So far, this shift has been driven by the rise of e-commerce. But looking ahead, logistics can play an important role in the green energy transition, amid rising demand for reliable and self-sufficient energy ecosystems.
While logistics hubs are integrating into the supply chains for products and energy, the lines between traditional warehouses and data infrastructure are also becoming increasingly blurred.
We look at some of the trends that are driving these changes.
Power is the future
Long-term trends – widespread use of artificial intelligence, urbanisation, automation and electrification – will increase energy demand.
The creation of power, its storage and distribution will be the next steps for logistics as many countries struggle to adapt fossil-fuel powered energy grids for the needs of the 21st century. A digital economy means the demand for power has changed – in quantum and location.
For example, it’s estimated that electricity demand in the UK will increase some 50% by 2035 from pre-Covid levels, and ultimately double by 2050.
While labour and transportation costs remain two key considerations in warehouse location, with automation and the shift to electric vehicles, a growing factor is now power.
Logistics tenants will need to venture into new locations that are closer to electricity hubs on the grid network. That said, with competing demands for energy, technical limitations and demand forecasts that will eventually outpace supply – alternative solutions will be needed.
Logistics sites as energy hubs
Here’s where local ‘microgrids’ – that can shift heavy energy users off stretched local energy networks – come into play.
Logistics facilities can play a role in on-site energy generation and storage for these microgrids. Shortfalls in energy in some locations might need to be met with renewable energy generated on-site from solar panels on warehouse roofs and over parking areas, or wind turbines built nearby. The energy can be used directly by the occupier, sold back to the grid or fed into local businesses and communities.
However, unpredictable weather and the uneven nature of electricity demand mean that power generated often needs to be stored. So on-site battery facilities can also be required in these locations.
Tenants of logistics facilities are increasingly focused on a secure energy supply as part of their premises selection criteria. Additionally, other local industries might view these microgrids as beneficial supplements to their energy needs, particularly considering the renewable characteristics of the energy provided. Enhancing renewable energy production and storage capacity offers advantages for all logistics stakeholders.
Amazon is pouring some US$30 billion into data centres throughout Europe but recently said that further expansion in Ireland is on hold until energy shortages are mitigated by increased wind energy. With these challenges impacting most energy networks, the real estate sector keyoffers a viable contribution to this escalating energy predicament.
Logistics sites as data hubs
Physical infrastructure for artificial intelligence (AI) and cloud computing will require massive capital investments in data centres, computing capacity, and electrical grids.
We are seeing a blurring of lines between sites suited to logistics and data centres as their requirements increasingly centre around power supply. That said, the technical requirements between warehouses and data centres are very different and any new data centre requirements will need to be met through bespoke provisions.
So-called ‘windy field’ locations may seem remote, but they could become vital if integrated into the power grid. As traditional logistics operations are affected by competition for ‘on-grid’ locations, this is likely to raise the value of these locations over time.
Why should investors take notice?
The changing nature of logistics as an asset class has five big implications for investors:
New competition. Competition for logistics sites is becoming fierce, as these locations are often sought after for other purposes. The need to be close to grid-power sources and areas with sufficient water supply has heightened competition.
- Part of the power solution. Logistics sites with on-site renewable energy supplies, storage, and a route into the grid will be highly valued. These sites can partially support the energy needs of data centres and local microgrids, making them attractive to tenants and investors while helping achieve Net-Zero targets.
- Storage solutions. Solar and wind generation is intermittent and demand can be volatile. Storage assets are critical to supporting the role of renewable energy microgrids in becoming a viable power solution.
Increased demand. Well-located sites with strong energy connectivity and infrastructure will attract more tenants and investors. The availability of on-site renewable energy can lead to increased site value and higher residual value for the underlying land.
- Rental growth. The availability of lower-cost on-site renewable energy can make some warehouses more appealing, especially if powering warehouse automation and electric vehicle charging becomes a larger cost for operators. Future-ready warehouses with full energy services on-site will command rental premiums.
Global opportunities
The opportunity for real estate to support the rise of renewables is global. Countries are on varying pathways towards decarbonising their energy mix and ‘cleaning the grid’.
The potential is greater in those countries that have more work to do to support the green transition and adapting their energy supply to meet the needs of modern industry.
Final thoughts
Investors should prioritise acquiring and developing logistics sites with reliable energy connectivity and renewable energy infrastructure.
By integrating sustainable energy solutions into their properties, landlords can meet growing tenant demand for greener operations and enhance the long-term value of their assets.
Rapid technological and regulatory changes require deep knowledge to navigate – the sort of knowledge that only specialist logistics investors and developers, like Tritax, possess.
An active approach with a specialist investor helps ensure logistics investments are resilient, adaptable, and positioned to capitalise on the shift towards a more sustainable future.