From coffee beans to mobile phones, consumers are increasingly demanding more transparency in the industrial and logistics supply chain of the goods they buy.

This is one of many factors driving brands such as Woolworths, Aldi and Coles to review their Environmental Social and Governance (ESG) commitments and make bold pledges that impact every stage of the product lifecycle, as well as the vast network of suppliers involved in getting products from their source to our supermarket shelves.

This is particularly pertinent in the industrial and logistics (I&L) sector, where the carbon footprint associated with transporting and storing goods is under the microscope like never before. The opportunity now exists for landlords to review the sustainability credentials of their assets, and ensure they remain first choice for tenants looking to satisfy the demands of their customers – and their customers’ customers.

CBRE has long understood the value of I&L property owners investing in environmentally sensitive design, first issuing a ‘Green Star Ratings in Industrial Assets’ research viewpoint in 2017. Fast forward to 2021, when 40 per cent of ASX100 companies have committed to bold net zero emissions targets by 2050 or earlier, it is now essential that landlords become part of the solution for tenants looking to achieve improved ESG outcomes, or risk losing them to competitors who can.

As we accelerate towards a low carbon economy and society, it is critical that commercial buildings are designed and constructed with low embodied carbon and can operate as net-carbon-zero or net-carbon-positive. Low and zero carbon buildings are the only choice for investors who don’t want to be left with stranded assets and the associated financial and reputational damage associated with such liabilities.

Remaining competitive in the growing I&L market 

As reported in CBRE’s Q1 2021 Industrial & Logistics MarketView, favourable growth forecasts have seen many investors seek to re-weight their portfolios to include I&L assets, with demand not expected to slow any time soon. This is driven by an increase in land values for the ninth consecutive quarter, with developers continuing to seek scale and take advantage of the increased demand for I&L assets.

CBRE Property Management has been monitoring rental collections and adjustments throughout COVID-19 and beyond, with I&L consistently outperforming Office and Retail assets, and emerging the quickest sector to normalize, with rents returning to pre-COVID levels from July 2020.

With the strong performance of the sector only forecast to continue and grow, resulting in a high volume of transactions and a significant volume of new stock set to enter the market – 1.7 million sqm in 2021 and 1.8 million sqm in 2022 – landlords need to be thinking about ESG considerations at every stage of the property lifecycle in order to stay competitive.

Below are some key points to guide landlords towards a holistic approach to sustainability, providing greater opportunity for adding value, increasing operational savings and futureproofing I&L assets.

  • I&L tenants now expect LED lighting, rainwater harvesting, rainwater reuse, and end of trip facilities as standard.
  • I&L sites offer excellent opportunities for solar PV installation. Benefits of rooftop solar include emissions reductions, reduced energy bills, and improved valuation potential. With more corporate organisations striving towards net zero emissions targets, onsite solar generation provides a commercial opportunity to secure ESG focused tenants.
  • Consider material waste recycling during demolition and reusing derelict building material during construction in an effort to reduce waste to landfill. Operational waste on site should also be carefully managed through dedicated receptacles for various recycling streams, including worm forms for organic waste, and even setting zero waste to landfill targets.
  • The need for alternative modes of transport is increasing exponentially so it’s important to provide adequate amenity on site to suit tenants’ needs. This may include secure bike/e-scooter storage on site, car parking prioritised for fuel-efficient vehicles, and EV charge stations.

The asset’s location and its exposure to extreme weather events (such as extreme heat or rainfall) will have a direct impact on business continuity in the short term and the risk of the asset becoming stranded in the medium-long term. Consider climate risk and appropriate adaptation strategies upon acquisition, design and operation of the asset eg. Flood mitigation plan in flood prone areas.

Ongoing maintenance of existing stock

With many of the operational factors such as waste management and energy procurement sitting with tenants, landlords should focus on engaging a property management partner with sustainability at the forefront of their approach, such as CBRE, who can provide strategic advice to landlords and engage with tenants to understand their processes and guide them towards better outcomes.

Owners of high-energy usage assets such as manufacturing sites and cold storage may also consider conducting an energy audit to identify potential efficiencies onsite and pass these benefits on to tenants.

In this highly competitive market, industrial and logistics property owners have an opportunity to differentiate by designing and operating their assets with the customers’ health and wellbeing in mind. Smart lighting, better thermal comfort and enhanced indoor air quality are three crucial aspects of improving occupant health, wellbeing and productivity. Benefits can be realised in the attraction and retention of tenants, as well as the attraction and retention of talent for those tenants – benefiting the bottom line for both building owners and tenants.

Benefits of partnering with experts in I&L Property Management

We understand that some industrial owners, particularly those with single sites or small portfolios, may question the return on investment for upweighting the green credentials of their assets.

Designing, constructing and certifying a high-performing, sustainable building can cost more than building to minimum standards. However, overall, green buildings project cost is paid back many times over in the short, medium and long-term of the investment.

There are also other cost benefits of partnering with a property management provider with the scale and reach of CBRE. We oversee the management of 9.3 million square metres of I&L stock across Australia, allowing us to unlock economies of scale for owners through our established local and global procurement partnerships.

Whether you are looking to maximise the appeal of your I&L asset at development, holding, repositioning or divestment stage, CBRE’s network of I&L experts is well positioned to support at single asset or portfolio level.

This article was written by Paul Kernan, Director, Industrial Property Management, CBRE and republished with permission.