TEN TRENDS FOR A ZERO CARBON WORLD
06. Chain reaction
Demand for industrial and warehouse space continues to rise, driven by a combination of e-commerce growth and a global reshaping of supply chains. For many organizations, their logistics operations are also under intense scrutiny because of the drive to decarbonize.
The volume of global e-commerce transactions has more than trebled in recent years, rising by 25% during the Covid pandemic1. Recent disruptions in global supply chains – from blocked canals, closed ports, and shortages of everything from chicken to (micro)chips – have put supply chains under the microscope like never before2. The structural shifts underway are expected to create continued demand for additional warehouse space, much of it stuffed full of automated racking and robotic technology, and an associated increase in the number of vehicle movements. All of which suggests more greenfield development, more energy needed, more emissions generated – hardly what most stakeholders want to hear at a time of heightened awareness of environmental issues.
GLOBAL E-COMMERCE SALES
Expanded scope of activity
As businesses become increasingly focused on their road towards net zero carbon emissions, many are finding that taking care of their own actions is the relatively easy win. Companies are finding that indirect scope 3 emissions arising over their supply chain are typically more than 11 times higher than their own operational emissions3. While all companies have supply chains, those involved in product production, distribution, retailing, and infrastructure tend to be most carbon intensive. Indeed, the eight largest value chains make up more than 50% of global emissions alone4 –providing significant scope for change. As leading companies from every sector move down their own net zero carbon paths, the demands they will place on their suppliers will continue to rise.
The inherent complexity of supply chain management lends itself well to greening. Smart management systems mean that most logistics companies can pinpoint a particular product to the nearest millimeter at any given time. Such precision allows data-centric applications to be developed for monitoring sustainability too. While carbon accounting is not yet where it needs to be5, a multitude of methods6, 7, 8 now exist to help quantify the carbon impact of each component of the supply chain, whether that’s through spend or activity-based calculation9, 10.
While carbon accounting is not yet where it needs to be, a multitude of methods now exist to help quantify the carbon impact of each component of the supply chain.
Many leading organizations who are serious about tackling their carbon footprint have signed up to the Science Based Target Initiative, which has scope 3 guidelines baked into its calculation methodology11. Included in this list is Walmart, whose Project Gigatonne12 led to the development of their own monitoring system THESIS to track mitigation of carbon spend amongst their partners and vendors13. The project gave rise to the largest U.S. corporate bond offering in history – with $2 billion raised to pursue initiatives that aim to take the company to zero carbon by 2040 without reliance on offsetting14.
For companies such as Walmart who are dealing with physical products, the footprint of their supply chain has three principal components: the carbon emissions from producing the product itself, those related to moving the product from its point of production to the end consumer, and the physical infrastructure involved in those movements. Each of these have implications for property, but there are several ways in which the current focus on climate change and logistics is impacting the real estate sector.
Let's move it, move it
Logistics networks will need to adapt to transformational changes we are seeing in transport technology, where two key themes are currently dominating discussion. Automated (i.e. driverless) vehicles are fast becoming a reality, with long distance commercial journeys along the motorway networks of Europe and North America likely to be early applications of the new technology15. Electric vehicles (EVs) are also growing rapidly in popularity16 amongst private owners and will increasingly be adopted for commercial use. Initially, limitations on range and low emission urban areas will mean commercial EVs are mainly deployed for local journeys, but usage is set to expand significantly as the technology develops17. For example, UPS18, DHL19 and FedEx20 are all investing heavily in the electrification of their vehicle fleets.
Even once commercial EVs are capable of transporting goods over longer distances, significant investment is required in charging infrastructure to support the development of continental scale EV-based logistics networks21. Exactly what this network will look like remains unclear, but some expansion or transformation of the role of existing hydro-carbon fuel stations are likely to form a part of the solution.
In the short term, this reshaping will focus on more densely occupied urban areas. The historic de-industrialization of inner-city stock is being replaced by “reverse obsolescence”. E-commerce is driving demand for new industrial units22, like the intraurban development being seen in Vancouver23 and the repurposing of other buildings including department stores24, or multi-storey car parks such as Amazon’s recent redevelopment project in the City of London25.
Logistics facilities themselves are the second key area of consideration. There is increasing focus on the environmental sustainability of large-scale warehousing and logistics sites26, with some developments now claiming to be net zero carbon in construction and operation27. This is being driven not only by occupiers and 3PLs who are looking to create operational efficiency through their real estate or have net zero targets of their own, but by landlords who are keen to futureproof their estates – typically addressing carbon alongside a wider range of wellness and sustainability issues.
For example, through a wide-ranging program, Prologis reduced their greenhouse gas emissions by 37% between 2016 and 2020 – the equivalent of removing 482,000 vehicles from the road28. Driving such efforts can be challenging for a sector that has historically focused on redevelopment rather than retrofitting, but will become increasingly necessary as regulators across the world insist on ever-stricter environmental standards in leased buildings. Looking forward, the newest generation of buildings should be easier to keep in use. The relative simplicity of warehouse buildings means that innovation in trends such as modular construction and lower carbon content in materials can help to lower the footprint of this asset class.
Prologis reduced their greenhouse gas emissions by 37% between 2016 and 2020 – the equivalent of removing 482,000 vehicles from the road.
I've got the power
Logistics facilities are also intensive users of energy. The next generation of automated, 5G-enabled warehouses operating 24/7 and supporting a fleet of electric vehicles will place huge demands on power grids. Access to reliable, guaranteed sources of renewable-based power are an increasingly important issue for operators. One option is to secure a bespoke power-purchase agreement with a supplier29, assuming that one is available that can supply appropriately sustainable electricity.
The increasingly popular alternative is self-generation of on-site power from renewable sources (most commonly via wind turbines or solar panels)30. Prologis’ 1 million sq ft carbon-neutral development in Germany for L’Oréal featured a 1.8 MW photovoltaic system as well as on-site wind turbines31, while Nike’s European Logistics Campus in Belgium is powered solely using locally generated renewable energy. The advantages of renewable-based self-generation include security of supply, a reduction in commercial energy costs, and usually the opportunity to sell power that is surplus to immediate requirements back to the local grid.
PEAK PRODUCTION AND PEAK DEMAND
The downsides of self-generation are that energy demand varies over time, whilst the wind doesn’t always blow and the sun doesn’t always shine32. However, the advances in Battery Energy Storage Systems (BESS) we are already seeing will help manage supply-demand imbalances for both on-site and network supplied renewable energy. The global battery market is attracting huge investment and is expected to be worth over $11 billion by 202533 – and not just from the automotive sector. Indeed, Tesla is just one of the multitude of companies developing utility-scale battery products targeted at the real estate market34. For companies looking to align efficient building strategies with demand side energy solutions, there are emerging digital models35 which can help develop business cases. These models act as a ”digital twin”, simulating the benefits of adding battery storage and renewable generation enabling clear forecasts of return on investment and carbon emissions reduction. The rapid appraisal offered by these models has great potential to unlock this emerging area of the energy transition.
All change please
As a beneficiary of some recent trends that are proving to be headwinds for other areas of the real estate market, the industrial and warehouse sector is experiencing rapid growth but dramatic change. Whether the nature of the goods inside, the vehicles visiting them or the structure and power sources of the buildings themselves the next decade will only see the pace of change accelerate for players in the logistics market.
1https://www.statista.com/statistics/379046/worldwide-retail-e-commerce-sales/ 2Link to (De)Globalization from 2020 and (De)Globalization 2.0 from 2021 3https://www.cdp.net/en/research/global-reports/transparency-to-transformation 4https://www.weforum.org/reports/net-zero-challenge-the-supply-chain-opportunity 5https://www.mckinsey.com/business-functions/operations/our-insights/making-supply-chain-decarbonization-happen 6https://afleet.es.anl.gov/hdv-emissions-calculator/ 7https://coolclimate.berkeley.edu 8https://www.terrapass.com/carbon-footprint-calculator 9https://normative.io/how-to-calculate-supply-chain-emissions/ 10Spend-based method: which is centered around the economic value of purchases. The expenditure for every purchased good or service is multiplied by a “typical” emission factor based on industry averages of emissions per unit of output. The results may therefore lack some accuracy or specificity to the organization concerned, but help build an initial picture of where the main sources of emissions may lie. Activity-based method: which relies on data tracked within the company or provided by suppliers – for example the volume of fuel used by a particular vehicle in undertaking particular journeys, is then multiplied by the relevant emission factors. This is more accurate, but harder to do because of the challenge of collecting and managing the large volume of data involved. 11https://sciencebasedtargets.org/resources/legacy/2019/06/SBT_App_Guide_final_0718.pdf 12https://progressivegrocer.com/walmarts-path-becoming-regenerative-company 13https://www.walmartsustainabilityhub.com/sustainability-index 14https://progressivegrocer.com/walmart-further-sustainability-goals-2b-green-bond 15https://www.bbc.co.uk/news/business-56332388 16See Electric avenue 17https://www.logisticsmanager.com/freight-innovator-tevva-secures-multi-million-pound-funding-to-develop-long-range-electric-trucks/ 18https://about.ups.com/content/dam/upsstories/assets/reporting/sustainability-2021/2020_UPS_SASB_Standards_Table_081921.pdf 19https://www.dhl.com/global-en/home/about-us/delivered-magazine/articles/2017/issue-2-2017/zero-emissions-by-2050.html 20https://newsroom.fedex.com/newsroom/sustainability2021/ 21See Electric avenue 22https://www.640columbia.com/ 23https://www.westerninvestor.com/british-columbia/dual-industrial-strata-projects-planned-for-vancouver-3832661 24https://fashionunited.uk/news/business/plans-to-convert-retail-space-into-logistics-centres-struggle-to-take-off/2020111751997 25https://news.cityoflondon.gov.uk/city-of-london-corporation-teams-up-with-amazon-to-cut-delivery-vehicles-and-improve-air-quality/ 26https://barneslogistics.co.uk/net-zero-logistics/ 27https://www.futurenetzero.com/2020/06/22/giant-net-zero-carbon-ready-warehouse-built-in-sheffield/ 28https://www.prologis.com/sustainability/environmental-stewardship 29https://ppp.worldbank.org/public-private-partnership/sector/energy/energy-power-agreements/power-purchase-agreements 30https://futurepresent.economist.com/infographic-the-outlook-for-self-generation/ 31https://www.prologisgermany.de/en/logistics-industry-feature/prologis-develops-carbon-neutral-logistics-facility-loreal 32https://fortune.com/2021/09/25/what-a-modern-energy-crisis-looks-like-and-why-no-country-is-safe/ 33https://www.power-technology.com/comment/global-battery-energy-storage-market 34https://www.costar.com/article/2114968179/why-tesla-is-betting-on-batteries-to-power-real-estate 35https://energyopenpiazza.io/