ANALYSIS: The growth of online retailing might not yet have led to the death of the high street, but e-commerce and technological advances in general are starting to have an impact on the wider real estate world.
As consumers become happier shopping online, they also become more demanding, wanting more, and wanting it more quickly. As occupiers respond to demand from customers, the pressures they place on suppliers to provide and deliver stock become ever greater. To access and deliver goods more quickly requires more people, but with a shrinking workforce, the logistics sector has already started looking to automation to ease the load.
Of course, the use of robots in the industrial market is nothing new. The first debuted in a General Motors factory in 1961. Since then, however, most robots have merely been mechanical arms confined to the manufacturing side of the supply chain.
According to a report from logistics firm DHL, 80% of warehouses are manually operated with no supporting automation, and of the 5% that are automated there is still a high number of humans working alongside the machines.
But, change is coming and change comes fast. Just look at Amazon. In 2013 the online retailer spent $775m (£625m) buying Kiva, a robotics company focused on warehouse logistics, and now claims to have 30,000 robots working in 13 fulfilment centres.
“It seems clear that it is not a matter of if but rather when robots will be working in our parcel sorting hubs, distribution centres and delivery vans,” says Tom Bonkenburg, partner at international supply chain engineering and consulting firm St Onge Company and author of DHL’s Robotics in Logistics report. “The business leaders of the future need to understand this technology and start planning for the day when it provides a viable solution to ever-growing pressures on the supply chain.”
“There is a lot more technology in sheds than 10 years ago, and that is totally driven by occupiers. The internet retailers – Amazon, Asos, Boohoo – have been the prime movers, along with the food retailers more recently. It has all been about automation making systems quicker,” adds David Binks, industrial partner at Cushman & Wakefield.
It is this need for speed to market that will drive the use of robotics, driverless cars, 3D printing and other technological advances in the logistics and industrial sector. But what impact will that have on real estate?
As automation within a logistics unit becomes more prevalent, the type of property required by occupiers will inevitably change.
As robotics take over – Boston Consulting Group predicts that the use of advanced robotics will increase from 2%-3% today to 25% by 2025 – warehouses will need to become taller and multi-layered and make the requisite provisions for advanced technology, including IT infrastructure.
While natural and even artificial light will become less important, potentially creating energy saving costs, the need for high-spec sheds is likely – at least in the short term – to push rents higher.
Last July, EG reported that Legal & General had made one of the biggest investments in the logistics sector, splashing out £150m to forward fund a new high-tech shed for Amazon. The 2.2m sq ft unit at Roxhill and Port of Tillbury’s London Distribution Park in Essex will be the first multi-deck building – it will stand 70ft tall – to be built to such a high specification.
“As logistics operators are requiring faster turnaround times to meet their distribution timescales, so the importance of high-tech sheds with seamless automation has dramatically increased,” says Paul Till, head of national business space at LaSalle Investment Management.
He adds: “Investors are reviewing the specifications of each unit more closely to check if they have the right floor-loading capacity, a deep yard, 15m-plus eave heights and a generous number of dock loading doors. Increased floor-loading requirements to accommodate robotics and high racking are expensive to retrofit, but are an important factor in acquisition strategies, especially with longer term investments.”
“Buildings are changing,” says C&W’s Binks. “They are longer, thinner with more dock-level loading doors, more double height. And although we are not seeing driverless vehicles yet, I would imagine it is coming into the thought process.”
Driverless vehicles may indeed be some way off, but eventually they will start to infiltrate the market, particularly as consumers demand more from the supply chain.
Self-driving vehicles have the potential to significantly expand the coverage that delivery and goods trucks can provide for logistics operators. While under EU rules a truck driver cannot drive more than nine hours a day without rest, there are unlikely to be such limits on driverless vehicles.
The removal of this time limit plus the likelihood that driverless trucks will be battery, not petrol, fuelled, should result in lower transport costs and a supply chain requirement for fewer, but larger warehouses. That means an increased demand for cheaper land in remote locations.
Technological advances
Last-mile delivery facilities, which are already in high demand as retailers promise next day, or even next hour delivery, will become even more crucial as technological innovations advance. But with the advent of driverless trucks, these facilities will require space and lots of it. They will need to be able to receive large automated truck deliveries and deploy electric delivery vehicles – or robots, or drones – to service customers; provide a decent-sized courtyard that enables automatic manoeuvring; and be equipped with extensive battery loading stations to supply all the power needed for automation.
SEGRO chief operating officer Andy Gulliford says: “There are a lot of sensible people investing a lot of R&D budget into autonomous vehicles. There are potential implications in locating sheds as driver time won’t matter much, but we think the big difference will be to cities. We could see the logistics facilities of the future being much more accessible to people and businesses.”
While talk of automation can often cause fear in a people-led sector, the market changes being driven by technological advances can and will provide opportunities.
Opportunities for occupiers to reduce costs and waste – Hertfordshire-based toy business Hello Baby cut down picking errors by using Peoplebox’s warehouse management system, while outdoor retailer Surfdome cut oversells from 30 to one a day – and opportunities for landlords.
Demand for modernised, high-tech sheds will inevitably lead to a new development cycle, and provide the potential for a new breed of specialised, high-tech industrial developers.
Shed tech firms
Firms seeking to enable and empower the distribution, logistics and industrial sector are popping up across the globe. EG takes a brief peek at a select few.
Fetch Robotics Focused on the distribution market. Developed a robotic arm that picks items from a standard warehouse shelf and puts them on an order tote.
IAM Robotics US-based firm developing a mobile robot with an arm and camera system that can navigate a warehouse, pick items and put them on an order tote.
Starship Technologies London-based start-up set up by two Skype founders developing parcel delivery robots that can carry the equivalent of two carrier bags and deliver goods from a hub or shop to a customer within 30 minutes.
Flexe One of a growing number of on-demand warehouse space providers. Based in Seattle, Washington, the firm has more than 400 warehouses on its books. It works as a sort of industrial matchmaker, connecting organisations that need warehouse space to firms with extra space.
Stowga London-based start-up that claims to be supercharging elastic warehousing. It aims to create a network of spaces around the world where inventory is not constrained by static space and is instead stored in the right place at the right time.
Further reading
Technology: The industrial real estate game changer
