We recently joined Property Week’s virtual Industrial & Logistics Conference & Showcase, which explored the successes and changes in the market as well as the emerging theme of sustainability. Here is our summary of the key opportunities and challenges for the sector.
The market remains resilient
By all accounts the mood at this year’s conference was positive. Looking back to last year, the COVID-19 pandemic was still very new and the sector, like all of us, was still adjusting and working out how to react to it. Despite all of this, industrial and logistics has thrived. With record levels of take up in 2020 and online spending on a seemingly ever continuing upward trajectory, it is easy to see why panellists and delegates were feeling optimistic.
Both COVID-19 and Brexit have caused companies to create more resilient supply chains, increasing the warehouse capacity required. In addition, there is increased demand for deliveries away from urban centres to assist with delivery in harder to reach areas. All of this presents potential opportunities for developers and could help to broaden the market.
While the pandemic has undoubtedly played its part in the sector’s growth, it was just as interesting to discuss what has not changed. The fundamentals when looking at potential sites remain much the same. There is still a large regional variation in the supply of buildings and there is still huge demand for those sought-after higher-grade units. Competition for space, location, accessibility, availability of power supply and local politics all continue to influence the way in which this demand is to be met.
Repurposing retail spaces
One theme that continues to dominate conversation is the idea of repurposing excess retail space for logistics use. The much-discussed “death of the high street” is resulting in a number of former retail spaces becoming vacant. These spaces are potentially ideal for those “last mile” deliveries, allowing distributors to store more goods closer to the final customer than has been possible in the past.
However, there are obstacles to this. Firstly, retail spaces have often demanded a higher rent than logistics and distribution companies are used to paying. It remains to be seen how many landlord’s will be willing to compromise on these rental levels rather than see former retail spaces remain vacant for long periods. Secondly, it is most unlikely we will see retail centres turn completely into distribution hubs. Services like “click and collect” still require retail space and this could lead to competition between the sectors for high-quality, well-located units. This will influence the look and feel of high streets as consumer demands and expectations continue to change and businesses adapt to them.
And where there is change there is also opportunity. Dark kitchens, an area in which our clients have been active, are a prime example of a fledgling business concept with huge growth potential. Turning unused space into efficient production hubs for local deliveries makes a lot of sense.
Sustainability and environmental social governance (ESG)
The expectations on industrial and logistics businesses to deliver on ESG continues to increase from stakeholders, customers and the planning requirements of local authorities.
In the industrial and logistics sector, this is often associated with an increasing drive towards net-zero buildings. This will continue to be important on new developments and we can expect to see continued demand for roof-space for solar panels and other environmental measures on new building stock.
So, as the sector continues to lead the growth in the real estate industry, there is no doubt that ESG will drive change within it and, if managed sustainably, will be a major force for good.
If you are an investor, developer or occupier of industrial and logistics space and have any queries or would like to discuss your requirements, including for acquisition, disposal, development or your sustainability goals, please get in touch with us.
Markus Klempa
Jonathan Cope