CNBC A version of the communication from Property Play was first published here, with Diana Olick as the author. Property Play focuses on the emerging and evolving opportunities faced by real estate investors, covering individual investors, venture capitalists, private equity funds, family offices, institutional investors, and large listed companies. Readers can subscribe to receive future issues.
There will always be a demand for large, centralized warehouses, but as companies' needs for faster delivery and more resilient energy supply increase, they are rethinking where these warehouses should be located.
In fact, according to a new survey conducted in collaboration between Prologis and Harris Poll, 91% of company leaders stated that retailers and logistics providers "urgently" need a more decentralized fulfillment network to meet delivery expectations. The survey responses came from over 1,800 business leaders in the United States, the United Kingdom, Germany, India, China, and Mexico.
Prologis CEO Dan Letter stated: "Our focus is on the consumer side, so we have significantly narrowed our focus to not only the most dynamic consumer centers and population hubs around the world, but we also have a very clear idea of the specific sub-markets within these cities that we want to target, because it all comes down to being closer to those consumers."
The survey shows that fewer companies plan to maintain their current global layout, with this proportion dropping by 14 percentage points from a year ago to just 36%. As consumer expectations continue to rise, what businesses are pursuing first and foremost is faster delivery. The survey indicates that with same-day delivery as the goal, the number of companies offering this service has doubled since 2019. In terms of gaining a competitive advantage, speed is more important than price.
Therefore, companies are adjusting their relocation strategies. More than half of them are adopting diversification and regionalization approaches, while about a third are pushing forward with nearshore outsourcing and reshoring of manufacturing operations.
Letter explained, "This is why we have always paid great attention to the composition of our portfolio. We often talk about the size of our portfolio, but in fact, over the past 15 years, we have also sold a considerable number of properties. Those were properties that we learned from our clients did not fit into their long-term plans. So, even though our total area reaches 1.3 billion square feet, we have sold more than 200 million square feet, because those were not what the clients wanted."
Energy infrastructure is increasingly becoming a strategic driver, partly due to artificial intelligence, and energy resilience has become a top priority. In logistics site selection decisions, power supply reliability ranks first. Slightly over a quarter of the executives surveyed indicated that they expect industrial owners and developers to take the lead in or fund on-site energy resilience infrastructure, including solar energy, energy storage, and fleet charging facilities.
Letter said, "About five years ago, we significantly increased our investment in energy and turned it into a business. We generate over 1.4 gigawatts of electricity through solar and energy storage projects. At the same time, we have also been focusing on helping customers electrify their fleets."
Artificial intelligence is helping companies enhance their competitiveness, especially in the fields of logistics and warehousing. Respondents stated that demand forecasting and intelligent AI systems are among the most “transformative” technologies for reshaping supply chains over the next three years. Three-quarters of the respondents indicated that they plan to make significant investments in AI demand forecasting and inventory replenishment.
Letter said, "As their investment in AI deepens, we are also collaborating more closely with them. We have been investing alongside our clients to figure out what the next steps will be, which helps us stay ahead of them in all aspects of our business."
