Shedding light on the rise of the UK logistics market

Retail accounted for 53% of distribution take-up in 2018, according to property agent Savills. Last year was a very strong year, with a total take-up of 34.1m sq ft (28% up on 2017) and a vacancy rate of only 5.3%.

logistics in retailKevin Mofid, Director, Commercial Research, in Savills’ London office expects the market to stay buoyant as the rise of omni-channel retailing continues, and as consumers drive the market by expecting ever quicker and more convenient ways of receiving what they buy online. 


The demand for distribution space is coming from online retail specialists – the big names, such as Amazon, Ocado and Asos; from the budget retailers, such as Aldi and Lidl, and homeware specialists B&M and newcomer Wayfair; and from legacy retailers, with their historic roots in physical stores – Next and M&S both announced last year that they will be spending hundreds of millions of pounds on their supply chains.


Demand for logistics space set to grow

Even with the rate of growth slowing, spend on online retail is expected to reach £75bn by 2023, up from £55.9bn in 2018, according to GlobalData.

The UK has the highest penetration of online retailing in Europe. Last November it rose above 20% of all retail for the first time, spurred on by Christmas shoppers taking to the internet.

Based on historical norms, this increase in online retail spending will require an extra 20m sq ft of distribution space by 2023, calculates Savills, although, given the recent high take-up levels, the actual figure could be much higher.

As the market matures, the big question, Mofid suggests, is whether trends in supply chain technology, in particular automation and robotics, will lead to a more efficient use of space, and hence to a lower demand for warehousing.  

Automation is an important trend, but then even robotics advocate Elon Musk, CEO of Tesla, admitted on Twitter last year: Yes, excessive automation at Tesla was a mistake… Humans are underrated.

The power of location in logistics

A pool of labour and an easy access to markets through good links with the transport network are the traditional factors driving location for logistics centres.

Amazon has a network of ‘fulfilment’ centres across the UK. In the North East, which has one of the highest unemployment rates in the country, the US retail giant is adding a further two new centres.

Construction is currently underway of a 1.5m sq ft logistics centre for the Seattle-headquartered company at Symmetry Park near Darlington, in Yorkshire, while a second, 1.99m sq ft site, at Integra 61 in County Durham, is due to open in 2020.

Both facilities are funded by Tritax. The £147 mn County Durham scheme was one of the largest single-let investment transactions in 2018, reflecting a net initial yield of 5.25%. Amazon is taking a 20-year lease.

Looking further ahead, power will be the new factor added to the location mix, says Mofid. Companies are beginning to consider access to power, given that automated warehouses require more energy,” says Mofid. “And these sites aren’t always in locations that were originally considered as key.

The rise of urban logistics – multi-storey and multi-purpose

As consumers are looking for speedier and more convenient deliveries, the retail sector is responding. Argos, for example, announced this May that investment in its delivery network meant that they could now deliver to over 90% of UK postcodes within four hours.

Not only is location about access to high population densities, but it is also about the number of day-time commuters and visitors in urban areas. London, for example, has around two million commuters and tourists in the city at any one time, according to the London Datastore.

With a shortage of land in key urban areas, in particular in London, the rising need to locate distribution facilities as close as possible to the final delivery address and to avoid traffic congestion, Mofid sees the rise of mixed use and multi-storey schemes.

He quotes the Travis Perkins-Unite building in London’s St Pancras as an example. Here, Travis Perkins the builders’ merchant and student housing developer Unite appointed Colley Architects to design a warehouse beneath 563 student accommodation rooms.

On the other side of the city, in East London, next to the Silvertown DLR station, Gazeley plans to build speculatively a 426,000 sq ft, three-storey warehouse, G Park London Docklands.

Alex Verbeek, Managing Director, UK, Gazeley, said at the time of the purchase: This type of development has never been done before in the UK. A three-storey warehouse in such a central location will be hugely valuable for Londoners who will benefit from customers being able to deliver goods in record time.

Arrival of clean-air zones

Demand for logistics centre close to city centres is also growing in response to the introduction of low-emission zones.

London expanded its Low Emission Zone, first introduced in 2008, to become the Ultra Low Emission Zone, or ULEX, this April, while Leeds and Birmingham are set to roll out similar schemes next year.

Dozens of other cities are considering similar schemes in a move to cut air pollution.

In response to this, DPD, for example, opened a 5,000 sq ft, all electric distribution centre in London’s Westminster district in a former car park, from where it has the capacity to deliver 2,000 parcels a day using an all-electric vehicle fleet. 

The parcel delivery company plans to invest £3m in the site over the next ten years. It has also secured a second all-electric centre in Shoreditch, with plans to open a further six.

Gone are the days when distribution centres circled the UK’s towns and cities, with vans and lorries driving into the centre to drop off deliveries at retail stores. As Mofid says, change brings innovation, and innovation is good for every sector and industry.

About Author

Georgina Power is a freelance Communications Consultant and Editor. Her previous positions include: Head of Corporate Communications at McArthurGlen Group, European PR Manager at Cushman & Wakefield and a freelance journalist for EuroProperty.

Comments are closed.