by Ian Scott and Steve Moriarty
The oversupply in the office and retail markets has not been reflected to the same degree in the industrial and warehouse sectors. Certainly, availability has risen, particularly where specification has been less than first class. However, one sector of the market within which occupier demand remains unsatisfied, to the extent that the fast-growing operators in the field are forced to acquire sites and build their own facilities, is high-bay warehouses.
Until recently institutions considered such buildings as one-offs, unsuitable for investment purposes. The signs are that that perspective is slowly changing, with London & Devonshire Trust and Mercury Property Development acquiring a high-bay warehouse development scheme, prelet to United Biscuits, in Ashby de la Zouch and the sale-and-leaseback of General Electric of America’s distribution centre at Brackmills, Northampton, to Argent Estates.
Why high?
High-bay warehouses have evolved as a product of improvements in racking, stacking and goods-or materials-handling technology, especially for high-value, low-weight, fast-turnover goods. There is at present no clear agreement on what height actually constitutes “high-bay”; however, occupiers of such buildings argue that a high-bay warehouse is above 13m (43ft) eaves height, being the maximum effective working height of a conventional “reach” truck used for placing and retrieving loads.
The purpose of the high-bay warehouse is to utilise the sophisticated automated and computerised materials-handling systems which now exist. Distribution companies find it easier to store their products vertically rather than horizontally and on economic grounds this enables them to use expensive land more intensively.
Usually high-bay warehouses are combined with warehousing of more conventional height within which goods picking and dispatching operations are carried out, thus maximising the benefits of high-bay warehousing for storing distinct categories of goods and the suitability of low-bay warehousing for faster-throughput stock and heavier goods and for packing and dispatch areas.
Materials-handling technology
As warehouse heights have increased, existing free-moving fork-lift and reach trucks have reached the limit of their vertical range and have been superseded by stacker cranes on rails. This has, in turn, provided an opportunity to reduce aisle widths and thus maximise the storage capacity of any given warehouse.
Stock-control systems have also advanced rapidly, and the discipline imposed by computerisation enables strict stock rotation and “real time” stock-level control. Pallet trucks, stock-picking vehicles and cranes are linked into this system and many deposit or retrieve pallets within the warehouse according to requirements.
As an example of the efficiency that such materials-handling systems can provide for a distributor, R S Components is able to guarantee 9 am delivery of goods ordered from them at 4.55 pm the previous day from a warehouse holding 6,000 different product lines. This quality of service is not unusual from occupiers of high-bay warehouses.
In order to exploit fully the cubic capacity of a high-bay warehouse, stock deposit and retrieval functions will utilise stacker cranes. In their most sophisticated form stacker cranes can be fully automated, thus providing significant savings in labour, heating and lighting costs, along with accurate and consistent levels of output with 24-hour operation.
To take advantage of the greater efficiency afforded by this hi-tech storing and picking equipment, sophisticated conveyor systems provide a suitable interface between truck/crane activities and the bulk storage area of a warehouse. Where further mechanisation of the process is considered desirable, “sortation” systems may be considered which distribute picked products to the correct packing station in readiness for dispatch, monitoring the progress of that product through the system.
Specialised specification for high-bay warehouses
At its most basic level the warehouse can be considered as a weatherproof envelope for goods- and materials-handling technology. However, this view does not take account of the complexity of the design process for high-bay warehouses, dictated as it is by the handling and storing systems to be employed. Particular considerations for high-bay warehouses are that the overall design has to be fully integrated with the racking layout proposed. This process does not preclude flexibility of use, as most high-bay occupiers require similar, if not identical, layouts.
Higher racking means greater floor loadings. However, the point loads of the racking system are clearly more important than the overall loading of the floor. The structure must also allow for the increased wind pressures to which the higher-than-normal building will be subjected.
Lighting must be designed to illuminate the narrow aisles, although in many fully automated materials-handling operations very little is required. Despite the reduction in lighting the materials-handling systems used in high-bay warehouses require considerably more power than normal height warehouses. This requirement can be over 2,000 KVA, compared with a more usual 500 KVA.
Smoke extraction and sprinkler installations to both roof and racking must also be integrated with the overall scheme to ensure efficient operation where required.
The building is thus to a large extent designed inside out, and the construction manager must be able to draw on materials-handling expertise to ensure adequate direction of the development process — a facility that few, as yet, have.
Investment in high-bay warehouses
Investors have, until recently, had reservations about the suitability of high-bay warehouses for inclusion within their portfolios, primarily because occupiers of such buildings are perceived to have very different individual requirements which limit building flexibility for a subsequent occupier, should the unit become vacant.
It is, however, important in this connection to segregate the materials-handling technology from the building structure. Materials-handling systems will invariably belong to the occupier, who will remove the equipment when vacating the premises, leaving the investor with the building shell.
Investors are also concerned that there is no rental market for such buildings and thus, in the first instance, rents will be derived with reference to some artificial structure. This problem was addressed in the retail warehouse market by gearing a standard warehouse unit rent to reflect the retail value. It is suggested that a similar arrangement could be successfully adopted for high-bay warehouses. As the rental market grows volume rents should eventually be accepted as the norm for this sector, reflecting the practice in other countries and the fundamental reason for the acquisition of warehouse space by distribution operators.
A further consideration is the yield appropriate to this kind of building. Since investors are primarily purchasing income flow over a relatively long period when purchasing institutional grade property, security and yield are thus the paramount considerations, along with the potential for future growth in rents. The distribution business already contains a number of very large operators and is expected to be one of the faster-growing sectors of the economy in the 1990s. The covenant of such companies should thus be as good as, if not better than, other market sectors.
Occupiers
There are three distinct types of occupier currently involved with high-bay warehouses: manufacturers and large retail chains carrying out their own distribution, and contract distribution operators who work for both these sectors. There is, however, no discernible difference in the buildings required by these diverse occupiers, the type of building being dictated solely by the materials-handling installation adopted.
This similarity is particularly evident when the frequent incidence of irregularly proportioned building structure is considered. The majority of high-bay warehouses which have been constructed in the UK follow this pattern, with a long-term storage area of high-bay construction built to between 20m and 24m in height, linked to a relatively low warehouse (usually between 10m and 13m eaves height) which is used for shorter-term storage of heavier products and handling/loading.
Buildings conforming to this general layout include the Hays Distribution warehouse for Waitrose at Milton Keynes, the W M Lighting building in Brackmills, Northampton, the R S Components building in Corby and the Baxter Medical Care building, also at Brackmills, each of which incorporate the two-tier structure indicated above.
Planning considerations
In the UK the height of warehouse will rise in line with local planning restrictions rather than to the limit of the available materials-handling technology. At present this means an external eaves height usually between 20m and 24m: the current potential maximum of 45m is used in Germany, where materials-handling technology is at its most advanced.
The planning arguments for and against high-bay warehousing can be summarised as follows:
- High-bay warehouses reduce development density and promote the more efficient use of scarce land.
- They are, however, visually intrusive and have a high traffic flow with a consequent high parking requirement.
- High-bay warehouse facilities generally create more skilled employment opportunities than traditional, more labour-intensive warehouses. Computer programmers and engineers are required to run the sophisticated materials-handling systems used in such facilities.
- The high level of automation used in such buildings, however, means that the total number of jobs created by such a development will be generally low when compared with more labour-intensive facilities, despite the likelihood that a proportion of offices will be provided at the site of such a large facility.
- The very large size of such buildings dictates that they will not be located within residential and high-amenity landscape areas and thus their environmental effect is minimised.
- Capital investment in such buildings by occupiers is an important factor in determining whether they operate 24 hours a day to maximise returns. This intensity of use may be considered undesirable in some locations.
Location of high-bay warehouses
Locations for such large warehouses are dictated by access to the motorway network. National and regional operators choose central sites from which their customers or smaller local warehouses may be reached in one tachograph journey. The ideal location would be at the junction of two or more motorways, thus maximising transport infrastructure benefits and reducing the time that goods spend in transit.
It may be that where major changes in transport infrastructure occur, such as at Channel Tunnel railheads, demand for high-bay warehouses will also arise, and continual research into occupiers’ requirements will be necessary to stay abreast of such developments.
Conclusion
High-bay warehouses are a rapidly growing new sector of the property market, reflecting the growth of the distributive trade in the UK as a whole. The size and performance of companies utilising such warehouses is such that, as a class, their covenant is as good as, if not better than, many other building occupiers — Hays Distribution Services has recently signed a 25-year contract with Waitrose, values at £500m, to distribute to its northern stores. The benefits which operators achieve by using high-bay automated warehouses can be summarised as follows:
- reduction in land costs;
- maximised use of cubic capacity;
- reduction in product damage;
- improved customer service;
- accurate stock control through computerisation;
- faster access to stock;
- excellent working environment.
Strong competition for such benefits is likely to increase the demand for high-bay warehouses, affording an opportunity for investors to provide such property speculatively or by sale-and-lease-back.
