of the equation. Eri Mitsostergiou, the associate director of European research for property consultant Savills, is of the opinion that “Green Logistics has come to the forefront and is an issue that people need to think about and take immediate action.”

The EU Commission’s starting point on this issue was the 2001 white paper on European transport policy. According to this document: “A modern transport system must be sustainable from an economic and social as well as an environmental viewpoint.” It was addressed specifically to how to reduce the traffic congestion exacerbated by the increase in trade. Investment in infrastructure is one proposed solution to this problem, but the paper presses home the point that this cannot take the form of road-building schemes alone. Rather, it is the length of time that freight is on the road that has to be reduced in order to achieve more efficient transportation. As Richard Holberton, the director of EMEA research and consulting for CBRE notes, an improved road network “could cut down travelling times, emissions and congestion. But there are people who argue that more roads equals more traffic. Ironically, because of EU membership, there are more funds available for road building.” Nevertheless, he does add that “there are clearly some regions where road building would have environmental benefits.”

Planes, trains and automobiles

What the EU proposes, however, is a switch to ‘inter-modality’, i.e. reducing the reliance on roads, and shifting instead to transportation of freight by rail and inland waterways. According to Eri Mitsostergiou, the impact of such thinking is already evident in the logistics sector: “We have seen a large increase in distribution centres offering inter-modal facilities.” It is her opinion that logistics developers may now have to take on board such factors as a long term consideration when choosing the locations of their facilities, arguing that “if developers want their projects to have a long life and to benefit from rising prices, then they should have a multi-modal capacity – especially the larger-scale facilities. Sea ports and inland waterways are growing in importance, as are primary and secondary airports. But rail and sea-ports are the most important factors in choosing a location. And the EU would support any modernisation scheme for inland waterways.”

John Palmer, the CEE managing director of the industrial and logistics department of CBRE, is more sceptical on the prospects for a switch to rail freight: “In the last ten years there has been a push to use rail – but the trade-off of this is that rail often tends to be more expensive and more complicated. For example, from Russia freight would have to travel through eight countries with eight different gauges. Seven years ago, everyone wanted to have sites with rail connections. But as time has passed, fewer and fewer companies have this requirement. At the moment, around 70 pct of all freight is taken by road.”

Follow the money

But it is not only the access to inter-modal means of transport that is the issue, but also how warehousing facilities should be distributed throughout a country to ensure effective transportation of goods to their markets. Land prices within cities are naturally more expensive than those out in the countryside, and this is generally where the major logistics hubs are being situated. In turn, cities tend to be surrounded by satellite warehousing facilities supplied by the major hubs, from where the goods are transported to their final destination. Eri Mitsostergiou believes that “urban distribution centres and freight villages around cities are another way of minimising the number of delivery trips in city centres. This is a complex process that requires a lot of management and planning.” Richard Holberton of CBRE feels that environmental concerns are less of a factor in developers’ minds when it comes to choosing a location: “Generally developers will follow the demand and parks are located where the client wants them to be. Developers will rarely choose a location for environmental reasons; instead they tend to follow the market. Location is determined by the end-user – such as the manufacturer, producer or retailer, etc. And retailers tend to focus on efficiency and beating their competitors rather than on green issues,” says Mr Holberton.

Doing it for themselves

Although the issues surrounding the locations of logistics parks and modes of transportation may require some EU action to resolve, the main movement towards sustainability coming from the within the industry at the moment concerns buildings rather than location. This is especially important, because currently around 40 pct of all CO2 emissions are from property. The developers we spoke to were confident that not only have they put into practice local environmental law for their projects, but have in fact gone further down this road than they were legal required to do. Robert Dobrzycki, a CEE regional partner of Panattoni Europe, claims that “Panattoni takes environment friendly solutions very seriously. We attach great importance to bringing energy-saving solutions into life, while developing new stock. Our buildings are heated with environmentally-friendly propane gas, we control the CO2 emissions in our parks, and provide high standards of building ‘tightness’ – reducing the costs of energy consumption.” Rafał Bochenek, the managing director of the Goodman Group of logistics developers, is also insistent that for his company no prompting from the authorities is needed: “We have one of the largest projects in the CEE region in Modlniczka near Kraków at the moment, where we are planning to plant 500 trees – normally green areas are left behind by warehousing development. We had to cut down the trees in the footprint of the buildings, but we will plant more than were felled. This project also features the collecting of rainwater and its recycling on site, and this is something that is not required by local law. And in some cases we have separate contracts to sell electricity from solar panels on the roofs of the warehousing buildings.”

The question that arises is whether the cost of such investment in green solutions will translate into higher rents. Rafał Bochenek, however, disputes this: “We always try to build with cost-effectiveness and long term maintenance in mind. So it is the total cost to the client that we are thinking of. If we built with no insulation, exploitation of the premises would be much more expensive for the client.” Robert Dobrzycki agrees that the greening of logistics does not necessarily result in disgruntled tenants paying over the odds, but in long-term savings: “I think that the interest in our sector for environment-friendly solutions is high and will keep on growing. There is also an increasing number of clients interested in these kind of solutions and willing to pay for them.”

Who’s the greenest?

Interestingly, another impetus for sustainable warehousing comes from developers wanting to ‘out-green’ the competition with novel environmental solutions. According to Rafał Bochenek: “If a competitor comes up with something new, rival developers have to respond. We cannot simply say that they have green buildings, but ours are cheaper – we have to be at least on the same level. So the momentum is coming not just from legislation, but partly from trends in the industry.”

Eri Mitsostergiou of Savills believes that “prices probably will be pushed up – and companies will have to bear most of the costs. But the short-term increases will bring long-term benefits, eventually bringing down prices to a more reasonable level.” She also feels that developers can only benefit from the implementation of sustainability in logistics: “Newer facilities will be required to replace the older, obsolete stock, and this should provide an opportunity for developers. Land is relatively expensive on the outskirts of cities, so new hubs will be developed further away from them. There might be a positive trend for rents, with the need for sustainable warehousing and the shortage of land for development. But in this sector we haven’t yet seen any historically dramatic rise in rents – as we have, for example, with offices,” says Ms Mitsostergiou.

Whatever the source of the push towards green logistics – whether it comes from the EU, from central and local government, from consumers or from the industry itself – it is clear that it is being taken increasingly seriously at all levels. And we must not forget that it is not just the industry that may not have much time to waste for putting this into practice, but that it needs to be done for the sake and the quality of our lives in general.

Nathan North