Location driven by changing needsReport
By focusing on operational efficiency, logistics occupiers are aiming to improve their supply chains. Their priority is to be near large population centres and transport networks, closely followed by the need to be within easy reach of customers and suppliers. While proximity to economic networks has been the top criteria in the past two surveys carried out by Prologis and eyefortransport, access to customers and suppliers has moved up to third place from sixth and seventh in 2015 and 2013 respectively, reflecting a sharper focus on supply chain efficiency.
According to Prologis’ ‘Location Decision Drivers: Trends Shaping New Location Selection in Europe’ report, the availability of a flexible workforce is another aspect of operational efficiency that is increasingly important to the logistics sector. With the growth of e-commerce and the steady decline in unemployment levels, labour availability and flexibility rose to second place in the 2017 ranking from fourth in 2015. Moreover, the drive for efficiency has pushed regulatory concerns up from eighth place in 2015 to fourth in 2017.
Similarly, multimodality – access to intermodal infrastructure such as ports, airports and rail hubs – is climbing up the ranking. In both 2015 and 2013, it was one of the least important criteria. By 2017, with emphasis on operational efficiency increasing, the proximity of various forms of freight transport had reached seventh place.
Despite rent rises, real estate costs were seen to be less important in 2017 than in 2015 and 2013, falling from third place in 2015 to fifth place. Availability of development land was seen to be the least important criteria in the 2017 survey. However, since 2013 the criteria with the lowest score has been incentives – tax advantages and grants that a country or region will provide for relocating companies.
While proximity to large urban centres and transport routes was important to all customers in the 2017 survey, the results showed some variations in emphasis between different sectors. Labour availability and flexibility, for example, scored particularly well with clothing companies, while a location’s regulatory status was of most concern to the consumer products, automotive and pharma sectors. Interestingly, only pharma companies rated real estate costs as a top three criteria. But pharma companies need to invest more heavily in their logistics real estate than other sectors, to comply with legislation.
Despite these sectoral differences, the overall results of the 2017 survey show a trend towards criteria that will help customers achieve increased operational efficiency. Nevertheless,location decisions are taken within a wider economic and political context.
Future location decisions
Over the next five years, long-term structural changes are expected to have more impact on location decisions than short-term cyclical drivers. The European logistics market is evolving rapidly and long-term trends, such as the continuing growth of e-commerce and outsourcing are set to be a greater influence on future location decisions than short-term cyclical drivers, such as low levels of consumption.
Online shopping dates back more than two decades and e-fulfilment has played a significant role in the logistics sector for at least five years. Since e-commerce is still in the early stages of its growth cycle and because it is an intensive user of logistics real estate, the expansion of online activity is leading to increasing demand. Recognising the potential of e-commerce, respondents rated its growth as the most important driver of change in the next five years. This is the first time that the continuing development of online shopping has topped the ranking, climbing from fifth place in 2015 and sixth in 2013. Consumer retail sectors,such as electronics, consumer products and home goods gave e-commerce growth a particularly high score.
With changing demographics and increased levels of value-added services in logistics warehouses, availability of qualified staff has become a structural as well as a cyclical driver and this ranked highly in the 2015 and 2013 surveys, as well as in 2017. Metropolitan areas have large labour pools and offer the best opportunities to find a qualified workforce. Skilled staff availability was in the top three criteria for all sectors, achieving the highest scores from automotive and pharma customers.
Technological innovations are evolving rapidly in our sector leading to more agile supply chains and faster delivery times. Among food and beverage and freight companies, technological innovation was highly rated, but when the results were aggregated across all sectors, innovation – along with robotics – achieved only mid-range ranking. Currently, it is mostly the largest logistics warehouse operators who are investing in robotics.
As in the 2015 survey, political issues were not seen to have a strong influence over the location decisions that would be taken over the next five years. Among logistics operators, investment horizons are long. Demand for logistics warehouses is mostly driven by supply chain modernisationand consumption, so location decisions are influenced by long-term trends and only to a lesser extent by short-term political changes.
The survey was carried out from February to May 2017 among 280 respondents from among Prologis customers across sectors, ranging from retail to automotive and electronics. The Prologis portfolio in Europe comprises 17 mln sqm across twelve countries. The customers operate across a wide diversity of sectors. In fact, no single sector represents more than 12 pct of Prologis’ customer footprint. (source: Location Decision Drivers: Trends Shaping New Location Selection in Europe, Prologis)