As retailers braced themselves for the biggest shopping day of the year, industrial and retail experts joined Estates Gazette at Savills’ London HQ to discuss what the retail revolution means for the future of warehousing. Damian Wild reports. Photography by Tom Campbell
| The panel | |
|---|---|
| Andy Gulliford | chief operating officer, SEGRO |
| Matthew Hopkinson | director, Local Data Company |
| Richard Sullivan | industrial and logistics director, Savills |
| Bill Grimsey | retail turnaround specialist and Labour adviser |
| Ian Henderson | group property director, Wincanton |
| Ben Wall | head of portfolio management, Poundland |
The industrial sector is in rude health. With take-up at a 10-year high and a dearth of grade-A units available in key locations, the fundamentals are looking good.
Meanwhile, from retail to manufacturing, technological change is fuelling demand for modern shed space. Whether it’s omni-channel retail, 3D printing (making true just-in-time manufacturing a reality), or anticipation of clothes store holograms that allow us to try on virtual outfits, new drivers of demand are arriving all the time.
And with consumer habits changing too – requiring a greater proportion of industrial space to be closer to urban centres – it may be time for the very notion of “industrial” to be rethought.
“In the 25 years I have been doing industrial and logistics, I think it is a totally different place to where we have been before,” says Savills industrial and logistics director Richard Sullivan. “And I can only see the importance of warehousing and distribution increasing over the next 10 years.”
Changing market
The specific requirements of that space may ebb and flow, but it is by location where the changes could be most profound.
“What is absolutely true at the moment in our market is land control is everything,” says Sullivan. “We have lost land to residential, to retail, to pretty much every other use. With omni-channel some of these sheds are going to get bigger, not smaller, so that involves a significant land take. It’s not rocket science to work out there are going to be national distribution centres located in the heart of the UK, in the golden triangle in the Midlands. But the model is changing. Regional distribution centres, dark stores and the whole urban logistics piece means we will see a more localised distribution network for a number of the larger players. We are going to have to see efficiencies in the supply chain right across the piece.”
For Andy Gulliford, chief operating officer at SEGRO, this will require a significant change of mindset. “This is where we are looking towards the public sector and the planning authorities,” he says. “There is a chronic shortage of housing in the UK, particularly in London. We have lots of policies heading towards residential. But people need to be supplied and need to be able to work. If you ignore it, it’s not going to be terribly helpful.”
And for Gulliford it is about looking at industrial as a crucial component of mixed use. “Increasingly we are looking at sites where there is a combination of residential and some localised warehousing and industrial and trying to make that work,” he says. “Increasingly that is the way forward. We have picked up enquiries in Park Royal from Nine Elms, from Old Oak Common, which is going to displace a lot of industry. We have got to have a balanced view of how to take things forward.”
Former Iceland and Wickes chief executive Bill Grimsey also wants to see the public sector lead this industrial revolution. “It needs local authorities with vision and it needs local authorities and planners to understand the changes that are coming down the track,” he says. “Unfortunately, they don’t plan forward enough and they have historically been influenced by the large corporates in their planning processes.
“Our planners lost their way and we need to get back to some careful local authority planning, and we need those politicians to come to the party.”
And while the need for big boxes will always be there – “there are so many different requirements for so many different customers,” stresses Wincanton group property director Ian Henderson – it is urbanisation that is currently preoccupying minds.
Mixed use is fundamental
“The mixed-use aspect is fundamental,” says Local Data Company director Matthew Hopkinson. “If you look on the fringes of every city in the UK you see redundant warehousing of the old style. A lot of places have infrastructure and services but they haven’t got people. You have to physically change them. You have to place-make. And I don’t think we have seen proper placemaking in this country since post the Second World War, when we were forced to do it. To create mixed use will create opportunity.”
For occupiers, this is not a theoretical argument. It is a very real problem that needs addressing now.
“The changing consumer will continue to change,” says Ben Wall, Poundland’s head of portfolio management. “The period of change will become shorter. What was a three- to five-year time horizon will become two to four years. So the warehousing needs of occupiers will change more quickly. Landlords and developers will have to get on board with that or the fast-moving e-tailers, couriers and postal services will be confined forever to grade-B space or grade-C space. Traditional retailers that have distribution networks will be taking up the grade-A space but planning a lot earlier for it.
“And that’s the other issue today. You have to plan so far in advance because of the lack of speculative development.”
Take-up rockets, availability falls and investors pile in
By last month, take-up in the big sheds market for 2014 was already 50% up on last year, according to Savills. Indeed, the volume – 28.5m sq ft and rising – is the highest since 2010. Meanwhile, industrial availability across all grades in England stands at 25m sq ft, less than one-third of the level five years ago.
The average unit size is also on the rise – up from 217,000 sq ft nine years ago to 231,000 sq ft today, reflecting the need for large omni-channel distribution warehouses. And almost all regions across the UK have benefited, though none more so than the industrial heartland of the Midlands, where take-up has doubled.
Investors are piling in too with the industrial and logistics sector in 2014 accounting for 11% of all UK investment – or £3.4bn – up from 9% in 2013.
There is a growing demand from an increasingly diverse investor group from the UK and overseas and Savills research shows £3.4bn has been transacted across distribution warehouse investment to date this year, compared with £2.1m in 2013.
In association with Savills and SEGRO
