Logistics & Industrial Asset Optimisation

OPTIMISATION FOR TOMORROW

ASSET SERVICES EMEA

INTRODUCTION PAGE 01

ADDRESSING ESG RISK & OPPORTUNITY PAGE 07

LEVERS AVAILABLE TO OPTIMISE LOGISTICS & INDUSTRIAL

ADDRESSING THE COST CONUNDRUM

CONTENTS

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PAGE 17

STRATEGIES TO MAXIMISE INCOME/VALUE

PAGE 29 CONCLUSION

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ABOUT ASSET SERVICES PAGE 33

INTRODUCTION

LOGISTICS & INDUSTRIAL ASSET OPTIMISATION FOR TOMORROW

INTRODUCTION

Rethinking your Logistics & Industrial asset – optimising in the current market environment The logistics and several structural tailwinds over the past decade, which continue to shape the sector and provide momentum for growth. industrial (L&I) sector has benefitted from

However, the global economy has encountered cyclical headwinds in the form of high inflation, rising interest rates and slowing growth which has tempered the outlook in the near-term. While the longer-term outlook remains favourable, building owners cannot ignore that as the sector becomes more sophisticated, there will be an increasing need for a more strategic approach to asset management that incorporates changing occupier needs as well as increased regulatory requirements.

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TOP CHALLENGES FOR LOGISTICS & INDUSTRIAL ASSET MANAGERS

CHANGING TRENDS IN LOGISTICS & INDUSTRIAL MANAGEMENT

TOP 5 TRENDS IN L&I IN 2010

TOP 5 TRENDS IN L&I IN 2024

LOGISTICS & INDUSTRIAL ASSET OPTIMISATION FOR TOMORROW

AVAILABLE CASHFLOW TO REPOSITION OLDER ASSETS

SUSTAINABILITY COMPLIANCE & MANAGING SCOPE 3 EMISSIONS

JUST-IN-TIME / LEAN SUPPLY CHAIN

COST MITIGATION

LABOUR AVAILABILITY

SUSTAINABILITY

CREATING A SENSE OF COMMUNITY

RETAINING TENANTS

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SUPPLY CHAIN RESILIENCE / NEARSHORING

GLOBALISATION

TECHNOLOGY ADOPTION

WAREHOUSE CONSOLIDATION

LABOUR AVAILABILITY

AUTOMATION / TECHNOLOGY / DIGITALISATION

OUTSOURCING STRATEGIES

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ADDRESSING ESG RISK & OPPORTUNITY

Addressing ESG Risk & Opportunity

While there is no “one-size-fits-all” solution, the following areas could provide opportunities for industrial and logistics asset managers and owners when seeking improvement in ESG credentials for operational assets:

Environmental, Social, and Governance (ESG) considerations have rapidly risen to prominence within the Logistics & Industrial sector over the past few years. This has not only been driven by legislative changes but also firm commitments by companies to improve ESG performance at every stage of the product manufacturing and transportation cycle, especially their supply chain. For occupiers, real estate may only constitute a small proportion of their carbon emissions given wider supply chain considerations such as transport of raw and finished products. However, the location of manufacturing and warehousing sites is an important consideration. Optimum site selection can not only reduce transport costs, but also transport emissions and so can make a meaningful contribution to sustainability initiatives1. From an asset manager’s viewpoint, addressing ESG risk means taking a more holistic view of tenants’ targets and identifying where they can play a facilitatory role. At the more complex end of the spectrum this could be by enabling relocation to optimise supply chain efficiency. For tenants not wishing to relocate, or at least not yet, other opportunities exist. For example, many industrial leases are “triple net”, whereby the tenant is responsible

for paying the operating expenses associated with the property. Not only does this mean that the asset manager has little oversight of the buildings ESG performance, such as power utilisation, it can also limit a tenant’s ability to adopt more sustainable operating practices as the financial commitment might not match the risk exposure. social value. Arguably this is more difficult in the logistics and industrial sector given the location of assets and the nature of operations they undertake, though at the fundamental level they provide significant employment opportunities across a range of occupation types. Notwithstanding this, forward-thinking landlords have these opportunities firmly in their sights and have introduced more options for active, collaborative and public transport, greater adoption of green space, the introduction of wellbeing initiatives and organising community engagement events. Beyond environmental considerations, there is an increasing need to generate

LOGISTICS & INDUSTRIAL ASSET OPTIMISATION FOR TOMORROW

Supply chain optimisation

Achieve sustainability accreditation

Explore different lease structures

Understand tenant ESG targets and their key pain points

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Install smart building (monitoring) technology

Focus on the requirements of tenants’ employees

Identify opportunities for community engagement

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The ongoing growth in e-commerce will continue to impact demand across most, if not all markets. Although the growth in online retail sales volume has been relatively subdued in 2023, forecasts indicate a return to growth in the coming years. This will not only drive demand for warehouse space, but there is also likely to be flow-on demand for micro-hubs and last-mile sites as retailers adapt their online sales fulfillment strategies. demand in aggregate is off recent peaks, it remains in positive territory. However, there is nuance at the local level with several forces are at play. After experiencing significant expansion during and after the pandemic, growth in the European logistics and industrial sector is starting to normalise. While this means space CHANGING TRENDS IN LOGISTICS & INDUSTRIAL ASSET MANAGEMENT

Additional space demand will also be driven by manufacturers as they start to implement near-shoring strategies – locating production or supply to locations closer to consumption markets. While this is, in part, reaction to the supply chain disruptions caused during the pandemic, other factors are in play. The arbitrage in labour costs between off- and near-shore locations, while still considerable, is declining and is further eroded by elevated transportation costs. Adding in a volatile geopolitical environment and the need for greater supply chain transparency to meet ESG criteria creates a more compelling argument for relocating production closer to consumer markets. The nature of near-shoring will vary between sectors and companies within those sectors. In turn this will have differing impacts on production locations and exact space requirements. For example, relocating to locations with higher labour costs could drive the need for full automation, or manufacturers with high volumes of product could benefit from locating in inter-modal hubs.

Ultimately, such changes are likely to require either partial or full supply chain optimisation programs. This provides opportunities for industrial asset owners who are prepared to collaborate with tenants to explore the potential delivery of new facilities. Helping tenants make savings in transportation costs not only reduces greenhouse gas emissions, but could also offset the higher economic rents required to develop new sites. Further downstream benefits could also be realised through more efficient warehouse design and operation. Together these factors provide direct benefits to asset owners in the form of reduced Scope 2 and Scope 3 emissions as well as potentially higher returns and stronger tenant relationships.

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ADDRESSING THE COST CONUNDRUM

ADDRESSING THE COST CONUNDRUM

It is against this backdrop of structural change, that cyclical pressures have become more acute.

LOGISTICS & INDUSTRIAL ASSET OPTIMISATION FOR TOMORROW

Financial discipline has always been important to businesses, especially in low margin environments, but during the previous financial cycle, undertaking capital works was financially easier. As capitalisation rates continued to compress, capital expenditure programmes could be more readily written off against the increasing value of the asset. Asset owners are now facing a reverse paradigm, where assets are becoming increasingly expensive to operate as well as potentially requiring significant capital works at a time when debt is expensive and asset values are falling. The only mitigating factor being that rents continue to increase, which is helping to partially offset this decline in value. In this context, it may be tempting to do nothing, or at least put off capital expenditure programmes until they are considered essential. Often this

timing has revolved around a major tenant lease event. However, planning works in this way is reactive, rather than proactive, and runs the risk of doing too little too late to ensure the ongoing operational and financial value of the asset. A forward-looking schedule of capital improvements can be used to demonstrate commitment to keep an asset relevant to the tenant or the wider market. This does not always involve large-scale works, but can be smaller-scale projects such smart metering, rejuvenation of green spaces, upgrading truck rest-stop locations or improving lighting to increase security.

INPUT COSTS

RUNNING COSTS

ASSET VALUE

• L&I

• OPERATIONAL EXPENDITURE HAS RISEN 10 20%. • PRIME RENTS IN

• COST OF DEBT HAS RISEN 350 400BPS • CAPITAL EXPENDITURE HAS RISEN 20 25%

CAPITALISATION RATES IN MAJOR MARKETS HAVE SOFTENED BY 126BPS ON AVERAGE SINCE Q1 2022

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EUROPE HAVE RISEN BY 37% ON AVERAGE OVER THE LAST 5 YEARS

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LEVERS AVAILABLE TO OPTIMISE AN INDUSTRIAL ASSET

LEVERS AVAILABLE TO OPTIMISE A LOGISTICS & INDUSTRIAL ASSET:

CUSTOMER EXPERIENCE

TECHNOLOGY

• Safety • Improve quality of office space • Increase transport / commuting options • Landscaping • Tailor-made facility services • Onsite day-care facilities

• LED lighting • Climate control • AI • Digital twins • ASRS/AMRs

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ESG

• Promote recycling • Co-investment with tenants • Introduce green leases • Use “green” building materials • Fossil free / fully electric options • Battery installation • Smart-metering

• Lease structures that allow risk sharing + co-operation • Green leasing • Roof leases (for solar)

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INTEGRATION WITH LOCAL COMMUNITY

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• Introduce community events/ installations • Charity events / working groups • Social responsibility supply chains

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CASE STUDY

BRUYERE SUR, OISE FRANCE

LOGISTICS & INDUSTRIAL ASSET OPTIMISATION FOR TOMORROW

These two logistics facilities, built in 2002 and totalling 119,182 sqm went through an opimisation process to achieve long-term stable income for the asset. There was a thorough cost optimisation process to minimise expenditure

and create efficiencies such as a fire protection system (ICPE compliance) and roof maintenance.

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The ESG credentials of the assets were enhanced through annual GRESB audits to achieve a “Very Good” Breeam certification in 2025. The tenancy mix was reshaped to focus on strategic companies and international logistics players to maximise income. In addition, refurbishment works of sprinkler underground network and full LED Lighting were undertaken.

The assets are now at 93% occupancy with an improved rental income profile.

Property Management provided by Cushman & Wakefield.

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STRATEGIES TO MAXIMISE INCOME/VALUE

STRATEGIES TO MAXIMISE INCOME/VALUE The metrics of Logistics & Industrial asset management are evolving due to both structural and cyclical changes, requiring an even more rigorous and disciplined approach. This has to start with adopting best in class processes and reporting. Only in this way can accurate assessment of the cost and revenue flows be derived.

LOGISTICS & INDUSTRIAL ASSET OPTIMISATION FOR TOMORROW

OPTIMISE DESIGN AND LAYOUT

ENSURE ESG COMPLIANCE

IDENTIFY VALUE ADD OPPORTUNITIES INCLUDING INVESTMENT IN TECHNOLOGY

TENANT ENGAGEMENT

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MITIGATION OF OPERATING COST

IMPLICATIONS TO OCCUPIERS

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Once operational efficiencies are in place, focus can then turn to higher value strategies. Over the past several years, real estate assets have generated steady cash flow and returns. This reality has been challenged, although arguably the L&I sector has remained one of the most robust given the underlying strength of occupier demand. While some of the impacts are temporary, others such as sustainability initiatives are expected to be more permanent. These longer term, structural changes, must be considered as well as the required changes that these shifts are likely to bring. This means assessment and reassessment of “risk”. A deeper understanding of existing assets and portfolios is therefore required through the analysis of upside and downside scenarios to identify assets with most operational risks and how to best position them for the changing operating environment. Business plans and capital expenditure then need to be adjusted accordingly to ensure they incorporate the relevant value add propositions. As part of this, owners of real estate need to act more flexibly by delivering an active management solution.

Configuration, specification and design will be crucial factors in the ongoing operational appropriateness of assets. If buildings and sites are no longer functionally efficient for users of the spaces, they will struggle to appeal to the market and will therefore represent a risk of void and income and value erosion. Focusing on how to improve an asset for ongoing market appeal can help to improve retention and enhance commercial opportunities. Additionally, in an asset class that is seeing increasing demand from occupiers for more and more energy savings, opportunities to ensure secure supply of sustainably generated energy can also help to enhance landlord and tenant relationships. Leveraging the intrinsic characteristics of logistics and industrial assets – such as large roof surface areas for the installation of PVs – or the opportunities for landlords to facilitate co-operation across entire logistics parks or industrial estates, could create significant opportunities for tenant engagement, retention and asset value enhancement.

Accordingly, data and analytic insights are fundamental to making strategic decisions regarding commercial lease negotiations, asset valuation and improved tenant experience and operations. Technology and digital solutions will be among critical enablers to usher in the new era of real estate, allowing not only the customisation of spaces according to changing needs, but also taking building management to the next level and addressing sustainability and affordability. Fundamentally, the future of asset optimisation is founded upon landlords and asset managers creating a more transparent and collaborative relationship between owner and occupier to respond to global market trends.

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CONCLUSION

CONCLUSION

The current operating environment for Logistics & Industrial asset owners is beset with a raft of difficulties, but at the same time presents numerous opportunities to reset and rethink the services a building provides as well as how it operates.

The way forward is rigorous analysis of each asset, with the acceptance that not all assets will be viable into the future. This potentially means rationalising the size of the portfolio. From there, each building will require not only its own expenditure and maintenance programme, but also scheduling of works to keep the asset relevant both now and into the future. Lastly, and most importantly these plans need to be actioned.

Investment in technology and sustainability initiatives focused on differentiation and operational efficiency are important and reflect the need to rethink the real estate component of the logistics and industrial sector. Those who develop this vision will be able to compete, innovate and maintain growth. Detailed planning is key, however, lastly, and most importantly these plans need to be actioned.

LOGISTICS & INDUSTRIAL ASSET OPTIMISATION FOR TOMORROW

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ANALYSE

RATIONALISE

STRATEGISE

ACTION

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ABOUT ASSET SERVICES

ABOUT ASSET SERVICES

We know that the performance of a logistics or industrial asset is dependent upon a symbiotic relationship between the owner, the occupier and any third parties. Too often asset management strategies don’t take into account the requirements of these three stakeholders. We work hard to make sure we build long-term, sustainable value to the asset by working closely with owners, tenants and customers.

Our data-driven approach to asset services means that we are constantly trialling and implementing best-in class technology for the logistics & industrial assets we manage. Whether this is intelligent building systems to improve ESG performance, or supply chain optimisation technology, digital lease documentation platforms to create efficiencies or AI, we ensure our clients have the latest insights to assist with decision making. We know sustainability plans are only as good as their ability to be executed. Our in-house ESG team not only designs sustainability strategies but has the skilled experts on the ground to execute them. We are making practical changes to existing buildings every day to improve their sustainability performance as well as their social impact in the community. From sustainability strategies, to compliance, managing climate risk, driving operational efficiency and delivering net-zero, we ensure our clients are making a positive impact on our planet as well as their portfolio.

We offer an integrated Asset Services capability, encompassing property management, operational asset management, ESG, place-making and other value add services, that helps our clients improve their operating income and maximise asset value. We cannot only develop asset optimisation strategies but can implement them across the whole real estate lifecycle. Our deep expertise in the logistics & industrial sector in not only Asset Services, but also Capital Markets, Leasing, Project & Development Services, means we are at the forefront of the changing logistics & industrial landscape and global trends. We interpret changing consumer behaviour, changes in global supply chain management and translate this into advice for logistics & industrial asset managers and owners to optimise value.

LOGISTICS & INDUSTRIAL ASSET OPTIMISATION FOR TOMORROW

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14 MILLION SQM UNDER MANAGEMENT 2,000 TENANTS 700+ LOGISTICS & INDUSTRIAL PROPERTIES

CONTACTS

SUSANA CLARKE HEAD OF COMMERCIAL STRATEGY & ACCOUNTS ASSET SERVICES EMEA

T: +34 661 767 940 susana.clarke@cushwake.com

T: +44 7825421977 james.woodhead@cushwake.com JAMES WOODHEAD HEAD OF ESG EMEA

DR. DOMINIC BROWN HEAD OF INTERNATIONAL RESEARCH

T: +61 431 947 161 dominic.brown@cushwake.com

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ABOUT CUSHMAN & WAKEFIELD

Cushman & Wakefield (NYSE: CWK) is a leading global commercial real estate services firm for property owners and occupiers with approximately 52,000 employees in approximately 400 offices and 60 countries. In 2024, the firm reported revenue of $10.1 billion across its core services of property, facilities and project management, leasing, capital markets, and valuation and other services. It also receives numerous industry and business accolades for its award-winning culture and commitment to Diversity, Equity and Inclusion (DEI), Environmental, Social and Governance (ESG) and more. For additional information, visit www.cushmanwakefield.com .

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