CBRE RESEARCHDIGITALLY REMASTEREDWhat Industry 4.0 means for Asia Pacific Industrial & Logistics Real Estate4 CBRE RESEARCH | DIGITALLY REMASTERED: INDUSTRY 4.0Since the develonullent and nulldesnullead use of the internetnull the develonullent of information communication technology nullnullnullnullencomnullassing all manners of comnulluter and telecommunications technology including the internetnull integrated circuitsnullnulloadnulland transmissionnullhas severely disrunulled many industries.In the first wave of digitisation, industries such as film photography, print media/advertising and recorded music saw their business models disrupted and industry stalwarts brought low, if not eliminated altogether. Even though these technological trends had become increasingly apparent for some time, many companies that once dominated these industries were unable to navigate the transition from analogue to digital and are now only shells of their former selves. The next wave of ICT advancement is set to cause the same kind of disruption to industries, business models and companies once thought impervious to the challenges posed by digitisation. This report by CBRE Research examines the latest Industry 4.0 related technology trends, specifically in the area of manufacturing, and explains how they will transform the industrial & logistics real estate landscape in the coming years.Industrial & logistics investors, developers, operators and occupiers will need to understand the potential impact of these trends, not only to avoid pitfalls but, more importantly, to leverage the benefits for their future growth.INTRODUCTION5© 2018 CBRE, INC.6 CBRE RESEARCH | DIGITALLY REMASTERED: INDUSTRY 4.0WHAT IS INDUSTRY 4.0? CORE CONCEPTS AND ELEMENTSIndustry 4.0 null4nullenvisions a system of advanced manufacturing and nulloduction incornullorating some or all elements of the follonullngnull nulle nully in nullich the division of fully automated nulloduction materialises nullll vary across dinullrent industries and geogranullhies. nullnullvernullall the variations of snullecific I4 imnulllementations nullll include some or all of the follonullng core technologies. Ubiquitous sensors along the production process feeding a constant stream of relevant production and operational data. Every step of the production process will be monitored and quantified on a continuous basis. Operation and production statistics will be fed to information systems for analysis and feedback. Production/operational data analysed by information systems incorporating elements of artificial intelligence and machine learning. These systems would help cyber physical systems determine and refine what are the most optimal production conditions for minimising inputs and maximising outputs. Additional sensors embedded in manufactured products providing continuous usage and condition feedback from outside the factory walls. Such monitoring and feedback would be done with the knowledge and consent of customers. This ability to monitor and maintain the performance of goods once they leave the factory floor will completely transform some business models from sales of goods to sales of services. The transition to an “As a Service” (AaS) model has become increasingly prevalent, if not the dominant business model, in already digital industries such as software. Source: World Economic Forum1.0INDUSTRY3.0INDUSTRY2.0INDUSTRY4.0INDUSTRYMechancial ProductionThe first mechanical production, powered by steam and waterAutomatedProductionElectronics and IT support production, improving the automation of processes energyMass ProductionProduction evolves to mass production, subdividing labour and using electrical energyIntelligent ProductionConnecting all cyber-physical systems, Internet of things and cloud computing178419691870 TODAYThe Industrial Revolutions: 4 Industrial Revolutions in 232 years7© 2018 CBRE, INC.8 CBRE RESEARCH | DIGITALLY REMASTERED: INDUSTRY 4.0IIOT9© 2018 CBRE, INC.Industrial Internet Of Things (IIOT)Until now, it has been unnecessary to distinguish between the Internet of People (IoP) and the Internet of Things (IoT). However, as internet enabled devices start to enter our homes, workplaces and factories, the IoT is becoming a new frontier for technological innovation and advancement. Progress in the sophistication, accuracy and miniaturisation of sensors together with the increasing ability to connect with information networks, whether internal or external, has enabled equipment, tools and devices involved in the manufacturing process to be monitored and measured.While the IoP is already generating ever growing volumes of data, the proliferation of IoT will generate exponentially more. Adopting I4 manufacturing methods will require significant enhancements to existing information technology (IT) infrastructure for many businesses. Most enterprises may already have existing Enterprise Resource Planning (ERP), Customer Resources Management (CRM) and other systems in place. But the scale and complexity of new I4 related IT systems will likely put onerous new demands on any existing IT systems in terms of physical resources and know-how. This is where the continued development of cloud computing, that allows computing resources to be deployed from outside immediate production facilities, will be essential.10 CBRE RESEARCH | DIGITALLY REMASTERED: INDUSTRY 4.0Cloud Computing Artificial IntelligenceCloud computing is a computing architecture whereby various computing related functions and services are provided via decentralised, off-site facilities usually data centres. The emergence and proliferation of cloud computing has made it easier for hardware and service providers to offer their wares as services in the form of Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and Software as a Service. In turn, this has given enterprises the ability to scale up (and down, as the case may be) computing hardware requirements as well as access the latest industry products and best practices without the lead times and upfront capex that might have previously been required. Artificial intelligence in this instance covers a broad range of technology ranging from big data through to machine learning and deep learning.The general idea is that the wealth of data collected and fed by the numerous sensors, equipment and facilities involved in the production process is fed into a system of algorithms that can effectively learn what are the best conditions that would ensure optimal output. These will be used to determine the most appropriate settings by top human management.The ability to master data, analytics, neural networks and machine learning will be as critical to business and manufacturing success tomorrow as sourcing materials, producing goods and shipping products are today. Factory and business owners need to be aware of the raft of new skills, disciplines and strategies that will be necessary to succeed in this new marketplace. 11© 2018 CBRE, INC.12 CBRE RESEARCH | DIGITALLY REMASTERED: INDUSTRY 4.0Countries such as Japan and South Korea are already well established in many areas of advanced and automated manufacturing. According to the latest figures from the International Federation of Robotics (IFR), both countries are among the 10 markets with the highest penetration rate of industrial robots in the world. While Chinas current penetration rate is low, it is making up for lost time and declining cost competitiveness by aggressively pursuing automation, with IFR data showing that the annual sales volume of industrial robots reached the highest level ever recorded for a single country in 2017.Robots have traditionally been prevalent in high-value add industries such as automotive and electronics. However, they are also becoming increasingly utilised in lower-value add industries such as textiles. Some production facilities have even shifted back to nominally higher-wage countries like the U.S. as the combined cost savings from automated, large scale production and lower shipping costs due to closer proximity to customers/markets have more than offset the total costs lower wage countries. As the overall manufacturing supply chain becomes more automated and sophisticated, producers can no longer rely on low wages alone to ensure competitiveness or even existence. This makes it critical for them to understand how current technological trends affect their respective industries. It is incumbent on every producer/manufacturer to recognise the changing dynamics currently affecting their industries and take proactive measures to stay relevant and competitive. The objective should not be simply to upgrade IT systems to the latest and greatest, but rather to understand how data and digitisation will transform the design, production, sale and delivery of their goods.nullnufacturing is and nullll continue to remain an imnullortant nullart of many manullor economies across Asia. nullusnullthe changes driven null I4 are linullely to have a tremendous imnullact on economies and societies across the region.I4 AND MANUFACTURING 13© 2018 CBRE, INC.nulltch sinull null Bespoke manufacturing will be implemented on a grand scale. Batch size 1 enables the production of one-off and unique items as easily and efficiently as mass production.nulltanullriven manufacturingThe coming years will see the widespread deployment of low-cost sensors and their connection to the internet to apply big data analytics in the next generation manufacturing process.null oticsRobots will be deployed to complement rather than replace workers. This will see operators and robots working together to make complex parts of the manufacturing process faster, easier and safer.Enulleriential factoriesThe factories of the future will be capable of far more than just simple production. They will incorporate experiential features to showcase products and enable clients to interact and better understand them.Major trends in I4 and manufacturing are expected to include the following:nullme factoriesHome based manufacturing technology such as 3D printers are expected to drive the formation of small home based micro-factories.nullninullhannelA multichannel approach to sales that provides customers with a seamless online and offline shopping experience is gaining traction. This requires both manufacturers and logistics providers to maintain an integrated view of all customer channels and inventory.Living factoriesThe introduction of manufacturing technology for generating custom-made materials and organic products is not far away. These factories will allow the creation of substances that are either too difficult or expensive to cultivate naturally or artificially with petrochemicals.IMPLICATIONS FOR REAL ESTATEI4 nullll create an integrated value chain featuring unulltream and donullstream servicesnull and drive ronullust demand for customisanullle and modular facilities anullle to accommodate a nullde range of nullocesses and uses. The onset of I4 will shape decisions around building location, function and fitout as occupiers select properties best suited to this new era of manufacturing and distribution, and developers and investors strive to ensure their buildings remain in demand.LocationThe digitalisation of production will require that all buildings be connected and networked. This will require properties to be located in areas with high quality supporting infrastructure including data, energy and transport networks.Next generation factories, particularly those using Cobotics, will require uninterrupted power supplies and internet connectivity. Experiential factories will need to be accessible by public transport and have sufficient parking spaces for visitors. Omni-Channel factories will need to be centrally located with good infrastructure to enable them to source resources from various suppliers as and when they are required.In the medium term, CBRE Research foresees the formation of new manufacturing clusters due to the production-related 14 CBRE RESEARCH | DIGITALLY REMASTERED: INDUSTRY 4.0networking of functions and buildings. The distance between a manufacturers materials handling facility and finished goods warehouse should ideally be minimised to reduce potential errors in the production process.With I4 enabling companies to customise production, facilities are likely to shift away from speculative mass production and move towards demand-driven production closer to customers. Instead of a single or small number of large facilities, companies will operate more urban hubs and larger regional distribution centres. This trend is especially relevant to batch size 1 manufacturing facilities, which will be highly automated and located close to demand. Siting manufacturing and distribution facilities closer to customers would also reduce delivery times.nullnction CBRE Research expects the main trend related to building function to be an overall emphasis on greater flexibility and stronger demand for properties capable of performing different roles and able to switch between configurations as required.In the medium term, demand for facilities for shipping and storing goods bound for overseas could decline as it may no longer be necessary to ship physical products, Instead, digital blueprints will be sent to recipients to manufacture on-site via 3D printing.Older facilities could be upgraded through redevelopment or revitalisation to perform new multi-functional roles. Demand for pure logistics centres in greenfield areas could decline as they are too large, specialised and unsuited to integrated use.nulltout I4 will drive demand for facilities with technological features enabling them to be digitised and networked with internal functions and elements. Smart buildings will be capable of autonomously controlling features such as lighting, air quality and water to suit products being stored or manufactured. Factories catering to batch size 1 manufacturing would have to feature multiple smaller loading and unloading bays to facilitate the rapid loading and unloading of small quantities of orders. Cobotics-capable factories would feature less columns and more flat open spaces to allow the new generation of mobile robots to maneuver around the factory floor. Data driven manufacturing facilities would require more space allocated for servers and mini data centres, and the cooling platforms supporting them. Large office and laboratory spaces would have to be included in next generation factories to house data scientists, while experiential factories would require the installation of exhibition space to showcase manufacturing processes. Living factories will need appropriate storage and disposal space to safely handle biomaterials.15© 2018 CBRE, INC.16 CBRE RESEARCH | DIGITALLY REMASTERED: INDUSTRY 4.0CONCLUSION: A NEW ERA FOR INDU