How warehouses took on sustainable, employee-centric design
In this Trends & Insights episode, discover how warehouses in some countries are setting new benchmarks
In certain countries like Japan and Singapore, warehouses are no longer confined to being purely functional spaces. Instead, they are incorporating sustainability initiatives that prioritize their workers’ well-being.
On the outskirts of Ichikawa, Japan, a groundbreaking logistics facility is providing us with a glimpse into the future of warehouses, where the principles of ESG (Environmental, Social, and Governance) are seamlessly woven into every aspect of its design. From pioneering carbon neutrality initiatives to incorporating wellness facilities complete with rock climbing walls, this facility is redefining the concept of a modern workplace.
“Right from the design element, you actually think about how to design these spaces as human-centric,” says Jai Mirpuri from ESR Group.
This isn’t just happening in the Asia Pacific region, although the pace of change there could be seen as moving the quickest. There is a growing interest in these concepts worldwide.
In a recent episode of the "Trends & Insights: The Future of Commercial Real Estate" podcast, industry experts Michael Ignatiadis, JLL Head of Supply Chain & Logistics Solutions, Asia Pacific, and Mirpuri at ESR Group explore the impact of ESG and employee-centric design on warehouse innovation.
The guests delved into future technologies. Ignatiadis notes the potential impact of artificial intelligence (AI) on forecasting and scheduling, which can optimize supply chain efficiency. Both experts flagged the adoption of electric vehicles in the logistics fleets, and the need for reliable charging infrastructure in warehouses. It’s here that advanced battery technology and an improved charging infrastructure could boost the number of electric vehicles on the roads, significantly transforming the industry.
To be sure, there are challenges, especially when it comes to striking a balance between the cost of implementing these features and tenants' willingness to pay for them. However, with ongoing innovation and holistic collaboration among stakeholders, the future of warehousing holds promising opportunities.
“As the industry focuses on sustainability, employee well-being, and emerging technologies, warehouses are poised to redefine the concept of functional spaces and become hubs of innovation and environmental stewardship,” Ignatiadis says.
The Ichikawa, Japan Logistics facility
James Cook: What if I told you I was going to take you to a workplace. That had a bowling alley. And a rock-climbing wall and onsite childcare. Are you starting to get a picture of the kind of workplace that I'm talking about? They've got solar panels on the rooftop and there are Evie charging stations in the parking lot.
So, based on what I've said, what is the workplace that I am describing? I mean, it really sounds to me like we're talking about a creative office space of some kind of tech company, right? Well, it's not, it's actually a warehouse. And I learned recently that in Japan and in some other Asian countries, they're really leading the push to the warehouse of the future.
Jai Mirpuri: Right from the design element, you actually think about how to design these spaces as human centric. That's the term that we use for our design philosophy of warehouses. One of the driving factors, for us, is the fact that labor is in very short supply in Japan. They have a fairly tight immigration policy and as much as our customers look to employ automation and mechanization, there is still a fairly large human element involved in every warehouse. You still need the people operate machines or automation solutions they put into the warehouses. And then in order to attract customers, we need to have spaces that attract talent.
My name's Jai Mirpuri, I head up a few markets in Southeast Asia for ESR group. We build warehouses. That's our only job.
James Cook: Recently in JLL’s Singapore office Jai Mirpuri with ESR group sat down with my colleague, Michael Ignatiadis. And I joined in remotely from the other side of the world here in the US and the topic: How is ESG transforming warehouses? So, Japan is leading the way in this trend. They've got a tight labor market. So, it's paving the way for employee centric design. Plus, sustainability needs are reshaping these spaces as well. Of course. My big question: Is this emerging warehouse of the future that we're talking about is that a trend that we might see around the world?
This is trends and insights. The future of commercial real estate. My name is James Cook, and I am a researcher for JLL.
Jai Mirpuri: I think some of these elements are getting adopted across different countries, and the more mature the economy, the more room you have to invest in some of these aspects. So here in Singapore, Michael, and I we're building a warehouse and the design was done very similar to what we do for warehouses in Japan.
But then, as we looked at elements of what we need to add, we realized that the social infrastructure in Singapore is very different. The actual demographic of the warehouse worker itself is very different, as well. And for some of the listeners who aren't familiar with the geography, a lot of the warehouse workers in Singapore actually commute in from Southern Malaysia, from Johor, on motorcycles and go back. So, the need for something like a daycare center just doesn't exist. And then to put an element into the warehouse like that, that would really not have demand or not add value to the customer then becomes pointless.
But, we're starting to bring in aspects like having very nice lounge eating area so that workers can actually have a better environment to enjoy their breaks and have more retail around that. Our anchor tenant has a Yoga and gym facility within the building for their use.
Michael Ignatiadis: I'm Michael Ignatiadis, I head the supply chain and logistics solution team here in APAC for JLL.
I think what's interesting is that logistics is a very cost driven space. The 3PLs are the biggest tenants and they're a low margin business. Someone would think, okay, are they willing pay for this? Where is where you cut the line? You can have a modern facility, but also are the clients are willing to pay for that?
Jai Mirpuri: Yeah, so it is a fine line that you have to tread with respect to how much you spend because you don't want to price yourself out of the market by throwing so many elements in and then realizing that you can't actually get value out of it. We don't actually see a huge uplift. There are certain basic, I think, environmental benchmarks that new buildings have to meet for clients to consider it as viable options. Having your green certifications have become a bare minimum now for some of the larger clients to consider spaces. They wouldn't go into very energy inefficient or environmentally unfriendly spaces.
It is a sticky business, because with the amount of effort that goes into moving into a warehouse, setting up the entire racking and ecosystem with respect to the trucking and transportation, it's not an easy decision for a customer once they move in to up and relocate.
But even then, just trying to future proof some of these buildings is an effort that's constant with what we do.
James Cook: Yeah, and it probably takes a little bit of prediction and a little bit of forecasting to figure out what are those elements that are going to make it sticky, make the tenant want to stay there beyond that first lease expiration.
Jai Mirpuri: We did this study a few years ago. There was a client that was looking to buy a portfolio of older warehouses in Japan, which were built in the 1990s and asked us to kind of compare those to what the modern warehouse was. And I think the biggest element, really, of difference was in the power capacity. So, one of the things that we have realized is as we're moving to more automation and mechanization, when we build a new warehouse we need to have enough spare capacity to up the power for the future. That's the biggest element that you need to have. A number of other things can be plugged in.
So we did some work with Michael last year, discussing the proliferation of electric vehicles in the sort of logistics fleet. And so, what we've done with this warehouse that we're building in Singapore is we've put in the building blocks so that if a customer comes to us and says, listen, I'm switching part of my fleet or all of my fleet to electric, we can actually almost plug and play fit those EV chargers in. We have the power capacity. We have the cabling and all of that trunk infrastructure ready. So, it's a matter of within a month or two can just come in and install the charger and it's up and running for them. And the way we've done it is that every customer loading unloading bay in that building is equipped to put a charger in. So, with 108 loading unloading bays, you can actually put in about 50 something chargers with each of them being able to charge two trucks. And when the technology gets there, and in fact, we just did our first large sort of deployment of EV chargers in one of our warehouses here in August of this year and they've moved their entire fleet of vans, actually, it's not trucks, completely electric.
So that's the other aspect that I think we see looking forward as to what we might need in these warehouses.
James Cook: It's so funny, we just did an episode on building out the electric car charging infrastructure in the US and I said, what's the biggest challenge to overcome? And they said, it's power. We have to get the power for all these charging units. So, it's so interesting how this dovetails.
So, I want to change the topic a little bit you touched on sustainability. I'm going to dig into that a little bit more. Tell me what specifically does a modern warehouse need to do in order to be considered quote unquote, green or sustainable?
Jai Mirpuri: One of the beauty of warehouses is that they're fairly simple buildings when it comes to operations. So, I was reading somewhere that the average electricity consumption of an ambient warehouse is about six kilowatt hours per square foot per year and about 70 percent of that power consumption comes from the lighting. So, you have some obvious answers. If you want to make a warehouse more energy efficient, you focus on the lighting.
And then you look at, let's say, the output of a solar panel. In most of the world, not Singapore, not Japan, not South Korea, not parts of China, where you have multi-story warehousing, but most parts of the world, you have warehouses that are single storied structures with huge roofs. A solar panel actually can produce about 36 kilowatt hours per year per square foot of the solar panel. When you look at the size of the solar panel, so it actually produces six times more power than the warehouse actually needs. So, if you covered the roof of the warehouse with solar panels, you'd have so much excess capacity of power being generated.
I think making a warehouse completely self sufficient is a combination of solar panel and a battery. Right, so solar panels and batteries, you can actually theoretically have the warehouse completely off the grid. The obstacle we've been facing so far is just battery technology and how much it costs to install and operate the batteries efficiently. But I think we are slowly getting there.
Michael Ignatiadis: I think for countries around the world, the bigger question is how do you actually then harness this excess capacity of power that you can generate from these rooftops off warehouses. In Singapore, you have a net metering system where you can sell the power back to the grid. For us here, it makes sense to just put solar panels across rooftops and sell it back to the grid. Power prices have gone up enough where it's become fairly, I think, profitable. It's a question of really starting to get that installation and that capacity going.
I think that what we really need to do is start right at the beginning, which is when you start the process of developing a warehouse. I give you an example, of this building that we're doing here in Singapore called Four Benoi Crescent, where we started off with demolishing an old structure. And what we did was we went in and said we want to calculate the carbon footprint of the entire process. We hired consultant to come in and to keep tab on the carbon footprint of the demolition, what was happening with each of the materials that was demolished, where was it going for recycling, how was it being recycled, and so on. And then arrive at a carbon footprint of all the material going into building. And so, when the building is ready, in March of next year, we should have a number that says that the development of this warehouse had so many tons of carbon dioxide embodied in it right from the demolition of the old structure that was on site up to the completion of the entire structure.
So that gives you that number where you say, this is the embodied carbon for this building, then the solar panels on the rooftop, which will produce more power than the building needs and can be sold back to the grid. Then that becomes a negative number.
James Cook: It seems to me the capacity of modern batteries is continuing to improve, right? Like it should be not too far off in the future where you really can have a big warehouse with a full roof of solar and be able to store that electricity on site. Right?
Jai Mirpuri: Yes, absolutely. Absolutely. And I think that as you kind of get better battery technology, designers will allow for spaces to have the batteries in the initial blueprint itself. So where is the battery going to go? That was not something that we were doing or are necessarily doing in every project that we do as to where's the space for the batteries.
Because, you look at, okay, where are the toilets going to be? Where are the lift shafts going to be? Where's the ramp? If it's a multi-story building and so on. I think that where are the batteries going to go is going to become an element of design as we go forward. You will have to design space for batteries.
Michael Ignatiadis: Yeah, and I guess super important for warehouses that are cold storage warehouses. Let's say you're in Australia, you cannot sell it back to the grid and it's a cold storage, what do you do at night? If you had the batteries, you could use it to power electricity during, the nighttime.
Jai Mirpuri: And there are a lot of companies working on battery technology on battery design and shapes. So, slimmer, taller, vertical batteries and distributed battery packs that you can kind of just slot into these slightly unused, odd-shaped places between pillars and so on at the at the ramp on the ground.
So, there's a lot of work being done on that aspect of batteries. In fact, one of the things we did James was we replaced all our diesel generators during construction with battery packs. So, we have these containers that had batteries built into them. It's an integrated solution. So instead of using diesel generators, which are then constantly running. When a crane needed power, it was drawing power from that diesel generator. We had two or three battery packs kept at different locations on the site, cables running to the cranes, and they were using the batteries rather than the diesel generators; much more energy efficient than using diesel generators, a lot less noise and pollution also for workers and neighbors.
James Cook: I love it. That's so fascinating. I want to think for a second about, let's say I'm developing a warehouse and I spend the extra money to add in the sustainability elements, these ESG elements, these worker friendly items, does that translate into an increased value in the property?
Michael Ignatiadis: Yeah, I think it must, but I don't think there is a very clear data set that shows how much. That's the challenge, right?
Jai Mirpuri: It depends on how much you're putting in; I look at it as percentage of total development costs? So, if I'm spending $100 million to build a multi-story warehouse, let's say in Singapore, how much am I adding for some of these elements. Is it 1%? Is it 2%? And then ask yourself the question, is someone going to be willing to pay me an additional one or two or 3%? Or, let's say I put in a million dollars of these worker friendly, human centric, environment friendly elements into the building, is someone willing to pay me a million more, maybe a million and a half more f you're looking at return on investment. It's definitely there, I think James, you should be able to, to justify that spend.
Michael Ignatiadis: Yeah. And it depends on the market you're in. So, we did a business case for a European 3PL to build a 200,000 square meter facility. So, it's quite big. And initially, they came with their own decarbonization checklist, but then when we look at the cost, lead platinum versus lead gold, that was $20 million more to go lead platinum. So let's say very fast, they decided that lead gold is sufficient for them and for that market.
Jai Mirpuri: Yeah, I mean, and this is something that's quite interesting, right? I think that there's a trade off in terms of what you spend, right? What I would've done, I think, with that $20 million is say that how many tons of carbon are you going to save or eliminate with $20 million? Take the $20 million divided it by the tons of carbon and arrive at a certain number of dollars per ton of carbon. And if that number is in the range of, I think a good benchmark is about $40 to $50 per ton, I would say it's a worthwhile investment to make. If it was in the hundreds of dollars per ton, then you'd rather take that money and put it into another sort of credible green project. And, you'd probably make a bigger environmental impact with it.
James Cook: I don't know if this is true. You're going to have to tell me this is true. There's a perception that in Asia and countries, you know, like Singapore, like Japan, the warehouse logistics industry is more advanced. And I hear the examples that you're talking about with, you know, this people-centric design and just all the cool stuff that's going on, stuff I've never really heard of. So I'm going to start with the assumption that you're ahead of the curve, Jai, you know, in what you're doing. So, what is your advice to maybe developers and other parts of the world that aren't so far along with ESG? How might you advise them to get started?
Jai Mirpuri: I think going back to the initial point that Michael made, APAC itself is a fairly varied region, countries like Japan. Australia, Korea are a little bit ahead of the curve compared to the rest of Asia. It’s all about dollars and cents at the end of the day, I think, James, because it is a cost sensitive industry that we deal with our customers on a daily basis, deal with the fact that they have to bid for work, and they have to put the cheapest offer in front of their clients. There are certain elements that are no brainers, right? So being able to green certain elements of the warehouse in terms of how you design it, try and minimize the amount of structural elements that you have to have in terms of steel, cement, et cetera, which are big carbon footprint elements. So spend a fair bit of time on the structure. I think that obsolescence is a big factor as well, right? And this is not very often spoken about, but if you design your warehouse with a very short term focus in mind, what we see happen a lot our part of the world is developers with a short term focus, try to pack as much footprint on a piece of land as possible, that warehouse becomes obsolete pretty quickly, because there just isn't enough of, let's say, parking facility, turning radii, et cetera. In the short term, it seems like a good thing that, let's say a 10,000 square meter piece of land, let me pack it with 8,000 square meters of warehouse because I'm going to get the most rent from it. But that's actually a mistake, I think, in hindsight because that warehouse will become obsolete pretty quickly. And then you have to tear it down and do something new, which actually is the biggest cardinal sin in our industry. Because that's so much of embodied carbon going to waste in that process. But there are certain ESG elements that are getting very easy to adopt.
I think solar panels is one of them. Rainwater harvesting is another. Energy efficiency lighting is actually one of the low hanging fruits, as well. We recently actually have commissioned a pilot where our lights, which were led lights, they're energy efficient, but we've paid to equip them with sensors that can connect with Wi-Fi and Bluetooth so they can actually be controlled using an AI software for scenario management. For example, they can be dimmed or made brighter depending on time of the day, day of the week, but also depending on the ambient light outside.
So, if it's a rainy day, the light's slightly brighter. If it's a really sunny day outside and you don't need as much power , they can dim, which your normal LED lighting wouldn't be able to do. Even though those lights are fairly efficient, and because lighting is 70 percent plus of an ambient warehouse, for us to tackle the lighting consumption aspect of it was key.
The system is able to actually learn as it goes along in terms of which aisles in the warehouse are more heavy traffic and which are lower traffic and then adjust lighting in those aisles accordingly.
Michael Ignatiadis: To extend similar concept for cold storage is on the cold element. So A.I. And I.O.T. devices will calculate what is the right timing to cool more, cool less, during the day, maybe cool more when the electricity cost less. So, and then you kind of supercharge, you create a ice battery, so maybe during the night use less energy, but you use that cooling effect
James Cook: This has been a fascinating conversation and now I'm going to end it with a tough question. I'm going to ask each of you, in turn. So, I'm going to ask you to look 20 years into the future. Don't ask me why that's an arbitrary number. What technology do you think will have most impacted the supply chain warehouse logistics industry 20 years in the future when we come out of our time machine. Michael, I'll start with you. What do you think?
Michael Ignatiadis: So, we talk a lot about AI. So, AI and supply chain, really the biggest impact it will have is around forecasting and scheduling and planning, and that's something we haven't yet seen so much. So, companies, they try to use forecasting to plan what they're going to sell next month or next three months. So when that matures, we'll get a very accurate plan of the short and midterm as far , what we're going to sell, and that's going to flow into logistics, which means how we're going to schedule our transportation. So, the more efficiency you have, that means that actually are the construction of the warehouse itself be different.
James Cook: What do you think, Jai? Do you think AI is going to design your warehouse in 20 years?
Jai Mirpuri: I think Michael has a point. I think it will impact the design, for sure, in terms of how you use the space. As space itself gets more constrained in all of our markets, so we're looking at even markets in Asia, like Jakarta or Manila or Thailand, where urbanization continues to grow rapidly, there's a fair amount of congestion when it comes to infrastructure.
Michael Ignatiadis: And that's an understatement about congestion.
Jai Mirpuri: It is. So, it's about how you use the same spaces. A huge amount of space in the warehouse today is air. And how do you fill that air up so that you're using the entire volume of the warehouse more efficiently? There's a lot of automation technology that's out there already today that's going to proliferate a lot more if you ask me in the next 20 years. And you're going to have warehouses that are a lot more robot like looking where you have these big black boxes with things stored inside it and at the press of button goods actually come out and then ready for packing and so on and so forth. And the biggest impact to make that happen is as one of the things that you mentioned before James, is power.
Having green power solar on the rooftop to be able to power that without further negatively impacting the environment, I think, is going to be key. And the last thing that I'd add is I think electric vehicles in the form of trucking, et cetera, will, because I think there was a study done that showed that if company moved its fleet from internal combustion engines to electric vehicles, they could save 10 to 15 percent of cost on trucking today. The reason they can't go directly to it is because of charging infrastructure across the routes. So, over the next 20 years, if that charging infrastructure problem is solved, you'll see a massive shift to electric vehicles in the transportation sector, which will then again require power at the warehouse to charge them as you go forward. That that's my guess.
James Cook: I'm just excited for the future. And just what I've learned about today has been absolutely fascinating. Michael J. Thank you so much for joining me today.
Both: Thank you very much.
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This episode of trends and insights was produced by Bianca Montes.