Few would disagree that 2020 has been an exceptional year. The retail gloom and hypothesised “death of the high street” has been well documented, not least aided by the pandemic and the impact this has had on retail and hospitality businesses. But, where retail has suffered, logistics continues to go from strength to strength.
In July we reported how recent events have projected the logistics sector into the limelight with some eye-catching statistics. Here are some more, as announced recently by Savills’ Big Shed Briefing: logistics take-up has reached a recorded breaking 40m sq ft, largely driven by people’s insatiable appetite for online commerce and Amazon. Online spend has peaked at 33% of all retail sales, boosted no doubt by lockdown-induced, previously reluctant and now more tech-savvy internet shoppers across all generations.
However, whilst there are many eye-catching statistics, the issues that dominate logistics have not gone away.
The pandemic exposed how unprepared the infrastructure supporting the industry was to cope with its growth. This was most visible during the early days of lockdown when the run on supermarkets left shelves empty and, most memorably, essential toiletries in short supply. The need for flexibility and agility in the sector to avoid this in the future has never been more apparent. Locating large warehouses centrally is no longer appropriate as changes are afoot. Fewer people are commuting and the likelihood is that home working will become more common place into 2021. Traditional brick and mortar shops with the need for large central warehouses is becoming a thing of the past. Whilst bigger box warehouses are still on trend, smaller and more local distribution centres which are fit for purpose are needed to service the future demand of next or same day deliveries.
Only this week Estates Gazette has reported that Amazon signed a lease to repurpose 39 spaces in the London Wall Car Park as a last-mile logistics hub, providing easy access to its customers. In addition, Blackstone’s last mile delivery arm Mileway has recently been on the acquisition trail for sites with proximity to customers in London. Crossbay has also raised a war chest of £500m to fund its expansion into the UK last-mile sector, focussing on single-tenant properties.
Bringing logistics into the 2020s will require innovation and automation, as well as clean energy sources to achieve the government’s targets of net zero carbon emissions by 2030. This might be achievable for new stock, but there is a concern that older existing warehouses will be difficult retrofit and the initial capital expenditure outlay will not necessarily always be recovered. Full warehouses are not necessarily profitable. There is also a concern that occupiers will be facing depleted revenues as work in certain areas, such as manufacturing, dried up over lockdown. This is likely to hit landlord’s pockets again come December’s quarter, which is due next week. With the statutory protections afforded to non-paying tenants extended again to March 2021, as we reported last week, casualties will be expected, as will consolidation.
Where there are challenges there are great opportunities too. Many investors and developers are getting in on the action, with new entrants to the logistics arena bringing space to the market. Speculative developments and build-to-suit schemes are happening, such as Chancerygate’s joint venture with Hines and Credit Suisse who has just acquired a six-acre site to speculatively develop a £50m new industrial park in Dagenham.
Demand for all sizes of shed continues to outstrip supply. Colliers reported earlier this year that rents will, therefore, continue to hold or even grow over the next few years, even if the economy heads in the other direction. According to Savills’ Big Shed Briefing, if current trends continue, take-up could even exceed a record topping 50m sq ft by the end of the year which has also seen vacancy rates fall to their lowest levels since 2016.
So, for now at least, whilst there are still challenges ahead for the sector, logistics remains the asset class of choice and its future with 2020-1 vision continues to look bright.
If you are an investor, developer or occupier of logistics space and have any queries or would like to discuss your requirements, including for acquisition, disposal or development, please get in touch with us.
Markus Klempa
Ian Craig