Location, location, logistics

This article covers the concept of location in logistics real estate, which works from different perimeters to usual commercial real estate. It was initially published on our Spanish blog.

“Location, location, location”. This phrase, attributed to the Englishman Harold Samuel, emphasises the crucial factor to consider in real estate investment. If these factors – traditionally repeated three times, in case it wasn’t clear – are not met, the real estate investment is bound to fail.

The logistics & industrial sector, along with its role in real estate, is not exempt from this principle. The right location makes all the difference, especially in a context where the rise of e-commerce and the increasing demand for fast and efficient deliveries sets the tone.

Aligned with this new context the logistics real estate market has experienced a boom in recent years, where location undoubtedly remains a key factor.

A weight supported by statistics

According to a report by CBRE, location is the most important factor for logistics real estate customers. While there are many sub-factors that influence leasing choices, they all relate to location being the primary consideration when choosing a logistics property.

Its impact on operational efficiency is fundamental. In this sense, the right location can significantly reduce transportation costs and increase supply chain efficiency.

Regarding this second aspect, it is worth noting that the distance between the distribution centre and the final destination can account for up to 60% of total supply chain costs. In terms of expenses, a strategic location can also enhance profitability in transportation and storage, which together can represent up to 80% of total supply chain costs. However, given the current focus on availability of space, the relation to commercially relevant areas has been compromised on more than recent years.

The availability of skilled labour is another locational factor that occupiers are finding increasingly important, something that also ties property value to its location – specifically its proximity to residential hubs.

Location in logistics does not follow predefined patterns

In the commercial real estate market, which mainly encompasses the office, retail, and logistics sectors, the logistics sector has historically been the least influential. This has meant that when defining the factors that influence the key real estate principle of location, a comparison has been made with the other dominant sectors.

It is clear that, in the office sector, potentially desirable areas are divided into rings, with the central ring considered prime due to its location in the financial centre of cities. The concentric rings farther away from this centre lose real estate appeal.

When applying this principle to the logistics market, however, the concept of location becomes distorted. In logistics, the ring closest to the city centre is highly attractive because it is where most urban or last-mile distribution takes place. However, the other two rings, particularly the third, are also relevant as they are the areas where large storage centres are situated.

Thus, there is a paradox where a location just 15 km from the urban centre can be as valuable as a storage centre located 40, 50, or even 70 km away from the core city. Therefore, in logistics, it may be more appropriate to define potentially desirable locations based on influential axes. For example, in the city of Madrid, the A-2 and A-4 (A-42) axes would be prime axes, while those with little potential interest, such as the A-6, would be less desirable.

The key to logistics real estate

Despite these differences from other commercial real estate assets, the significance of the proximity principle in logistics real estate is undeniable.

Location has been proven to have a significant impact on logistics real estate property prices. Consequently, projects located near major consumer markets usually command higher prices than those in less strategic locations.

In summary, location is and will continue to be the most critical factor in logistics real estate, bearing a significant impact on the valuation of real estate assets or portfolios.