Industrial & Logistics

LESSONS FROM APAC

It has been a ca. 4 months since the first cases of the coronavirus were identified in China, 2 months since the WHO declared Covid-19 a public health emergency of international concern and ca. 3 weeks since the WHO upgraded the status to a pandemic.

From very early on in this tragic timetable of events, China was very quick to enforce a ‘lockdown status’ which is now starting to yield some levels of success in returning people and businesses back into operation and, as a result, restarting the flow of goods and services.

Although the supply chain from China and the APAC region is slowly ​ coming back online, global sentiment and demand has weakened until the situation in Europe and elsewhere becomes clearer, with many border restrictions causing bottlenecks.

A big question mark for the APAC markets is how quickly Europe and North America will recover, allowing multi-national corporations more clarity in their decision making. In particular the automotive, aerospace and related industries that have a large footprint in Europe. On the positive side, certain sectors, related to the food-based and pharmaceutical logistics are thriving.

HOW HAVE OCCUPIERS BEGUN TO SAFEGUARD THEIR EMPLOYEES?

It is fair to say that no occupier would benefit long-term from being reckless in such times and thankfully, despite the negative impact on businesses, the lives and safety of people are being put first. Many people in the production environment are still required to work closely with each other despite the implementation of new technologies, so we have seen large parts of industry halt production. The automotive sector stopped activity in mid-March for an initial 2-week period, and in many cases this has been extended until mid-April.

Upon return to production, certain health & safety measures will no doubt have been reviewed. Some countries and many employers have provided guidelines and/or necessary supplies in relation to hygiene, through the use of masks, gloves, sanitizer gels, distancing (min. 6ft/2m), temperature checking etc. which will take some adjustments. Some companies have introduced new split shift patterns to clean down after each one with no interaction allowed between warehouse and office staff. This is not being adopted by every company and it may slowdown stock replenishment and distribution operations. ​

WHAT IS THE LANDLORD POSITION?

The question that everyone’s asking, of course, is how long this situation will last and, while we can draw on some level of optimism coming out of China, there are similarly no guarantees. As a result, the response from landlords across EMEA, has been varied in line with the guidelines and level of measures imposed by individual governments.

The majority of landlords are working with their occupiers, partners and suppliers to find workable solutions around a range of scenarios including rental deferrals, short term lease renewals, space reductions, lease renewals and sale and leasebacks. In unfortunate cases, preparation is being made for potential closures or early terminations.

Many of these scenarios require a level of compromise on all sides and for landlords to consider accepting rent deferrals in return for amortising any deferred months into the remaining lease or extending the lease term by an equivalent period. Typical lease lengths in many markets are 5 years and above, but landlords are also considering short-term leases to accommodate the growth in demand for essential goods. Some delays in construction activity may stem supply but overall demand remains strong as long-term planning changes shape but continues.

HOW IS OCCUPIER ACTIVITY CHANGING ACROSS EMEA?

The businesses that have been hardest hit and required to suspend activities, have been eagerly awaiting government announcements on financial aid packages to help protect their futures and their employee's incomes. As a result some leasing activity has slowed down, at least until the future situation stabilises or becomes clearer.

Some production companies have taken a more proactive stance to fight back against the virus by repurposing production lines to help provide much needed products such as face masks, sanitisers and even advanced medical tools and equipment.

Some challenges exist for international logistics firms as long queues have formed at some borders, which are essentially closed, causing further disruption to the already challenged supply chains. The European Commission has proposed that all members states create ‘Green Lanes’ to prioritise trucks for essential supplies. ​ ​

Therefore, businesses are taking a good hard look at how they operate, what geographical dependencies they have in their supply chains and how these can be resolved through alternative options, technology and/or new business models.

For domestic logistics, the picture is quite different, particularly for those involved in the food, beverage and pharmaceutical industries where demand is very high. This being driven by greater levels of e-commerce, as many brick-and-mortar stores are closed, and/or panic buying in certain markets. Overall, it appears that the supply of goods is not so much of an issue, it is mainly the case of not being able to restock fast enough. As a result, many companies have been looking for additional space on short term contracts (3-9 months) to cope with the situation. Whilst much of this space requirement is in the process of being fulfilled, the growth in demand for refrigerated space is more complicated to deliver under such conditions.

Overall, the sector is probably one of the least impacted by the situation and numerous longer-term negotiations are still ongoing, while remaining cautious, as they plan for the future, post Covid-19.

HOW WILL COVID-19 IMPACT AND SHAPE THE FUTURE OF I&L?

Covid-19 will persuade many to speed up the pace of change or question the status quo. Supply chains will come under significant scrutiny in the event that disruption continues for a longer period, particularly as border closures and freedom of movement cause disruptions.

There have been significant innovations in the way I&L properties are built and operated in recent years, and also in the technologies being used by occupiers. Prior to the pandemic, many markets were facing a shortage of skilled labour and seeking ways to achieve greater productivity.

Some of the innovations that have been designed, developed ​ and implemented and we can expect to see ramping up include: Smart-buildings with systems and sensors to monitor and manage energy, air quality and equipment components to help improve safety, manage costs and minimize down-time. Increased adoption of autonomous robots and vehicles, drones, IoT devices, 3D printers, AI and data analytics will continue to improve and drive efficiencies and speed in both manufacturing and logistics.