Make logistical property choices in the Supply Chain
At BNP Paribas Real Estate, we work closely with the investment community to track the trends in capital values and rental values of property in the logistics sector. Our annual Index exposes market conditions that could have a major impact on supply chain network decisions made by strategists in the retail, manufacturing and distribution sectors.
For many years we have noticed that there is a lack of definition when it comes to tracking the investment performance of warehousing units. The terms logistics, industrial or distribution are all used almost interchangeably to mean the same things, whereas in actual fact they can mean very different things.
For accuracy, we break this property market down into two main areas within our Index – ‘logistics’, which examines units of more than 50,000 sq ft leased to a single tenant and ‘industrial’, which examines smaller units traditionally located on industrial estates.
For property investors this allows the performances of an asset to be tracked and benchmarked. For tenants, the information could be used to establish a correct level of rent or to examine the options of owning a unit freehold..
In the early 1990s, logistics began to separate itself in terms of asset performance. This is in line with the evolution of operational logistics and supply chain management, and the creation of national and regional distribution centres. An index with a booming performance in the early 1990s and a stable performance above that of the standard industrial units developed. The Index reached a higher peak in 2006 and over the course of the last four years has set itself apart from standard industrial assets.
Logistics has proven to be a more resilient asset type than all other industrial, as it has emerged more quickly from the recession over the last three years. Logistics as an investable asset started in earnest in the late 1980s with investment volumes steadily rising. As a proportion of capital value of all assets, spending peaked in 1989 with 32% of total value invested in logistics.
In the last 31 years, as a proportion of value, all other industrial spending has only been higher than logistics in five years (1987, 1999, 2002, 2008 and 2009). Net investment in logistics was highest in 2005 with £759 million spent on assets and 2011 saw logistics return to its dominant position with £202 million net invested compared to £83.8 million for all other industrial.
Once again the bulk of large deals have involved retailers, specifically within the grocery sector. Interestingly, 2012 saw the automotive sector and associated supply chain move into the foreground, certainly in the Midlands and the North East. However, with the majority of requirements satisfied for the short-term, it is not expected that the sector will challenge retail in terms of market dominance in the medium to long-term.
The results of the 2012 Index exposed market conditions that could have a major impact on the supply chain network decisions made by strategists in the retail, manufacturing and distribution sectors. The results also highlight issues which should make firms operating in the regions outside London and the South East give serious thought to altering their asset strategies. As a sluggish economy forces firms to continue to look at their costs, any opportunity to further sweat their assets should be explored
The Index also demonstrated that capital values are falling in the most part for both logistics and industrial assets. This could have an important impact in the supply chain as companies look to maximise value and make savings. Strategic locations that were previously unaffordable are now available. Therefore, for cash rich tenants the time may be right to examine purchasing the freeholds to warehouses, where possible and therefore future proof their supply chains by placing strategic assets on their balance sheets.”
About the Author
Lisa Fitch’s expertise covers all areas impacting supply chain performance, including inventory, procurement, manufacturing, logistics, warehousing and organisational excellence.
Biden establishes Supply Chain Disruptions Task Force
The US government is to establish a new body with the express purpose of addressing imbalances and other supply chain concerns highlighted in a review of the sector, ordered by President Joe Biden shortly after his inauguration.
The Supply Chain Disruptions Task Force will “focus on areas where a mismatch between supply and demand has been evident,” the White House said. The division will be headed up by the Secretaries of Commerce, Transportation, and Agriculture, and will focus on housing construction, transportation, agriculture and food, and semiconductors - a drastic shortage of which has hit some of the US economy’s biggest industries in consumer technology and vehicle manufacturing.
“The Task Force will bring the full capacity of the federal government to address near-term supply/demand mismatches. It will convene stakeholders to diagnose problems and surface solutions - large and small, public or private - that could help alleviate bottlenecks and supply constraints,” the White House said.
In late February, President Biden ordered a 100 day review of the supply chain across the key areas of medicine, raw materials and agriculture, the findings of which were released this week. While the COVID-19 health crisis had a deleterious effect on the nation’s supply chain, the published assessment of findings says the root cause runs much deeper. The review concludes that “decades of underinvestment”, alongside public policy choices that favour quarterly results and short-term solutions, have left the system “fragile”.
In response, the administration aims to address four key issues head on, strengthening its position in health and medicine, sustainable and alternative energy, critical mineral mining and processing, and computer chips.
Support domestic production of critical medicines
- A syndicate of public and private entities will jointly work towards manufacturing and onshoring of essential medical suppliers, beginning with a list of 50-100 “critical drugs” defined by the Food and Drug Administration.
- The consortium will be led by the Department of Health and Human Services, which will commit an initial $60m towards the development of a “novel platform technologies to increase domestic manufacturing capacity for API”.
- The aim is to increase domestic production and reduce the reliance upon global supply chains, particularly with regards to medications in short supply.
Secure an end-to-end domestic supply chain for advanced batteries
- The Department of Energy will publish a ‘National Blueprint for Lithium Batteries’, beginning a 10 year plan to "develop a domestic lithium battery supply chain that combats the climate crisis by creating good-paying clean energy jobs across America”.
- The effort will leverage billions in funding “to finance key strategic areas of development and fill deficits in the domestic supply chain capacity”.
Invest in sustainable domestic and international production and processing of critical minerals
- An interdepartmental group will be established by the Department of Interior to identify sites where critical minerals can be produced and processed within US borders. It will collaborate with businesses, states, tribal nations and stockholders to “expand sustainable, responsible critical minerals production and processing in the United States”.
- The group will also identify where regulations may need to be updated to ensure new mining and processing “meets strong standards”.
Partner with industry, allies, and partners to address semiconductor shortages
- The Department of Commerce will increase its partnership with industry to support further investment in R&D and production of semiconductor chips. The White House says its aim will be to “facilitate information flow between semiconductor producers and suppliers and end-users”, improving transparency and data sharing.
- Enhanced relationships with foreign allies, including Japan and South Korea will also be strengthened with the express proposed of increasing chip output, promoting further investment in the sector and “to promote fair semiconductor chip allocations”.