by Caroline Rawson-Gardiner
The UK distribution sector has shown sustained growth over the past decade, with employment within the sector between 1981 and 1989 growing at a faster rate than the total UK workforce. Despite overcongestion and soaring occupational costs in the South East, the majority of the industry has traditionally been, and is still, located in this area.
However, the important issue for the property developer concerns the future; where will distributors want warehouses? And what specification will they require?
Following research carried out among contract and specialist distributors within the UK, Hillier Parker Business Space Consultancy has identified substantial demand from the large specialist distributors for new warehouses; indeed, demand for warehousing space is probably outstripping demand for new office and industrial space. Almost without exception, UK distribution companies say that they envisage acquiring new warehousing space in the UK over the next 12 months or so.
This is an encouraging finding for the property market in general, particularly in today’s economic climate. The main forces of change within the distribution industry — the trend towards centralisation and the drive into Europe — are clearly major influences on property demand.
Restructuring within the distribution sector will undoubtedly affect demand as distribution companies move away from the traditional warehouse and look for different criteria in their accommodation.
The current trend towards reducing overall stock levels and centralising stockholdings — often down to a single, national location — has boosted demand for large units. Indeed, the average size requirement for the top UK distributors is now between 150,000 sq ft and 200,000 sq ft, moving away from the traditional small regional unit of 35,000 sq ft or less.
Chris Farnham, logistics development manager for P&O Distribution, commented in our survey: “To be effective, a company cannot afford to have warehouses all over the country. Many companies are cutting down from the traditional four or five locations, and rationalising all their operations under one strategically located roof. P&O is doing just this; finding the right location for each client’s business.”
A major oil company has also followed this route by reducing its seven distribution centres in the UK (as well as some in continental Europe) to one large facility in the UK from which they now service all of Europe.
The study also looked at factors which influence how location decisions are made — important information for the property developer looking to anticipate the sector’s requirements. And these factors have changed considerably. Site costs and logistical/transport considerations still play an important role in the overall equation, but human resources and staff issues, such as employee catchment, availability, costs and levels of unionisation, are increasingly taken into account.
A spokesman for Christian Salvesen said: “People are now the most important factor. Because we want to keep staff turnover down to a minimum, we make sure that our warehouses are on attractive sites, and that we provide good facilities in a pleasant working environment.”
So, having established the property criteria, where are the ideal locations?
Overall, the research showed that the most popular choice of location for new accommodation was the Midlands, with the South East — and Kent in particular — running a close second for those companies with their eye on European business.
Although contract distribution companies are bullish about their prospects for the future, some feel that property could be a potential constraint to developing their business. Douglas Taylor, managing director of Albany & Sons, a major independent distributor, exemplified this view: “We must remember that our ability to grow is affected by the supply of warehousing of the right quality in the right place. It is difficult to find what we want. There is a lack of choice of suitable warehouses.”
The concern about supply of warehousing is twofold. First, distribution firms believe there is a shortage of quality sites suitable for their needs — especially in the Midlands. Some companies say that their growth has been held back by planners refusing warehousing development in some areas; a view which they attribute to the perception of a low “new jobs to floorspace” ratio, traffic generation, 24-hour operations and visual intrusion.
Second, distribution companies hold firmly to the view that their property requirements are not being met by developers. Many speculative buildings available are, they say, rarely suitable for their needs because of their low specification. Not that the developer is held to blame for this; most distributors recognise that the developer is restricted by funding considerations. Institutions are considered inflexible in terms of the specification of warehouses which they will fund, although there are indications that this is beginning to change.
A particular bone of contention between the investor and the occupier is eaves height. The current standard institutional eaves height of around 6m to 8m is considered too low by a significant portion of the distribution market. Most large distributors, as they become increasingly conscious of costs and cube-utilisation, require an eaves height of at least 10m, and often considerably more.
Companies which are unhappy with what is available on the speculative market are increasingly turning to in-house design-and-build. Taylor summed up this view: “Developers want flexibility; we want something more specified which meets our needs. Developers do not cater for the end market which wants eaves height, dock levellers and minimal office content.”
Perhaps the largest single factor which will affect the UK distribution industry is the European influence. As distributors push to build up a continental business base, so the opportunities for UK developers outside the UK increase. And it could be said (unlike many other business sectors) that the European opportunity for the UK distribution company is very real indeed, as most feel well positioned to take advantage of the European market-place in the 1990s.
Manufacturers and other companies throughout Europe are starting to consider their distribution needs on a pan-European basis; hence the phenomenon of the single distribution site serving all of Europe is becoming increasingly popular. In fact, some companies are already structuring their distribution network on a European basis, such as Volvo, which has recently acquired a 400-acre site near Mannheim in Germany’s Ruhr Valley, from which it plans to service the whole of Europe.
The distribution sector in continental Europe is seen to vary greatly in both infrastructure and levels of sophistication from country to country; British firms believe that the distribution industry in Europe will become more standardised as time goes by. In the meantime, UK contractors feel that they are better positioned to take advantage of the opportunities than many continental firms.
As Christian Salvesen commented: “UK distribution is way ahead of its European counterparts. Most countries, and especially Germany, do not have the same philosophy towards third-party distribution; they haven’t seen the benefits of it as clearly as UK retailers did 10 to 15 years ago.”
The majority of UK distributors believe that, because the UK industry is more advanced than its continental counterpart, they will be able to gain a good share of the overall European market, and export their systems, management, consulting and design skills. And, with the right developer on board, why not export property skills too?
The property opportunities — both here and in continental Europe — are there for the taking. But with most distributors confirming their current disaffection with their UK property, and the increasing European focus of their business, the opportunity for the UK developer is great. As is the threat. Because, unless the developer acts fast, the opportunity could be easily missed.
