Logistics space explodes over last decade to grow faster than revenues
The high space requirements of modern fulfilment have meant that investments into logistics space have outpaced retail revenue growth over the last 10 years
Despite advancements in automation, the amount of logistics real estate used per unit of retail revenue has increased by 57% during the past 10 years according to a report from real-estate investment trust company, Prologis.
This phenomenon of logistics space increasing faster than company incomes, even as efficiencies increase, is described in the report as the “supply chain productivity paradox”.
Put another way, this increasing logistics burden means the space required to support $1B in retail sales rose from 500,000 square feet in 2012 to 800,000 square feet.
Furthermore, overall logistics space grew by 2.5 billion square feet in the decade up to 2022, which is more than double the overall growth from the preceding two decades combined, where space increased by 2.1 billion square feet.
According to Prologis’ analysis, “e-commerce requires three times more logistics space than brick-and-mortar sales” due to the need for piece picking, product variety, direct-to-consumer shipping and process returns. Omnichannel operations also require bigger supply chains to pool inventories in bigger facilities. They also need to offer speedy replenishment to stores from local or regional facilities.
The report predicts retailers will need to increase their “use of logistics facility space to compete and win in the future of retail, supporting increased levels of e-commerce, omni-channel fulfilment, product variety and resilience”.
As well as the market forces of e-commerce and omnichannel operations, other drivers of real estate growth are recognised as greater product variety availability, transportation cost management and regulatory compliance.
While the report notes that automation can increase the productivity per square foot of fulfilment facilities, it also found that only 10-20% of companies are expected to use automated sortation/retrieval (AS/RS) in the future and only 35-50% of customers have inventories suitable for AS/RS. However, Prologis predicts that half of logistics facilities will use Autonomous Mobile Robots (AMRs) in the future.
Chris Caton, managing director, Global Strategy and Analytics at Prologis, said: “Increasingly, logistics operations are prioritised by customer C-suites, resulting in investments in operational upgrades and quality facilities, as we’ve seen with the rents they are paying. The sector is seeing an increase in adoption of advanced technologies and automation as customers strive to maximise value and efficiency…. The next three-to-five years is likely to see a continuation and arguably an acceleration of these trends. As operations become more complex and the need for efficiency more critical, investments in technology and automation are poised to rise further.”