The industrial sector has transformed itself significantly over the past five years and amongst some of the key drivers, the most important is the change in consumer behaviour and the consequent growth in online commerce.
This has meant that the old model of delivering goods is not fit for purpose anymore so over the next 10 years, we are set to see the changing face of this asset class.
For 2019, online sales were just over 19%, the largest annual percentage to date. To meet this online demand, we have witnessed a consistent take up in the design and build market (accounting for circa 50% of the market over the last four years) among retailers and third party logistics providers looking to secure bespoke larger warehouses. In 10 years’ time, we could see this share increase as occupier requirements change and adapt and as AI and automation proliferate.
Online customers have become accustomed to fast shipping, and more sophisticated parcel courier services offering last-mile, same day and next day delivery are forcing retailers and delivery companies to invest significantly in future-proofing their supply chain operations. To meet this online demand, retail occupiers are now willing to pay premium rents to prepare themselves for the rush resulting from peak periods, and this is only set to continue.
The success of a retailer’s online strategy is closely linked to the distribution sector and supply chain functions. We’ve therefore witnessed strong demand for smaller urban and logistics units to serve the last mile, and this will evolve throughout the next decade.
Over the next 5 to 10 years, we will increasingly see courier firms use unusual space in city centre locations to help reduce pollution levels while also cutting delivery times. We expect the use of electric and smaller vehicles will increase, and be housed in these units. For example, in 2018, DPD took 5,000 sq ft of space in from the former Scotland Yard’s garage in Westminster with a plan to use electric vehicles to carry out last mile deliveries.
A general look at the market over the next 10 years:
Looking more generally at the market, over the last three years, we’ve seen the return of the mega box as active retailers and 3PLs seek to capitalise on the growth of ecommerce while reaching greater economies of scale. There has been eight large distribution warehouses in excess of 500,000 sq ft delivered, or under construction and this trend is set to persist.
Over the next 10 years, we predict that the share of total take-up from 3PLs will increase due to the growth in ecommerce related businesses requiring faster turnaround. As a result, there will need to be more automation and taller warehouses to accommodate this demand.
Furthermore, larger manufacturers will increasingly seek to operate from fewer and larger warehouses to consolidate their operations. The vacated buildings will be either redeveloped to cater for online related needs, or refurbished to provide alternative secondary space use.
Finally, looking at the UK’s capital, London will see the creation of hybrid spaces where retailers and last mile logistics occupiers could operate for click and collect and same-day delivery.