Future Gazing A research report exploring the last mile conundrum - Logistics - The Last Mile - Knight Frank
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A research report exploring the last mile conundrum. Future Gazing Logistics – The Last Mile
FUTURE GAZING
FOREWORD
“Customer is King”. This age-old adage has never Last mile facilities have entered the equation and become the
been more fitting than it is now. focal point in a complex chain. This has meant that industrial
use directly competes with other sectors such as residential for
The modern consumer is well informed, demanding and
land opportunities.
armed with real-time information. In short time, technological
advancement has served to propel e-commerce and mobile It is somewhat ironic that the physical location of the retailer
shopping into mainstream retail. Consumers now have more has become less important to the consumer, but the location of
control over the purchase process and are demanding of instant, the consumer has gained greater importance from a retailer and
anytime access to goods and exceptional customer experience. distributor perspective. Undeniably, the logistics and retail sector
The bar of expectation is already high, but is crucially still rising. are now intrinsically linked.
This shift is having a marked influence on the role of real estate.
Charles Binks
Fulfilment has risen as an area of high competition, with customer
Partner, Department Head
convenience a defining measure of good service and therefore
Logistics & Industrial
satisfaction. A myriad of fulfilment models have emerged
meaning that distribution networks have undergone adaption and
optimisation to meet the rapidly changing consumer landscape.
PA G E 2FUTURE GAZING FUTURE GAZING
U R B A N L O G I S T I C S. The continuing rise of online
retailing. Bane of physical
In simple terms, highest online demand
tends to occur in major urban loca-
How big the market is and how fast it is
growing are fundamentally the wrong
THE SHIFT TO
retail, boon for industrial. tions, particularly (but not exclusively) questions to be asking. Retail is not
in Greater London. There are also sig- binary, online and physical retail do not
This has been the narrative for too long.
nificant demand hotspots in the more operate in splendid isolation. The
UNCHARTED TERRITORY
At best, simplistic, at worst, fundamentally
affluent locations in the South East. dividing lines between channels continue
wrong. Online retailing hasn’t supplanted
Areas where land values tend to be high to blur to the point of no longer existing.
the high street, but it has made retailing
and there is correspondingly limited However accurate they may be, the
infinitely more complex. The rise of online
supply of industrial warehouse floor- actual market size numbers are funda-
has actually been a major opportunity
space. Hence the clamour to secure mentally meaningless and will become
for many store-based retailers, but cap-
appropriate urban logistics space. increasingly more so going forward. And
italising on this opportunity has been a
to focus on them merely distracts from
10 KEY POINTS huge, often capital-intensive, challenge.
Most store-based retailers have started
Online retail – how big is
the market and how fast
the real issues and challenges of online.
to make the transition to become mul- is it growing?
ti-channel operators, but many are still
The size of the online retail market
at the start of the journey.
is fairly easy to quantify. Online
The ongoing evolution of the online retail The search for industrial development or investment Retail supply chain dynamics have sales amounted to £68.5bn in 2018,
market will continue to drive the pursuit opportunities needs to be more forensic and changed significantly on the back of the accounting for 18% of all retail sales. This The issue is less about
of ‘last mile’ logistics solutions. discriminating than the current ‘gold rush’. e-commerce evolution. This is prompting represented year-on-year growth of quantifying the online market,
a shift in the industrial warehousing +14.4%, slightly below the compound and far more about qualifying
market, not just in terms of values, but annual growth rate (CAGR) of the previous what it actually means
Online sales accounted for 18% of all Not all industrial sites are created equal
also in terms of fresh demand and new 10 years (+17.4%). Despite obvious market in reality.
retail sales in 2018, a share that is projected – some are more equal than others.
specification. One-size-fits-all ‘big box’ maturity, substantial growth is also
to hit 28% by 2024.
warehouses still serve a fundamental forecast going forward. Mintel estimates
Successful urban logistics sites need to cross 'Five purpose, but are not strategically located that the market will be worth £130bn by
Consumer expectation is heightening complexity Great Divides' – Consumer Demand, Supply to fully cater for online demand. 2024, around 28% of all retail spending,
to an expanding array of fulfilment models. (Imbalance), Labour, Infrastructure, Technology. in spite of a slowing CAGR (+10.9%).
Urban logistics heralds a transition to a business Appropriate data and analytics at a local level
to consumer (B2C) model. is key to understanding site viability and
‘last mile’ potential.
UK Online Market Size 2008 – 2024f
A network of physical stores is emerging
as a key competitive advantage in a wider In a consumer-driven market, the goal posts will Total Online Sales (LHS) Annual Growth (RHS) Share of Total Retail Sales
multi-channel offensive. continually shift – nothing stays the same for long.
£140m Historic CAGR = 17% Forecast CAGR = 10% 35%
27.7%
£120m 26.1% 30%
24.6%
£100m 22.9% 25%
21.2%
Annual Growth (%)
Online Sales (£m)
£80m 19.6% 20%
16.4% 18.0%
£60m 15%
14.7%
£40m 11.3% 12.5% 10%
10.4%
9.3%
8.2%
7.3%
£20m 6.2% 5%
5.0%
£0m 0%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019f 2020f 2021f 2022f 2023f 2024f
Source: Mintel, Knight Frank
PA G E 3 PA G E 4FUTURE GAZING FUTURE GAZING
The complexities of multi-channel
Stores vs Pure Play vs Multi-channel
The split between online Pure Play (i.e. retailers that only operate online and have no Retail Sales – Stores vs Pure Play vs Multi-channel
stores, such as Amazon, ASOS, boohoo and AO World) and online multi-channel operators
Store-based 4.1% Click & Collect
(i.e. traditional store based retailers that also have an online platform, such as Next, John
4.1%
Online – Pure Play Showrooming
Lewis, Argos and the major grocers) is virtually even, the former accounting for 9.1% of all 9.1%
retail spending last year, the latter 8.9%. As well as being the same size, both segments are Online – Multi-channel Inspired by a Store
growing at a broadly similar rate.
8.9%
Online: Pure Play vs Multi-Channel 2008 – 2018
3.0%
Online as % of Retail Sales
82.0%
Multi-channel Pure Play ‘Inspired by a Store’ internet spend
1.8%
that has been inspired by a physical
20.0%
18.0% 18% store’s wider brand presence.
16.0% 16.4%
Source: Mintel, CACI, Knight Frank
14.0% 14.7%
9.1%
12.0% 12.6%
11.4% 8.3%
10.4%
10.0%
9.3%
7.5%
Consumer is king However, there are a number of negative flipsides, not least
8.0% 8.2% 5.6%
6.2%
7.3% 5.5%
increased fulfilment costs. E-commerce has prompted a
6.0% 6.2% 5.0% Consumers are the driving force behind the evolution of online.
3.0%
5.0% 4.5% sea-change in the interaction between retailer and consumer.
4.0% 3.6%
4.3% 8.9% For retailers, this is nothing new – consumers always set their
2.9% 6.4%
7.2% 8.0% In a pre-digital age, the relationship was largely on the retailers’
2.0%
3.7% 4.3% 4.9%
5.8% agenda and only by being consumer-centric will they succeed. For
2.1% 2.6% 3.0% terms – the shopper came to them and brought from them. Now
0.0% the industrial sector, the reality is rather different and the sector
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 the relationship has been turned on its head and it is the shopper
is slowly transitioning to a B2C model.
that pulls the strings – the retailer has to deliver to the shopper.
Source: Mintel, Knight Frank
The single most significant factor of e-commerce is that it has The cost of shipping products to a location of convenience for the
dramatically changed consumer expectations. The rise of online customer – be that at home, at work or any store of his/her choosing
has cultivated an ‘anything, anytime, anywhere’ on-demand – is much higher than if they came directly to the retailer.
Again, the dividing line is fairly artificial. Pure play and multi-channel operators
‘Showrooming’ internet spend made consumer and the bar of expectation is higher than ever before. Although most retailers have tried to recoup some of these costs
inherently face the same challenge – getting the right product to the right location
after customers have first visited the But at the same time, it has also destroyed the last vestiges of through delivery charges, there is still some degree of push-back
at the right time. But the playing field as to how they achieve this is anything but level.
physical store to use it as a showroom in traditional customer loyalty and today’s consumers are far more from consumers. The impetus to shorten lead times is immense
There are a multitude of online models. The most commonly accepted is the one whereby which to see, touch and feel the product promiscuous than those from a pre-digital age. – and this is only serving to intensify pressure on already
a customer places an order online, the order is shipped from a central warehouse and this they are interested in. onerous costs.
As we have already stated, the rise of online presented
is then fulfilled at his/her home. The reality is that this is just one of many permutations
a number of opportunities to store-based retailers. A key one
and combinations. Using data from CACI, we would estimate that the 8.9% ‘multi-channel’
was to broaden the number of items they stocked. Without the
online sales are split as shown in the adjacent infographic.
constraint of shelf and store space, most retailers significant-
The reality is that even these do not cover the full spectrum of ordering and fulfilment ly expanded their SKU count. The number of channels to reach
options. The fact is the online market is becoming increasing fluid in terms of lead times customers also increased, as evidenced by our earlier analysis of
1.8%
and delivery options. the various e-commerce permutations and combinations that are
available. The opportunity to sell more products to a much wider
audience was an incentive for store-based retailers to embrace
e-commerce with open arms.
‘Click & Collect’ online purchases
made using a click & collect service
that involves visiting the store to pick
up items bought.
PA G E 5 PA G E 6FUTURE GAZING FUTURE GAZING
Consumer Research – Factors important when shopping online Consumer – Fulfilment Options
“How important is it that a retailer has the following features when shopping online?” “Which of these delivery options have you used to receive goods in the last 12 months? Select all that apply.”
Delivery methods used over the last 12 months
Extremely important Somewhat important Not very important Not at all important
100%
90%
87%
Has physical stores 14% 34% 40% 12%
80%
Express delivery option (eg next/same-day) 20% 36% 34% 10%
70%
Wide range of collection points 21% 39% 29% 11%
60%
Price-match promise 26% 46% 26% 3% 50%
Easy to navigate mobile website/app 44% 41% 10% 5% 40%
Free postal returns service 45% 44% 10% 30% 32%
Free standard delivery (eg 2-3 working days) 51% 44% 4% 20% 20%
Low prices 52% 43% 5% 10% 12% 12%
Wide range of products 57% 39% 3% 0% 2%
0% 20% 40% 60% 80% 100% 120%
Home delivery Click-and-collect Reserve-and-collect Delivery to Click-and-collect None of these
Base: 1,830 internet users aged 16+ who have shopped online in the last 12 months in-store in-store another location to a third-party
Source: LightSpeed/Mintel, Knight Frank (eg work, university) location (eg lockers,
convenience stores etc)
Base: 1,830 internet users aged 16+ who have shopped online in the last 12 months
Source: LightSpeed/Mintel, Knight Frank
Although home delivery (87%) was the largest response by some As the online market slowly transitions away from home
The realities of an ‘on-demand’ consumer Pure play vs multi-channel
margin, click & collect in-store (32%) reserve & collect in-store delivery, having an extensive network of potential pick up points
Consumer research by Lightspeed (on behalf of Mintel) (20%), delivery to another location such as work (12%) and click Pure play online retailers have long been regarded as having increasingly aligns a retailer’s fulfilment capabilities with
highlights many of these conundrums, not least the lofty & collect to a 3rd party location (12%) are all significant. The a substantial competitive advantage over their store-based peers. consumer demands. It also plays to their ever-heightening
expectations of the modern day consumer. Online consumers were main point is that the cumulative total is substantially more than This advantage is both notional and cost-based. Online pure play expectations on product returns.
polled as to “how important is it that a retailer has the following 100% (163%), underlining the fact that consumers are not wedded retailers are not saddled with huge property costs, a massive rent
Next is one of the very few retailers that is able to provide any
features when shopping online” across nine factors, rating each as to a single online model – they regularly use more than one, roll exacerbated by the vagaries of service charges and business
transparency on this, stating that over 80% of Next Directory
‘extremely’, ‘somewhat’, ‘not very’ and ‘not at all’ important. Five depending on the need of an individual purchase. Home delivery rates. More than that, they are operationally unconstrained by the
returns come back through a physical store. By unquantifiable
of the factors emerged as “extremely important”, the other four is gradually losing ‘share’ of online fulfilment. baggage of a legacy store portfolio.
extension, many online purchases from multi-channel retailers
were “somewhat important”.
The issue of product returns is increasingly thorny. 45% of This logic only rings true up to a point. Pure play retailers may not (not just Next) are made with the comfort that products can be
Expressed another way, all nine factors were deemed important respondents regard a free postal returns service as “extremely” have onerous property costs, but this advantage is partially eroded returned to a local store. If that physical presence is not there,
rather than unimportant. In simple terms, consumers expect important, with a further 44% considering it “somewhat” by substantially higher marketing costs. Without the benefit of a the sale may transfer to another operator that is able to provide
online retailers to carry a wide range of products at low, compet- important. Vital for consumers, very costly and supply chain-in- visible high street presence and guaranteed levels of passing that safety net – or it will not be made at all.
itor-matched prices through an easy to navigate mobile website tensive for retailers. GlobalData is projecting that online returns trade, online-only operators have to shout that bit louder to make
As we have often stated, the future of retail is not about
/ app and be able to offer free standard delivery with express (next will by grow by 27.3% over the next five years to total £5.6bn. themselves heard. As the market evolves, it is also becoming
stores. Nor is it about online. It is about both and how they
/ same day) delivery options to a wide range of collection points, Little wonder that ASOS is looking to review its returns policy if increasingly clear that a large store portfolio is an important
seamlessly interact. Stores remain a key cog in a multi-channel
including physical stores. And also offer a free postal returns it notices “an unusual pattern of returns activity that doesn't sit weapon in a wider multi-channel offensive.
offensive – provided the right supply chain infrastructure is there
service. The world on a stick, essentially. right: e.g. we suspect someone is actually wearing their purchases
to support them.
and then returning them or ordering and returning loads”.
To single out two of these demands, having “a wide range of
collection points” is “extremely” important for 21% of respondents But ultimately, the customer is always right.
and “somewhat” important for a further 39% (so collectively
60%). This is borne out in the behavioural elements of the
Lightspeed research. Online shoppers were asked “which delivery
options they had used to receive goods” and were not restricted to
one response.
PA G E 7 PA G E 8FUTURE GAZING FUTURE GAZING
T O P 15 O N L I N E RE TA I L E R S I N U K – M U LTI-C H A N N E L M ATRI X
M U LT I - C H A N N E L C A PA B I L I T Y
2018/19 SHARE OF
FOOD
ONLINE ONLINE
RANK C O M PA N Y TYPE / NON FOOD H O M E D E L I V E RY CLICK & COLLECT 3 R D PA R T Y F U L F I L M E N T COURIERS USED?
SALES SALES
BUSINESS
(£M) 2019
NON-FOOD VERY LIMITED – ONLY COMPANY-OWNED UK AMAZON LOCKERS
F R E E S A M E - D AY D E L I V E R Y F O R A M A Z O N P R I M E M E M B E R S
( A M A ZO N .C O.U K ) PHYSICAL PRESENCE IS 7 WHOLEFOODS STORES + LOCAL COLLECT LOCATIONS
A M A ZO N , A R A M E X , A R ROW X L ,
P U R E P L AY E R 1 3 , 74 3
1 A M A ZO N 22 .9% M I N I M U M O R D E R O F £ 4 0, £ 3 . 9 9 C H A R G E F O R O R D E R S A S M , D H L , D P D, H E R M E S ,
& M A R K E T P L AC E
FOOD B E T W E E N £ 4 0 - £ 6 0, O R D E R S O V E R £ 6 0 F R E E . F R E E R OYA L M A I L , U P S , YO D E L
NOT PROMOTED NOT PROMOTED
( A M A ZO N F R E S H ) S A M E - D AY O R E A R LY N E X T D AY D E L I V E R Y T O A M A Z O N
F R E S H A N D P R I M E C U STO M E R S OV E R £ 4 0
NO COMPANY-OWNED CA . 3.5K EBAY COLLECTION POINTS AT SELECT ARGOS
2 EBAY MARKETPLACE 8,132 13.5% NON-FOOD DELIVERY TIMES/COSTS VARY BY VENDOR EBAY COURIER
OUTLETS / SAINSBURY'S / COLLECTPLUS SITES
TESCO DIRECT ABSORBED INTO TESCO.COM, AVAILABLE TO ALL STORES IN TESCO NETWORK
NON-FOOD TESCO STORES ONLY OWN DELIVERY SERVICE
SAME DELIVERY PARAMETERS (CA . 3,500 SITES)
3 TESCO MULTI-CHANNEL 3,591 6.0%
SAME DAY DELIVERY OFFER, ORDER BY 1PM SAME DAY CLICK & COLLECT AT 300+ STORES
FOOD TESCO STORES ONLY STORE-PICKING AND OWN DELIVERY SERVICE
FOR DELIVERY AFTER 7PM (£25 MINIMUM ORDER)
NON-FOOD SAME DAY DELIVERY, ORDER BY 1PM FOR DELIVERY AFTER 7PM CLICK & COLLECT FROM CA . 850 ARGOS STORES/ARGOS SAINSBURY'S ARGOS OWN COURIER
(ARGOS) COSTING £3.95 INSIDE SAINSBURY OR SAINSBURY COLLECTION POINTS + ARGOS STORES ONLY
SAINSBURY'S
4 MULTI-CHANNEL 3,246 5.4%
/ ARGOS CLICK & COLLECT AVAILABLE STORE-PICKING AND OWN DELIVERY SERVICE
FOOD DELIVERS TO 98% OF UK HOUSEHOLDS,
IN SELECTED STORES. SERVICE SAINSBURY'S STORES ONLY
(SAINSBURY'S) SAME DAY DELIVERY POSSIBLE FOR SOME AREAS
IF FREE FOR SPENDING OVER £40
NEXT DAY DELIVERY COSTS £6.95 FOR SMALL/MEDIUM ITEMS CLICK & COLLECT IS FREE FOR ORDERS £30 AND OVER,
NON-FOOD AND £19.95 FOR LARGE ITEMS. STANDARD DELIVERY IS £6.95 OR £2 IF YOU PAY LESS. CLLCK & COLLECT STORES NEXT DAY 3RD PARTY PICK UP AT CA .
INCLUDES ROYAL MAIL , HERMES, DHL , DPD
(JOHN LEWIS.COM) OR FREE FOR ORDERS OVER £50. FREE UK STANDARD AVAILABLE AT ALL 50 JOHN LEWIS, 353 WAITROSE 7K COLLECT+ OUTLETS FOR £3.50
JOHN LEWIS DELIVERY TAKES 3 WORKING DAYS AND 50 LITTLE WAITROSE STORES
5 MULTI-CHANNEL 2 ,262 3.8%
/ WAITROSE
WAITROSE RAPID DELIVERY – UP TO 25 ITEMS (FROM 2K SKUS) FREE CLICK & COLLECT ON ORDERS
FOOD
DELIVERED WITHIN 2 HOURS. MINIMUM SPEND OF £60 OVER £40 AT ALL WAITROSE AND WAITROSE OUTLETS ONLY STORE-PICKING AND OWN DELIVERY SERVICE
(WAITROSE.COM)
ON STANDARD ONLINE GROCERY LITTLE WAITROSE STORES
FREE CLICK & COLLECT AT CA . 7,000 COLLECT+
SHOP DIRECT STANDARD DELIVERY £3.99, NOMINATED DAY DELIVERY £4.99.
6 PURE PLAYER 2 ,023 3.4% NON-FOOD NO COMPANY-OWNED OUTLETS LOCATIONS PLUS CA . 10,500 POST OFFICES DHL , PARCELCONNECT
GROUP EXPRESS DELIVERY AVAILABLE AT HIGHER COST
(WITHIN 1 DAY FOR VERY, 2 DAYS FOR LITTLEWOODS)
NEXT DAY DELIVERY FOR ORDERS BY MIDNIGHT (£3.99), PRECISE SHOP MY LOCAL STORE OPTION FREE, ORDERS READY
NEXT DAY (FOR ORDERS PLACED BEFORE MIDNIGHT)
7 NEXT MULTI-CHANNEL 1,919 3.2% NON-FOOD NEXT DAY TO HOME FOR ORDERS BY 8PM (£5.99). NEXTUNLIMITED WITHIN 1 HOUR. FREE NEXT DAY CLICK & COLLECT AT ALL HERMES, BFPO
AT PARCELSHOPS FOR A CHARGE OF £2 .50
MEMBERSHIP £20 PER YEAR 500+ NEXT STORES (ORDERS PLACED BEFORE MIDNIGHT)
NON-FOOD CLICK & COLLECT OFFERED FREE AT OTHER RETAILERS USE ASDA FOR CLICK & COLLECT
NEXT DAY DELIVERY COSTS FROM £4.50, STANDARD DELIVERY
NON-FOOD ALMOST ALL 635 ASDA STORES. SELECTED STORES EG SPORTS DIRECT, I SAW IT FIRST, MISSGUIDED OWN DELIVERY SERVICE
FROM £2 .95 (WITHIN 5 DAYS)
ALSO HAVE LOCKERS ASDA PETROL STATION
8 ASDA MULTI-CHANNEL 1,745 2 .9%
MINIMUM SPEND £40 + A VARIETY OF DELIVERY PASS OPTIONS. GROCERY CLICK & COLLECT OFFERED AT CA . 500 ASDA STORE-PICKING AND
FOOD ASDA STORES ONLY
TRIALLING 30 MIN DELIVERY SLOTS WITH JUST EAT STORES. SELECTED STORES ALSO HAVE LOCKERS OWN DELIVERY SERVICE
NEXT DAY DELIVERY, MINIMUM ORDER OF £40, ORDERS UNDER
£75, MINIMUM CHARGE OF £2 .99 AND MAXIMUM CHARGE OF £6.99, OCADO PRODUCTS MAY BECOME AVAILABLE THROUGH
9 OCADO PURE PLAYER 1,599 2 .7% FOOD NO COMPANY-OWNED OUTLETS OWN DELIVERY SERVICE
STANDARD ORDERS OVER £75 MAY BE FREE. SMART PASS MEMBER- M&S STORES AS PART OF TIE UP
SHIP - FREE DELIVERY (CHARGES APPLY DURING CHRISTMAS WEEK)
SMALL ITEMS - STANDARD DELIVERY FREE, NEXT DAY DELIVERY FREE SAME DAY / NEXT DAY CLICK & COLLECT AT 800+
DIXONS CURRYS PC WORLD AND CARPHONE WAREHOUSE CURRYS PC WORLD – DPD, HERMES
10 MULTI-CHANNEL 1,100 1.8% NON-FOOD SLOT 8AM-5PM £4, 8AM-12NOON £10, 5PM-10PM £10, WEEKEND CURRYS PC WORLD STORES. CARPHONE WAREHOUSE
CARPHONE STORES ONLY CARPHONE WAREHOUSE – DPD
TIME SLOT 12NOON-5PM £10 FREE CLICK & COLLECT AT 1,000+ STORES
JD WILLIAMS/JACAMO/SIMPLY BE - UNLIMITED FREE DELIVERY
FREE CLICK & COLLECT ON ORDERS
11 N BROWN PURE PLAYER 914 1.5% NON-FOOD COSTS £9.95 FOR 12 MONTHS, STANDARD £3.50, NEXT DAY £6.50, NO COMPANY-OWNED OUTLETS HERMES, DPD
>£40 AT CA . 3K MYHERMES PARCELSHOP
NOMINATED £6.50
NEXT DAY DELIVERY £10, DELIVERY WITHIN 2 DAYS FROM £5, CA . 7K COLLECT+ – LOCATIONS
12 AO.COM PURE PLAYER 873 1.5% NON-FOOD NO COMPANY-OWNED OUTLETS OWN COURIER
WEEKEND DELIVERY FROM £5 (SMALLER APPLIANCES ONLY)
P R E M I E R D E L I V E R Y PA C K A G E ( £ 1 4 . 9 5 ) G I V E S U N L I M I T E D
N O C O M PA N Y- O W N E D C O L L E C T + , A S D A T O YO U , D P D, P I C K- U P, H E R M E S , D P D, G N E W T
13 ASOS P U R E P L AY E R 861 1.4% NON-FOOD N E X T- D AY D E L I V E R Y F O R 1 2 M O N T H S . N E X T D AY D E L I V E R Y
OUTLETS H E R M E S , PA R C E L S H O P, U P S , A C C E S S P O I N T (ELECTRIC VEHICLE)
£ 5 . 9 5 , S TA N D A R D D E L I V E R Y £ 3 .0 0, F R E E O V E R £ 2 5
F R E E O N O R D E R S O V E R £ 3 0, O T H E R W I S E £ 3 . 5 0. U S U A L LY F R E E N E X T D AY C L I C K & C O L L E C T CA . 7K C OLLECT+
NON-FOOD DHL
2 - 3 W O R K I N G D AY S , N E X T D AY C H A R G E D AT £ 4 . 9 9 AT > 5 0 0 M & S S T O R E S LO C AT I O N S ( £ 2 . 5 0 C H A R G E )
14 M&S M U LT I - C H A N N E L 770 1.3%
A L L I A N C E W I T H O C A D O W I L L B E C O M E O P E R AT I O N A L C U R R E N T LY R E S T R I C T E D T O ' F O O D T O O R D E R ' ( W I T H
FOOD M & S S T O R E S O N LY GOPHR
FROM SEPTEMBER 2020 F R E E C O L L E C T I O N ) AT S E L E C T E D L A R G E R S T O R E S
S TA N D A R D D E L I V E R Y 7- 1 0 D AY S , E X P R E S S D E L I V E R Y
15 QVC TV SHOPPING 505 0. 8 % NON-FOOD N O C O M PA N Y- O W N E D O U T L E T S C A . 3 K M Y H E R M E S PA R C E L S H O P S HERMES
2 W O R K I N G D AY S I F O R D E R E D B E F O R E N O O N
yes maybe no
✓ ☞ ✗
Source: Mintel, Knight Frank
PA G E 9 PA G E 1 0FUTURE GAZING FUTURE GAZING
a public holiday. As such, it remains largely a store-based event.
Seasonality Industrial Implications – The 'Five Great Divides' We would identify ‘Five Great Divides’ of successful
In the UK, it is a normal working day, so it invariably lends itself
urban logistics. These are:
Another key factor in the online market is that it is highly seasonal more to online retailing. Although most retailers jump on the Disruption to traditional retail models will undoubtedly continue
– demand is not constant, with discernible peaks and troughs Black Friday bandwagon to some degree, the two largest product to drive demand in industrial markets. It is as much the complexity 1 Consumer Demand
over the course of the year. Online demand peaks massively in categories by far are electricals and toys. of multi-channel retailing and the rapidly changing expectations
2 Supply (Imbalance)
November. In November 2018, around 21.6% of all retail sales were of the consumer that are fuelling market change in industrial,
This throws other variables into the wider multi-channel / urban
online, compared to a year-round average of 18%. December is the as it is simply market growth of online retailing. 3 Labour
logistics equation – temporary warehousing to cope with seasonal
second busiest online month (19.8% of retail sales in 2018), with
demand spikes. Pop up shops are gaining in prominence, what The historic ‘big box’ industrial model is still largely geared 4 Infrastructure
October also tending to be slightly above year-round averages.
about ‘pop up warehousing’ or ‘warehouse space sharing’ amongst towards a pre-digital store-based age – infrequent, bulk-based to a
5 Technology
The lulls in online demand are slightly more difficult to identify. retailers or third party logistics firms? With those retailers for pre-defined network of stores. ‘Big boxes’ are not designed to fulfil
There is inevitably some cooling in the post-Christmas period, whom Black Friday / Christmas doesn’t represent their peak single-item orders to a location dictated by the consumer within All of these are significant factors in appraising the validity and
with January and February seeing considerable drop off in online demand period (e.g. B&Q, Homebase, Carpetright etc) subletting as short a timeframe as possible. Few are fit-for-purpose as order viability of a potential urban logistics site. Ideally, a ‘last mile’
trade. Likewise, the Summer months of July and August generally warehouse (or indeed retail floorspace) to those for whom it most fulfilment centres, but they are far from redundant or obsolescent logistics site will cross all five of these Great Divides and effectively
see lower online penetration. definitely is (e.g. Dixons Carphone, Argos, John Lewis etc?). – on the contrary, they are still the lynchpin of retailers’ supply tick all the boxes. In reality, very few will and compromises will
And the latter returning the favour come Easter and the May chains. But increasingly they need the support of more strate- have to be made. There are many great sites out there, but few
The demand spike in November is undoubtedly driven by Black
Bank Holidays? gically-located ‘last mile’ spokes. As such, greater importance are absolutely perfect. The data and methodologies we apply in
Friday. Whether Black Friday is a positive event in the retail
resides with the parcel and delivery companies. rating sites against these 'Five Great Divides' is detailed later on in
calendar remains a very moot point, but it has definitely shifted Of course, as yet this is largely unexplored territory, but is another
this report.
shopping patterns over the festive period. In its native US, example of need driving demand, with fluidity and flexibility the Of course, the industrial market has already moved considerably
Black Friday is the day after Thanksgiving and therefore always underlying concern. in response to these changing market dynamics, both in terms Industrial is only at the early stages of adopting a B2C mindset,
of demand and pricing. Prime stock is valued at 4.00%, although but it is evolving fast. Retailers, for better or worse, have always
even keener pricing than this has been achieved in certain been at the mercy of consumer whims. The nature of consumer
locations e.g. Havelock Terrace in Battersea with a NIY of 3.20%. markets is that nothing stands still for long and the goalposts are
constantly shifting. Against this backdrop of change, increasing
The ‘gold rush’ is still very much playing out, driven in part by
complexity, fulfilment fluidity and general flexibility, the demand
Seasonal peaks add other variables into the wider a paucity of suitable industrial stock in ‘last mile’ locations. The
for appropriate urban logistics space can only accelerate, rather
multi-channel / urban logistics equation – temporary attention has inevitably turned to other property uses that can be
than recede.
warehousing to cope with demand spikes. repurposed as industrial space. Ironically, this has brought retail
into the spotlight, especially retail warehousing c.f. a number of The continuing rise of online retailing. A huge challenge for
Homebase stores within Greater London on the back of its CVA. physical retail (and Pure play for that matter), a huge opportunity
The logic in this is sound – retail is over-supplied and in many for industrial as an enabler and solutions provider.
cases struggling, urban logistics is under-supplied and booming.
But the reality is more complex and a number of stars must align
(not least rental values) for the conversion to become financially
Online Seasonality – Monthly Trends
Online as % of retail sales by month viable. It will work in some locations, but is by no means a panacea.
21.6% Not all urban logistics sites are created equal – some are more
19.9% 19.8% equal than others. But this vital fact seems to be lost in the general
18.8%
17.9% chase for space / stock. Is there enough discrimination between
17.1%
sites or are too many being put into the same bucket in terms
of perceived ‘last mile’ potential and, by extension, price?
Probably the latter.
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
2016 2017 2018 2019
Source: ONS, Mintel, Knight Frank
PA G E 1 1 PA G E 1 2FUTURE GAZING FUTURE GAZING
FROM BIG UNITS
TO SMALL SPACES
10 KEY POINTS
There is no one-size-fits-all solution for urban logistics Warehouse owners and operators are becoming increasingly
facilities. As retailers and logistics operators seek to perfect aware of the green agenda. Sustainable building design and
the 'last mile' delivery element of their supply chains, urban location can also help improve the working environment
logistics are becoming increasingly diverse with more thus increasing staff retention rates as the draw on the
niche markets and applications. local labour pool intensifies.
Customer expectations are rising for online shopping As companies and consumers demand environmentally-friendly
deliveries. Urban logistics facilities such as cross-dock and sustainable products, delivery methods are adapting.
warehouses and parcel carrier hubs must locate close to Bicycle and electric vehicle couriers are popular in urban
their customer base in order to offer fast turnaround times areas and this is driving demand for small urban
and small delivery windows. consolidation and dispatch centres.
Activities that used to take place in retail stores are now Government policy is aiming to put the brakes
taking place online and in the warehouse. As multi-channel on industrial to residential use changes and planners
retailers expand the online element of their business, are viewing mixed-use schemes favourably.
their warehouse and logistics requirements are
growing and evolving.
High land values mean that to locate in urban areas,
logistics facilities must reduce their footprint and
Smaller retailers may outsource their distribution. use space more efficiently. More multi-storey logistics
This enables them to be more agile and respond facilities are expected.
to changing customer needs.
Some lower quality retail premises have many
Online retailing and rising customer demands for fast of the features required by urban logistics sites and retail
turnaround times are driving demand for large regional to warehouse and logistics conversions or redevelopments
or national distribution centres. These very large centres are taking place.
tend to use automation to allow for more intense use
of space and to speed up throughput.
PA G E 1 3 PA G E 1 4FUTURE GAZING FUTURE GAZING
Multi-channel retailers have some DHL’s On Demand Delivery service outsource delivery due to the high costs warehousing is becoming increasingly
Demand for urban logistics
advantage here as they already have allows customers to schedule a delivery involved. They will work with a distribu- popular with retailers, they can benefit
Urban logistics is becoming an increas- a physical presence. Their shops and at a time to suit. These services require tion company in order to reach customers from economies of scale, increase their
E-commerce can require
ingly important part of supply chains for stock rooms mean they are able to hold small depots within urban centres for via their logistics network. Distribu- agility and respond quickly to changes
three times more space than
retailers and logistics operators, particu- some stock in these stores that can be short-term storage and vehicle dispatch. tion companies account for around 36% in market demand, without the need
traditional retailing, with
larly as the Business to Consumer (B2C) quickly dispatched to customers. In of take-up and this increased demand for huge investment or lengthy time
E-commerce is driving big additional space required
market segment grows. As retailers and order to compete, pure-play retailers for space is in part, driven through period involved with building their
box demand for inventory, automation
logistics operators seek to perfect the 'last must also hold some limited high more retailer partnerships and a rise own facilities.
and labour.
mile' delivery element of their supply demand stock within urban areas. Small As multi-channel retailers expand the in volume of retail sales goods being
The 'last-mile' element of the supply
chains, urban logistics properties are urban fulfilment centres can allow them online element of their business, their transported through their network.
chain is the most complex and costly for
becoming increasingly diverse with more to store goods for rapid dispatch and warehouse and logistics requirements are Distribution companies are actively
retailers and logistics companies. B2C
niche applications and markets. The customer delivery. These centres can growing and evolving. In 2018, retailers taking space within urban markets in
Large retailers with high volumes of deliveries mean many small orders to
location, specification and size require- also be used in the return flow of goods accounted for more than half of all big order to expand and improve these 'last
stock will need to locate these centralised multiple locations. The lack of regular
ments for urban logistics are driven by from consumers. Online retail return box take-up. Activities that used to take mile' delivery networks.
fulfilment centres some distance routes and delivery schedules combined
a complex web of inter-related factors rates are high compared with brick and place in retail stores are now taking place
from consumers due to the large site Increased need for flexibility with enhanced service offers such as
including; proximity to consumers, trans- mortar retail; around 25% of online online and in the warehouse.
requirements and the high cost of and on-demand services one-hour delivery slots has led to a need
portation connections and needs, storage orders are returned compared with 8%
E-commerce and the rise in B2C logistics land in urban areas. These facilities for an agile workforce that can respond
needs / scale of operation as well as in store. Demand for flexible, on-demand services
is not only driving demand for small scale enable retailers or logistics operators to to fluctuating levels of demand. This
cost sensitivities. is driving and shaping the urban logistics
urban logistics, it is also driving demand centralise inventory but they also require demand has spurred development
market, just as we are seeing in other
'Last mile' logistics can account for 50% for very large distribution centreswhich the support of strategically located of crowdsourcing apps and growth of
property sectors such as offices. Many
of a shipment’s total cost (McKinsey), form a central point of hub-and- cross-dock hubs within urban areas in a logistics gig economy. Companies
Online retail return rates are smaller retailers are not able to own
offering significant scope and incentive spoke distribution models. It is widely order to facilitate the 'last mile' element such as Amazon Flex and Hermes
high compared with brick or occupy their own dedicated storage
for logistics operators and retailers to reported that e-commerce can require of B2C order fulfilment. (courier service) utilise self-employed
and mortar retail; around 25% and distribution centres, they will
perfect this part of the supply chain. three times more space than traditional couriers This allows them to quickly
of online orders are returned Only the very largest retailers can afford typically utilise shared or on-demand
retailing, with additional space required respond to changes in demand or
Rising customer expectations compared with 8% in store. to build their own, customised delivery logistics space offered through a 3PL
for inventory. This is exemplified by seasonal order spikes.
and turnaround times network and logistics infrastructure. provider. Larger retailers will also utilise
Amazon, which utilises some of the
Many retailers will outsource the whole shared or on-demand space through a
Online retailers are increasingly offering largest warehouses in the UK.
order fulfilment process to a 3PL (Third 3PL, particularly when entering new
expedited shipping. Several fast track
Particularly for parcel deliveries, Party Logistics) provider. Some large markets, as they grow their market
services now offer same day delivery.
customers are demanding trackable retailers may choose to build or own presence or await the construction of
Within Central London, some retailers are
deliveries with short lead times and their own fulfilment centres but typically a new facility. Flexible, on-demand
offering delivery within two hours. Urban
36%
narrow delivery windows. Providers are
customers in particular want instant grat-
increasingly offering services that “fit in”
ification and expect to be offered very fast
52%
with customer schedules, for example
turnaround times for online purchases.
Industrial and logistics take-up by size (sq. ft)
Take-up by sector 50,000 to 99,999 sq. ft. 100,000+ sq. ft.
Units over 100,000 sq. ft.
50 Distribution companies account for
45
Distribution Manufacturing Retailing Other 40
36% of take-up of industrial units over
Retailing accounts for 52% of take-up 35 100,000 sq. ft.
million sq. ft.
30
of industrial units over 100,000 sq. ft. 25
2018 36% 9% 52% 3%
20
15
10
5
2013 34% 25% 29% 12% 0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Knight Frank, PMA Source: Knight Frank
PA G E 1 5 PA G E 1 6FUTURE GAZING FUTURE GAZING
Automation means increased power These multi-modal transport networks Assuming these issues can be solved,
Automation – rising
requirements and fit-out costs
needs. High power consumption rates are CASE Demand for small urban
logistics space
require specialised logistics facilities; such services will have implications for
Growth and competition in the e-com-
driving up operational costs. Installing
solar panels or other renewable energy
S T U DY Consumer demand for environmentally
their locations driven by the transport
infrastructure they rely upon. There is
urban logistics networks and the built
environment. Infrastructure such as
merce and grocery delivery markets are technologies may be a way of mitigating New Logic III, known as “The friendly, ethical and sustainable products great scope for multi-modal solutions drone dispatch centres, landing ports
stimulating an increasing need for spe- costs, but these also require significant Tube” in Tilburg, The Netherlands and delivery methods is also helping spur in the UK, however the significant infra- and recharging pads will need to be
cialist distribution centres. These large upfront investment. Access to reliable, is one of the most sustainable growth of sustainable 'last-mile' delivery structure requirements mean that such installed within central areas of the
centralised fulfilment centres have high adequate power is an important consid- logistics buildings in the world, methods. Emissions charges, traffic con- initiatives would likely need to be city. In London, company Skyports are
volumes of throughput and tend to make eration that can make some buildings or achieving an Outstanding BREEAM gestion and parking restrictions are also government driven. buying the rights to rooftops for the use
use of specialised automation solutions locations unsuitable for highly automated rating with a score of 99.4%. The driving up the time and cost involved for of “veriports” (drone landing pads), and
In Paris, Sogaris have built a new
in order to maximise their efficiency. logistics facilities. building was developed by Dokvast deliveries within city centre locations. some new residential developments are
dedicated urban logistics hub at Chapelle
Automation can treble throughput, and is the Dutch HQ for Rhenus Logistics operators are thus exploring embracing the opportunity to install
Urban logistics tend to have relatively International, near the Gare du Nord
dramatically improving productivity. Contract Logistics. The building alternative transportation modes and this drone-infrastructure on their rooftops.
low rates of automation compared with station. This urban logistics project
features a futuristic design with an is driving demand for new types of
Particularly in the grocery sector, national or regional distribution hubs. utilises rail freight to bring goods into the Stock over time
elliptical roof and a large amount of logistics properties.
investment in automation and technolog- Most will have very limited automation centre of Paris from a distribution hub in
glass. Using sustainable materials, Industrial floor space in the UK has been
ical advances are playing a significant role and operate as cross dock facilities that An e-bike and trike logistics firm Zedify northern France, reducing the number
automatically dimming LED lighting, in decline, older redundant stock is
in shaping the market and early adopters receive goods from large vehicles and have recently opened a micro-consolida- of heavy goods vehicles in the city. The
extra glass and roof insulation, being removed from the market as land is
have been quick to grow their market facilitate the onward distribution to tion centre or e-bike depot in London’s new centre acts as a distribution hub with
heat pumps and solar panels; the redeveloped. The reduction in floor space
share. The margins on home grocery customers via smaller vehicles. Hoxton to house their electric cargo bike goods delivered to their destinations via
building consumes less energy has been felt most acutely in urban centres
delivery are small or non-existent and fleet. Located just outside of London’s electric or hybrid vehicles.
Sustainability and than it produces. where pressure to increase the supply of
the need to offer these services without Ultra Low Emission Zone (ULEZ), parcels
warehouse design What will demand for space residential stock is strongest. Across the
generating a loss is a key motivator for arrive at the consolidation centre from
Aside from design, the location of the look like in the future? UK, the volume of available industrial
grocery retailers to adopt greater levels Warehouse owners and operators are across the UK, where they are consoli-
warehouse is an important aspect for floor space has fallen an average of 5%
of automation. becoming more aware of the benefits dated and sorted into delivery rounds There has been much speculation around
sustainability. Operators want their dis- per annum over the past ten years,
of incorporating sustainable design for dispatch. future delivery methods and drone deliv-
Higher levels of automation allow tribution centres to be located close to though the rate was higher in London and
features such as photovoltaic systems, eries are at the centre of these discussions.
for more intense use of space with transport links and their consumer base Multi-modal transport the South East. Older industrial stock is
skylights, recycling facilities, bike racks Amazon have announced their drone de-
increased use of vertical space and in order to minimise costs and emissions, networks and urban logistics often unsuitable for modern logistics and
and electric car charging points. They livery platform Prime Air could be avail-
multiple mezzanine floors within a not only for their delivery fleet but also the removal of this stock is helping drive
are motivated to maintain environ- Though multi-modal services are diffi- able to customers in some US markets
building. Specialised robots can be for their staff commuting to work. down vacancy rates. The vacancy rate
mentally-friendly facilities, not just for cult to implement for the 'last mile', in within months, offering delivery of light
designed to move at high speeds, along According to the ONS, car ownership for warehouse and distribution was
economic or quantitative environmental France and Japan they are being suc- weight products to customers within 30
tracks, around multi-mezzanine floors rates in UK are falling, particularly within 4.6% at the end of 2018, down from 8.7%
reasons, but to improve the quality of the cessfully implemented for high volume minutes. However, safety and regulatory
or extend up to access heights that London and other UK cities, and being in 2010.
working environment for their staff. freight movements as part of the "mile issues will need to be addressed before
would be impossible or difficult and able to commute on public transport is
before last" section of the chain. This is commercial drone deliveries become
time consuming for humans. Use of Resourcing and staff wellbeing are often a key consideration for workers.
before goods are brought into an urban a reality for UK cities.
robots is not yet widespread but we becoming vital considerations for the
Improvements in electric and autono- area for onward distribution.
expect it to increase, and this will logistics sector. High quality workplace
mous vehicles are expected to transform
have implications for the fit-out and design, enhanced amenities, increasing
cargo fleets. Tesla have announced the
4.6%
design of buildings. natural light, investing in social activities
launch of their Semi electric lorry in the UK warehouse and distribution vacancy rate
and promoting better physical and mental
Customised automation solutions can be US in 2020. It is claimed to have a range
health are all ways employers are striv-
expensive to install and require logistics of up to 600 miles and reach speeds of 60 10%
ing to better the working environment 9%
operators to commit to invest more in miles per hour. As the speed and range of
and improve their ability to attract and 8%
their facilities. Occupiers are seeking electric vehicles and autonomous driving 7%
retain staff.
more control over the development capabilities improve, the locations and 6%
process as a way to maximise their returns sites suitable for distribution and ful- 5%
4%
and off-set some of the fit-out costs. filment centres may change as cargo Warehouse and distribution
3%
can travel further without stopping 2% vacancy rate
(for driver rest or battery recharging) and 1%
0%
at faster speeds.
2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Knight Frank
PA G E 1 7 PA G E 1 8FUTURE GAZING FUTURE GAZING
While out-of-date stock continues to be London, making mixed-use develop- unit as a consolidation and dispatch
Urban land values and
redeveloped, strong demand for urban Big box availability by market ments and intensification of industrial depot or collections centre. This type
multi-storey warehousing
logistics as well as large regional dis- areas a priority. The plan sets out of facility could then be let to a 3PL
tribution centres is helping to boost For logistics facilities to locate within or a framework to encourage more mixed (third party logistics provider) to service
Good quality New build Older/poor quality
development of new stock. At the end close to urban centres, they must compete use developments. the dispatch, delivery and returns of
of H1 2019 there was a total of c.7million 9 with other land-uses and utilise land customer orders for retailers located at
Some industrial and logistics activities
sq. ft. of space (over 100,000 sq. ft. 8 more intensively. In the South East, high the park. A landlord may accept lower or
7 are not typically compatible with
units) under construction. Construction land values are encouraging developers subsidised rents for this type of tenant
million sq. ft.
6 residential areas or developments; lots of
activity has increased recently, though 5 to use land more efficiently. As improve- / facility in order to offer preferential
HGV traffic or logistics operations with
most development is built-to-suit rather 4 ments in technology enable operators distribution rates to retail tenants within
3 anti-social hours would not be welcomed
than speculative. to make better use of vertical space and the park. This change of use could help
2 by residents. However, Travis Perkins
1 land values continue to rise (relative fill vacant space and boost the offering
Demand for mega-distribution centres builders’ merchants partnered with Unite
0 to build costs), warehouses facilities will and appeal of the park for retail tenants
is driving some developers to build spec- student housing on a scheme at Kings
expand upwards (both through and thus help to support rents and
South East
Yorkshire
Midlands
Midlands
Scotland
London,
ulatively and the amount of speculative Cross, demonstrating that industrial and
Wales
South
North
North
West
West
West
East
East
increased eave height and multi-storey occupancy rates. This type of combined
space under construction is rising. logistics schemes can work as part of a
developments). retail and logistics park offering could
Though the availability of new stock has mixed use development. Modern multi
Source: Knight Frank, PMA become a part of the urban logistics
risen in some markets, vacancy rates There has been a reduction in the land -modal logistics hubs that can also offer
landscape in the future.
remain low particularly in the most zoned for industrial land use across the excellent public transport links may
sought after markets. UK, particularly around major urban also offer potential for desirable mixed- Since the start of 2014, retail warehouse
centres, with developers preferring to used developments. yields have offered an increasing
Flight to quality
convert aging industrial properties to premium over industrial. This highlights
Growth in build costs vs industrial land values Repurposing struggling retail
In markets where supply is most limited, higher value uses such as residential. the pricing incentive to convert some
(Q1 2011 = 100) parks or retail outlets
space that is available tends to be in A lack of large sites coupled with high retail warehouse stock (or indeed other
poor quality, older units. Across the UK, South East industrial land value index Construction costs index land values has meant logistics providers Rising demand for urban logistics has asset classes) to industrial / urban
20% of available space is lower grade must reduce building footprints driven down yields. Industrial yields in logistics sites.
350
stock, though this figure is much higher whilst maximising the capacity of the London are currently around 3.5-4%,
300
in Scotland, the North East and Wales. site, driving the impetus for upward while retail warehouse yields are above
250
Good quality second-hand stock is also expansion. 5%. At the previous market trough, both
in short supply, accounting for less than 200 asset classes had yields of around 7.7%.
Multi-storey logistics are only currently
half of available stock in most regions. 150 The subsequent yield compression for
emerging in Inner London, where
High relocation costs and limited oppor- 100 London industrial has been largely
7 million
land values are particularly high and
tunities for new development encourage 50 structural rather than cyclical as demon-
developers must compete with residential
sq. ft.
tenant lease renewals and has kept quality 0 strated by the increase spread between
and other uses. Strong population growth
second-hand stock from re-entering the the two asset classes.
Q1 2011
Q3 2011
Q1 2012
Q3 2012
Q1 2013
Q3 2013
Q1 2014
Q3 2014
Q1 2015
Q3 2015
Q1 2016
Q3 2016
Q1 2017
Q3 2017
Q1 2018
Q3 2018
Q1 2019
forecasts for UK cities will drive further
market. However, some recent business
intensification of land use and we expect Some retail parks have been struggling to
failures and lease breaks or expiries have
Source: Knight Frank, UK Department for Business, Energy & Industrial Strategy the numbers of multi-storey warehouses attract or retain tenants; the vacancy rate
led to an increase in the availability of
to increase. for prime retail parks currently stands at
good quality second-hand space.
9% (Source: PMA). Even within relatively
Mixed Use urban logistics of new space under construction
successful retail parks, landlords are
(units over 100,000 sq. ft.)
Large swathes of industrial land have struggling to maintain sufficient rental
High relocation costs and limited opportunities for new been lost to residential development and occupancy levels. These retail
development encourage tenant lease renewals and has kept in London over the past ten years. The parks are typically located within close
second-hand stock from re-entering the market. Greater London Authority reported that proximity to consumer populations
London lost 16% of its industrial stock and transportation networks and thus
between 2001 to 2015. There has been an make good candidates for some excess
accompanying loss of industrial activities floor space to be repurposed for logistics
and employment. The impact of this has and distribution.
been recognised and the London Plan
Retail landlords could seek to fill
includes policies for preventing a loss of
vacant space within a park through
employment and industrial land within
converting or redeveloping a vacant
PA G E 1 9 PA G E 2 0FUTURE GAZING FUTURE GAZING
Retail and light industrial to logistics Part of the sector's strong historic perfor-
Weight of capital targeting
conversions are already taking place mance has been due to structural shifts Retail warehouse vs industrial yields in London
the sector
in London, where poorly located and yields for the sector have adjusted
and outdated factory outlets, car Encouraged by strong returns, investor accordingly. However, there is still scope
Spread (RHS) Industrial – London Retail warehouse – London
dealerships, retail warehouses or light allocations for industrial and logistics to drive rental growth and thus logistics
industrial buildings are being re-fitted properties has been rising at the expense remains an attractive investment 8%
200
and repurposed into urban logistics of other sectors. UK industrial property compared to other sectors. Rents for 7.5%
facilities; as parcel service centres and has outperformed other property sectors some urban logistics sites are starting to
7% 150
grocery home delivery dispatch centres. as well as equities and commodities, over become competitive with office rents in
6.5%
DHL have recently converted a unit the past one, three and five-year horizons. those areas. These sites have strong rental
6% 100
previously used as a factory outlet shop The variety of long-term macro trends growth potential, with rising urban land
in Wandsworth, South West London. A supporting future growth of the sector, values and competition from multiple 5.5%
bps
50
former Toys "R" Us store in Croydon has combined with assets that generate asset classes. We expect this to perpetuate 5%
recently been purchased for redevelop- stable income from long leases, continue demand for urban logistics and the trends 0
4.5%
ment as a distribution hub. Planning was to make a persuasive case for investment. we are currently seeing in the market.
4%
granted in March 2019 to change the use -50
UK Industrial property returns 3.5%
of the 43,000 sq. ft. retail warehouse from
have outperformed other
A1 (retail) to B8 (storage and distribution). 3% -100
asset classes
Jan 08
Jun 08
Nov 08
Apr 09
Sep 09
Feb 10
Jul 10
Dec 10
May 11
Oct 11
Mar 12
Aug 12
Jan 13
Jun 13
Nov 13
Apr 14
Sep 14
Feb 15
Jul 15
Dec 15
May 16
Oct 16
Mar 17
Aug 17
Jan 18
Jun 18
Nov 18
Apr 19
There are currently 164 developments
The weight of capital targeting the sector
across the UK with consent granted There are currently 164
will help further development of new
to convert retail premises to storage developments across the UK Source: Knight Frank, MSCI
facilities and speculative construction
and distribution uses (B8), 136 (83%) of with consent granted to convert
and as a result the quality of industrial
these are within urban areas. There are retail premises to storage and
and logistics stock will continue to
a further 18 planning consents pending, distribution uses (B8), 136
improve. Strong demand for high quality,
all of which are within urban areas. (83%) of these are within Annualized total returns
well-located facilities combined with
These figures demonstrate that while the urban areas.
decommissioning of older stock will
fortunes of many secondary retail assets
continue to drive rental growth. 5 year 3 year 1 year
have declined, demand for warehouse
and logistics facilities is filling this space
Industrial
and we expect this trend to continue.
Hotel
Residential
Office
Retail
UK Gifts
FTSE 100
World Commodities
-10% -5% 0% 5% 10% 15% 20%
Source: Knight Frank, MSCI, Macrobond
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