3PLs Leading the Demand for Industrial and Logistics Space
Executive Summary
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Third-party logistics (3PL) providers have become indispensable in modern supply chains, particularly during and after the pandemic. The rapid rise of e-commerce and exposed vulnerabilities in global supply chains highlighted the need for resilience, prompting companies to seek alternative inventory storage and logistics solutions. For many, 3PLs offered an efficient and adaptable answer.
As a result, 3PLs have taken a commanding position in the industrial and logistics real estate market. Their influence extends beyond demand for space, impacting warehouse design and fostering new industry developments such as fourth-party logistics (4PL) and reverse logistics.
Regional Insights
United States
- Dominance in Leasing: Since the pandemic, 3PLs have accounted for over 30% of bulk leasing activity (transactions exceeding 100,000 sq. ft.), driven by the surge in e-commerce and corresponding warehouse needs.
- Long-Term Growth: Despite short-term slowdowns due to economic uncertainty, the outlook for 3PL growth remains strong, with 4PL expected to further boost demand for modern logistics facilities.
Europe
- Growing Influence: 3PLs’ share of logistics leasing demand has risen by over 10 percentage points since 2019.
- Shift in Leasing Preferences: For XXL facilities (warehouses over 50,000 sq. m. or 538,000 sq. ft.), final occupiers increasingly prefer to control the lease directly while outsourcing operations to 3PLs.
Asia-Pacific
- Steady Growth: In 2023, 3PLs accounted for 30%–40% of logistics leasing activity, with moderate growth expected.
- Efficiency Focus: The region’s trend reflects the need for operational efficiency amid complex logistics and cost-saving measures.
The Role of 3PLs in the Supply Chain
Third-party logistics providers offer comprehensive supply chain management services tailored to various industries. Acting as external partners, they facilitate the seamless storage and movement of goods, bridging the gap between suppliers, manufacturers, and retailers.
Core Services Provided by 3PLs
- Transportation: Freight, trucking, rail, and multimodal solutions.
- Warehousing & Distribution: Efficient storage and delivery operations.
- Inventory Management: Streamlined tracking and replenishment.
- E-Commerce Fulfillment: End-to-end solutions for online retail.
- Reverse Logistics: Managing returns, recycling, and waste reduction.
- Supply Chain Technology: Data-driven tools for optimization.
- Customs & Compliance: Ensuring adherence to international regulations.
- Vendor Management & Strategic Planning: Enhancing supply chain efficiency.
By leveraging expansive networks, competitive rates, and technological innovations, 3PLs help businesses optimize operations, reduce costs, and focus on their core strengths. Their pivotal role ensures adaptability and efficiency in an increasingly complex global supply chain.
Logistics Technology Evolution
Advancements in technology have transformed logistics operations, with continued progress on the horizon. From inventory management systems to robotics and automation within warehouses and fulfillment centers, these innovations enhance efficiency, reduce costs, and improve product visibility throughout the supply chain. For occupiers, investing in new logistics technology has become essential.
While major retailers are often recognized as pioneers in logistics technology, 3PLs have emerged as one of the fastest-growing users. This adoption drives demand for newly constructed industrial facilities designed to accommodate modern technology and increased storage needs. As 3PLs have historically been top occupiers of first-generation industrial space, this trend is expected to persist.
4PLs: The Next Evolution in Logistics
Fourth-party logistics (4PL) providers represent a growing trend in supply chain management. Unlike 3PLs, which handle specific logistics functions, 4PLs adopt a more strategic role, managing entire supply chain ecosystems and coordinating various 3PL providers.
4PLs utilize advanced technologies such as artificial intelligence (AI), big data analytics, and blockchain to optimize supply chain networks. These tools enable precise demand forecasting, enhanced transportation efficiency, and automated decision-making processes. By offering centralized, end-to-end visibility and collaboration, 4PLs transcend traditional logistics boundaries and revolutionize supply chain management.
This evolution is reshaping logistics operations and increasing demand for modern distribution centers equipped with state-of-the-art technology.
Reverse Logistics: Managing Returns in a Growing Market
The growth of e-commerce has led to a proportional rise in returned goods. Managing these returns, also known as reverse logistics, is time-consuming and costly. Many companies outsource this process to 3PLs to optimize efficiency and reduce handling costs.
Reverse logistics involves decisions about returned items, such as whether to return them to inventory, resell them as used, refurbish, or dispose of them. As product variety grows, the complexity of these decisions increases, further emphasizing the value of specialized 3PL services.
Regional Insights on 3PL Impact
United States
- Market Share: 3PLs accounted for over 30% of bulk leasing activity (spaces exceeding 100,000 sq. ft.) since the onset of the pandemic, fueled by e-commerce growth.
- Economic Trends: While short-term demand has softened due to economic uncertainty, long-term growth is anticipated as e-commerce continues to expand, particularly among millennials and Gen Z.
- Reverse Logistics: Rising consumer expectations for returns management will increase the demand for 3PL services and warehouse space.
Europe
- Demand for Flexibility: Final occupiers are increasingly self-leasing XXL facilities (50,000 sq. m./538,000 sq. ft.) to retain control while contracting 3PLs for operations. This approach offers flexibility and cost advantages.
- Shift to Smaller Facilities: In response to economic uncertainty, many 3PLs are focusing on smaller facilities, a trend mirrored across all occupier types.
- Operational Growth: The use of 3PLs to manage facilities is expected to continue increasing.
Asia-Pacific
- Strong Leasing Activity: 3PLs contributed 30%–40% of logistics leasing in 2023, with steady growth anticipated.
- Regional Insights: In Australia, 3PLs accounted for nearly 60% of gross take-up in 2023. Occupiers increasingly rely on 3PLs for efficiency, cost control, and fulfillment amid rising consumer demand.
- Survey Findings: In the 2023 Asia-Pacific Logistics Occupier Survey, 87% of respondents planned to outsource the same or more volume to 3PLs, citing operational efficiency and cost savings as top reasons.
Outlook
3PLs have become indispensable in modern supply chains, offering critical services such as warehousing, transportation, and inventory management. Their role in optimizing operations, enhancing customer service, and leveraging cutting-edge technology is vital for businesses navigating complex logistics challenges.
The reliance on 3PLs is projected to grow, driven by rising e-commerce demand, advancements in automation, and the increasing importance of reverse logistics. This will further fuel demand for industrial and logistics space globally, cementing 3PLs as key players in the evolution of supply chain infrastructure.