Cracking e-commerce is the global developers’ and occupiers’ conundrum. Real estate is by nature illiquid, with investors needing tenants to sign up to lengthy leases to facilitate funding. Tenants, however, don’t know what their needs are going to be in a few years’ time and e-commerce has only heightened the differences between what landlords and tenants need.
Nowhere is cracking this conundrum more pressing than in food retail, where the Big Four of Tesco, Sainsbury’s, Asda and Morrisons are finding their margins under siege from the shock upswing of Lidl and Aldi. It is the same across the world, as goods are shipped directly to homes at an increasing rate.
I was at EXPO Real in Germany on Wednesday sitting on a panel aiming to crack this conundrum.
According to JLL, since 2012 the amount of industrial space (of which 75% is warehousing) used in the UK has grown at an annual rate of 14.5m sq m a year – double the pace in 2008. During the same period, retail usage has risen by just 6m sq m a year – proving that “logistics is the new retail”.
Against this backdrop, here are my four big predictions for the landlord and tenant e-commerce relationship.
● Values will rise for warehouses most suited to e-commerce, and there will be a poorer investment performance for sheds that are not. If I’ve got £100m to invest I’ll be faced with a two-tier market where older, out-of-town properties are stuck at a rent or yield profile that will not shift. In-town properties that can be used for e-fulfilment, however, will see yields harden.
● Retailers will begin to share common pick-up zones. There simply aren’t enough in-town locations for them to occupy separate premises, particularly when factoring in the cost of handling returned goods.
● The range of goods stocked by food retailers and general retailers will begin to diverge. With Aldi and Lidl growing rapidly on the back of smaller product lines, the Big Four may well opt to trim the range of goods they sell. But general retailers will begin to distribute a wider range of goods from warehouses to meet online demand.
● Existing warehouses will be repurposed for e-commerce. Increasing automation is triggering a complete re-think. Whereas the original “dark stores” were laid out like supermarkets with “pickers” locating goods, there are now “goods to person” picking stations, enabling the picker to work at a single location, with goods sent to them by an automated system, allowing twice the pick rate.
This fast-changing world presents numerous challenges. More staff are needed to operate a dotcom facility than a standard B8 warehouse, even with more automation.
This means that car parking can become a challenge, with local authority parking standards in in-town and out-of-town warehouse locations often well below what is required.
The larger yards needed for the multitude of vans fulfilling online orders can result in a low building-to-site ratio, making it difficult for a developer’s sums to add up. This also makes it difficult to convert existing buildings.
Britain is leading the world in e-commerce-related distribution development. In the US there is less tension between in-town and out-of-town warehouses, with faster road networks allowing easier distribution from bigger sheds. In China, the government now acknowledges that distribution warehouses create jobs, and is willing to grant consents, and in continental Europe the sector is growing fast as well.
Those who succeed in cracking the e-commerce conundrum will prosper in a way beyond the wildest dreams of those who used to build simple sheds next to A roads and motorways.
Giles Scott is director of development management, AECOM
Additional contribution from Ashton Smith Associates
