Workplace wellbeing concerns and ESG (1) criteria are at the forefront of conversations for real estate occupiers and investors alike. Why? The reality of predicted labour shortages in the logistics, transport, and manufacturing sectors is upon us. Demographics forecast that this problem will only exacerbate over the foreseeable future. Solutions that target ESG issues are being incorporated into warehouse design and corporate culture to create employee-friendly warehouses in order to attract new talent and retain an existing trained workforce.
Demographics confirm A shrinking labour pool
Workers aged 55+ years currently make up 16% of the total workforce in the EU and account for one of five workers in Germany, Finland, and Sweden (2). While problematic across all industry, the share of employees nearing retirement age (i.e. 50-64) in the logistics, transport, and manufacturing sector is higher than the average share for other industry sectors. The challenge lies in replenishing this retiring workforce. Reputed poor working conditions that include temperature extremes, poor lighting and ventilation, unfinished offices and common areas, no food service or alternatives provided, poor connection to public transportation, limited and inconvenient employee parking, no amenities, limited benefits, and safety issues, have deterred millennials who are prioritising lifestyle, health, corporate responsibility and brand recognition.
Technology can help bridge the gap but fuels demand for new skills
Technology in the form of robots and automated/autonomous equipment is quickly demonstrating effectiveness in tackling not only labour shortages but also productivity and safety. Whereas the gap left by retired workers can partially and gradually be bridged through technological adoption, managing robots and automated equipment requires a new set of skills that puts manufacturers and logistics companies in direct competition for the same workforce as companies occupying finished office space in urban areas.
Potentially as much as 30% (3) of the workforce can be replaced by technology. The speed of this transition will be faster in the manufacturing sector that has successfully integrated advanced technology since the 1980s. By comparison, logistics, especially e-commerce logistics, is significantly more labour-intensive. While new technology has created huge efficiencies in pallet handling, picking different items to fill individual orders cannot for the time being, be efficiently replaced by any technology. With European online sales expected to grow annually at an average rate of 14% over the next decade, e-commerce logistics will remain reliant on human workers.
How can real estate occupiers respond?
Workplace wellbeing and ESG issues are not new, however integrating them into warehouse design and practice has been painstakingly slow because their cost versus benefit has been difficult to assess for most businesses. Most ESG adoption in Europe has occurred through public sector regulation that has intensified over the last five years in an effort to reach 2020 targets. However, current threats to the bottom line for most occupiers means that catering to the likes and dislikes of millennials and the generations that follow can no longer be ignored if the objective is to attract and retain employees from a shrinking labour pool.
In addition to a string of soft costs that range from various worker benefits such as “upskilling” opportunities for workers in the form of continuing education scholarships or training programmes to a corporate responsibility campaign intended to improve branding to attract new talent, addressing ESG issues might also require investments in interior and exterior building spaces. Cited building improvements, changes, and additions include lighting, ventilation, climate controls, finished office space and common areas, employee friendly eating area/cafeteria, ample employee parking with easier access to the building entrance, more WAPs (wireless access points) more accessible lavatories and pause areas, outdoor spaces including running track, gym, and in certain cases, employee housing.
Technology comes at a price
Technology does not come cheap. Over the past 30 years, the average price for robots, automated equipment, electric commercial vehicles and autonomous technology has fallen by 50%. Lower cost and quantifiable improvements have accelerated technological adoption into production, logistics, and transport.
However, any warehouse space that this technology occupies and operates in will require some degree of building alteration. As the industry increasingly turns to technology, significant investments in off grid energy sources to charge electric trucks, vans, robots and automated/autonomous equipment will be necessary. More concerning for warehouse real estate investors is the impact of technology on building standards. In a similar way that e-fulfilment and omni-channel retailing is making an impact on building requirements, technology so far, requires more floorspace to accommodate a fleet of robots, automated equipment, charging stations, parking stations, and additional office space for equipment managers and IT specialists.
Future proofing real estate
Warehouse standards will undoubtedly evolve over the next 5 years in response to both ESG issues and technology. Today, however, the share of all warehouses equipped with full robotic and automated technology remains small – roughly 10% on average across Europe. More pressing are the building changes associated with ESG criteria. A large number of institutional grade buildings can probably be altered to accommodate most of the improvements cited above. However, properties or logistics parks that offer the ability to enlarge buildings either horizontally or vertically and the amount of exterior space available for additional parking and amenities add an extra layer of future proofing for investors.
1. Environmental, Social, and Governance. “Environmental” refers to sustainable additions or changes to the building “Social” refers to building features directed to improve employee wellness, comfort, and safety. “Governance” refers to corporate responsibility relative to all levels of business including transport.
2. European Labour Force Survey