Managing Great Expectations | Our Take April 2024

The logistics sector must evolve to meet next-generation demands [Click here.]( to view with images. To ensure delivery to your inbox, please add [CBRE Group Inc.](mailto:Capitalmarkets@cbrecommunications.com) to your address book. [OurTAKE logo] Expert perspectives on what matters most in commercial real estate April 2024 This month, Mary Lang writes about how technology and consumer behaviors are driving the next industrial revolution in logistics. Managing Great Expectations [Author Photo]( 3-min read By [Mary Lang]( Head of Americas Direct Logistics Strategies and Portfolio Manager, CBRE Investment Management [Managing Great Expectations] The logistics sector must evolve to meet next-generation demands We rarely recognize obsolescence as it’s occurring. It could be because we’re creatures of habit, slow to adopt new technologies and therefore slow to embrace the inevitable sunset. But it’s more likely that we’re simply hard-wired to hold onto something until we’re forced to let go. My career began 25 years ago, when logistics assets were mere warehouses, and “high-throughput” was only available at the local fast-food drive-thru window. At the time, I hoped to accomplish two things in my career: leave the industrial real estate industry better than I found it, and plan for my eventual obsolescence. How? By developing a team that would transcend me by becoming sharper, more visionary, better connected and habitually more adaptable. It turns out those two goals are more intertwined than I ever could have imagined. While I haven’t worked myself out of a job just yet, the need to evolve and [adapt in the commercial real estate industry]( has never been in sharper focus—and no more so than within the logistics sector. The logistics built environment is experiencing the next industrial revolution. Today, logistics occupiers are increasingly [deploying sophisticated prop-tech]( material handling systems, robotics and artificial intelligence to foster greater efficiencies within supply chains. However, in the United States, 83% of the total logistics stock was constructed prior to 2000, and the average age of a warehouse is 40 years. Obsolete buildings abound, and the sector’s obsolescence has come up against an unmovable force: our consumer behaviors. The sector needs to evolve to meet the [demands of consumers and global logistics occupiers](. If not, we’ll get left behind. We’re going to need to think outside of that 40-year-old box. Prior to the pandemic, we probably expected to receive a package in three to four days. Today, in many major metropolitan areas, we now expect to receive online orders in just three to four hours. Our sometimes-frenetic lives have greatly raised our expectations when it comes to convenience, and ever-newer technologies are about to change everything, again. Artificial intelligence will allow retailers and e-tailers to source goods more efficiently, turning our swipes and clicks into an inventory model that marries just-in-time with a measure of safety stock. And as Gen Z moves into their prime earning years, mobile commerce will only increase in market share: Picture your 30-year-old self lounging on the couch with a pair of spatial computing goggles while your perfectly sized avatar tries on eight pairs of jeans and 10 pairs of shoes. One click and that date-night outfit will be delivered same day. To accommodate our changing purchasing behaviors and delivery expectations, logistics construction specs need to adapt. What this looks like depends on any number of factors, but at a minimum our real estate stock needs to support sortation mezzanines, automated racking and conveyance systems, [EV truck charging]( and an increasingly robotic workforce. Evidence of the need to accommodate this logistics transformation is all around us. For example, one of the world’s largest retailers estimates that 55% of its fulfillment center volume will be distributed through fully automated facilities by 2026, improving its average cost per SKU by up to 20%. Moreover, the single greatest amenity for logistics occupiers will be the availability of power as they seek to automate and electrify at an almost inelastic rate—all in an effort to deliver a faster, more reliable and potentially more economical transaction. After all, the logistics industry is built upon our individual expectations and experience. And life moves quickly. My second career objective no longer seems so far off. But following some introspection, maybe the original goal was more about developing my future self, my “Mary 2.0.” And now I’m distinctly focused on replacing legacy stock with modernity—“Logistics 2.0,” if you will—and leaving the industrial real estate industry better than I found it. How will you share what you know with the next generation to move the industry forward? What will you do with that legacy? Don't Miss Out Was this newsletter forwarded to you? [Subscribe]( Know someone who would benefit from Our Take? [Share]( Get the content most relevant to you by [managing your preferences](. Explore More CBRE Content Listen to our latest podcast, [The Weekly Take]( Explore all of our latest Insights & Research at [cbre.com]( This email was sent by: CBRE Group Inc. 2100 McKinney Ave Suite 700 Dallas, TX, 75201, US [Unsubscribe From This List]( You may also unsubscribe by calling toll-free +1 877 CBRE 330 (+1 877 227 3330). Please consider the environment before printing this email. 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