Reshaping Industrial Distribution: Sustainable and Resilient Solutions
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Whether it's flex space, labs, warehousing, or cold storage, industrial real estate is still seeing steady demand thanks to rapidly expanding e-commerce activity. But with this expansion comes concerns about the ecological and social impacts that industrial development can have.
Many are investigating new, sustainable solutions for more responsible industrial distribution and production to answer these concerns, implementing "green" building techniques and strategies that range from utilizing better-quality building materials to more energy-efficient inventory and supply chain management systems.
Let's take a closer look at how industrial real estate developers, manufacturers, and buyers are answering the question of sustainability in industrial distribution.
What Is Industrial Distribution?
Do you ever marvel at the fact that you can walk into a store and browse products that were made on the other side of the planet? You can thank industrial distribution for that.
Industrial distributors are supply chain middlemen that stand between manufacturers and consumers—they make sure that products get from where they were made to where customers can buy them.
In that sense, industrial distributors are crucial in keeping the economy running. However, industrial distribution systems tend to produce worrying environmental impacts, including greenhouse gas emissions, air/water pollution, and wildlife destruction.
These environmental concerns are usually why real estate zoning laws typically separate industrial zoning from other real estate classes.
What Role Does ESG Play in Industrial Distribution'?
ESG stands for "Environmental, Social, and Governance" and refers to frameworks that investors use to assess the social and environmental impacts of businesses.
Corporations integrate ESG metrics into their strategies and operations to manage risk, enhance reputation, and promote responsible and sustainable growth.
Some of the most pressing ESG issues in industrial distribution include:
- Energy efficiency;
- Reducing greenhouse gas emissions;
- Lowering wilderness destruction;
- Avoiding slavery in supply chains;
- Promoting worker health/safety; and
- Using durable, long-lasting materials.
These are a select few, among others.
What Are the 4 Tasks of an Industrial Distributor?
Industrial distributors perform four crucial tasks in modern supply chains and can best modify their impact through these roles.
#1 – Product Procurement
Industrial distributors are the middlemen between manufacturers and consumer-facing businesses, so one of their main tasks is acquiring product inventory. Sustainability and ethical product procurement are a priority for industrial ESG metrics.
#2 – Vendor Management
Vendor management is a broad term that encompasses selecting vendors, negotiating sales contracts, controlling costs, and managing vendor risk.
Vendor management ensures that goods and services can get to consumers for affordable prices. By working with other sustainable vendors, distributors can promote their sustainability goals through all levels of their supply chains.
#3 – Shipping/Transportation
Distributors also distribute goods to consumer-facing businesses. To that end, many distributors have large-scale storage and delivery capacity through networks of trucks, warehouses, and distribution centers.
Distributors are moving to more energy-efficient transportation methods to reduce emissions associated with shipping goods.
#4 – Selling
Lastly, industrial distributors sell products to vendors. Distributors can profit from selling products to consumer-facing businesses by buying wholesale from manufacturers.
Industrial ESG metrics account for companies focusing on selling products that align with their sustainability goals.
What Is Sustainable Real Estate?
The main idea behind sustainable real estate is minimizing the environmental impacts of real estate production and getting the most out of real estate materials.
Specific features of sustainable real estate development and management include:
- Installing energy-efficient lighting;
- Updating building appliances (e.g., HVAC, electrical, water heaters, etc.);
- Using solar panels;
- Reducing water usage with more efficient fixtures; and
- Integrating buildings into the environment.
Real estate development is incredibly energy-intensive and responsible for about 40% of all global emissions. As such, sustainability is a major concern for environmental reports, and many states have real estate sustainability requirements.
Sustainability in real estate aims to create long-lasting, resilient, green real estate that is responsibly integrated into the surrounding environment.
Sustainability in Industrial Real Estate
ESG in industrial real estate is not just about doing right by the environment and society: Industrial ESG metrics are a powerful value driver contributing to a property's real estate financials.
Industrial real estate investors should account for industrial ESG performance when buying commercial real estate.
More efficient technologies and building materials can increase productivity, reduce management/upkeep costs, and promote worker safety.
For example, many warehouse owners are adding solar panels to buildings to reduce carbon emissions and generate additional power for the grid.
Technologies like robotics in warehouses can lower greenhouse gas emissions while increasing distribution capacity.
For instance, AutoStore's warehouse robot fleet uses battery power and regenerative braking to automate warehouse operations and reduce emissions. Environmentally-conscious tenants will pay a premium to lease green industrial space.
Many believe that there must be a tradeoff between sustainability and profitability. However, companies that have sustainable practices tend to provide more growth and shareholder returns than their peers.
From the perspective of real estate investors, buying sustainable industrial properties is a way of future-proofing your investment portfolio.
“Green” Real Estate Brokers
If you wish to invest in sustainable industrial real estate, you should work with a commercial real estate broker specializing in sustainable properties. So-called “green” real estate brokers understand modern sustainability goals, green building techniques, and efficient equipment.
An experienced green real estate broker on your investment team can negotiate sales contracts, find tenants, explore financing options for sustainable properties, and assess a property's sustainability potential.
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