Urban warehousing is posing a challenge to occupiers and developers alike. Liza Helps investigates.
A huge increase in urban logistics property space is required across key centres throughout Europe in the next few years to meet the exponential growth of e-commerce and the resultant need for last mile delivery in cities, according to a new research report from Cushman & Wakefield.
The Urban Logistics Report uses Cushman & Wakefield’s ‘Urban Space Model’ – developed in partnership with P3 Logistic Parks – to quantify total urban logistics space requirements in Europe’s top e-commerce markets based on current and future online sales volumes.
In terms of population and buying power, London is the largest and most mature e-commerce market in Europe with a current urban logistics space requirement of 9.36 million sq ft. This total is expected to exceed 21.9 million sq ft in 2021, an increase of 42 per cent.
Lisa Graham of Cushman & Wakefield, says: “As more of us do our shopping online, it’s vital that our large cities have the capability to handle the increase in parcel capacity across Europe. Our Urban Space Model shows that substantial growth is expected across the board. The fact that a 42 per cent rise in the UK is the smallest increase speaks volumes for the direction the market is heading.”
The reasons for this growth are evident says Andrew Gulliford of SEGRO: “First there is the increasing urbanisation, secondly cities are getting bigger and more and more people are moving to them and that is not likely to change, and finally there is the growth of e-commerce coupled with the need to secure last mile delivery on the same day and in some cases even the same hour.”
Tess English of JLL says: “It’s not just about e-commerce, larger cities themselves need urban logistics just to keep them going, everything from convenience stores to restaurants need logistics in some form or another.”
John Bell of Glenny agrees and adds: “There is a new world order like everything now the distribution centre is largely an extension of the retail market driven by technology and consumer demand. People expect to order on-line and to have their goods turn up if not the next day then the day that they ordered.
“The challenge is meeting consumer expectation and to have access to your market and the only way to do that is to be in among the chimney pots but that does not come cheap…”
“Retail,” says Bridget Outtrim of Savills, “is not the only thing becoming more industrialised, even the internet is. We talk about “The Cloud” that does everything on the computer, well “The Cloud” is a warehouse probably in Slough. A data centre that provides the means of modern life.”
And as society becomes more urbanised so the demand increases. That would be all well and good if there was enough supply but frankly there is not and the chief reason is the loss of industrial land in urban areas.
Nowhere is this typified than in London.
Stephanie McMahon of BNP Paribas notes: “With most regions across England losing industrial floor space in the five years to 2015/16, the pressure on urban land is particularly acute. In London, 20 per cent of industrial floor space has gone to other uses during that time period according to the VOA. The pressure on urban land is set to intensify.”
In urbanised locations land is being taken for other uses especially in London Manchester and Birmingham in particular by higher density housing, which is outbidding industrial and logistics uses.
“Prices for land are escalating in urban areas, it is very difficult to draw a clear line but could be can be as much as double or even four times higher than if sold for industrial and logistics uses,” says Gulliford.
Bell agrees: “Inner city industrial could generate land values of £4 – 5 million an acre for urban logistics but if there is half a chance of residential especially high density that could translate to £20 million an acre and while that is a prospect you are not going to get it for urban logistics.”
Oliver Byland of Prologis says: “London has lost in the region of 1,300 hectares of industrial space since 2001 some 60 – 65 million sq ft of warehousing and what is driving that is the need for housing. Housing gets higher priority than logistics.”
For many the loss of industrial land is political. People need houses and people vote. “There is a lot of talk about protecting industrial land,” says Len Rosso of Colliers International, “but there is huge pressure for residential. Politically who has the most clout determines whether a site goes residential or industrial.
“In West London 60 – 70 per cent of the sites that come up for change of use from industrial to residential – go residential. It’s a big issue!”
As a result there is a scarcity of sites. Rosso notes: “In development terms generally very little is happening because it is almost impossible to find sites.”
That being said Baytree, AXA Investment Managers – Real Assets’ pan-European logistics and industrial development platform has speculatively developed the first phase of development at its commercial estate in Dagenham, East London.
There are two buildings totalling 68,976 sq ft and 44,778 sq ft. In addition, the site is being prepared for the construction of a third 58,437 sq ft warehouse. On completion, it will be one of the premier commercial developments to service Central London, incorporating both Grade-A warehouse and office space. The warehouse element of the development will include 12.5 metre clear internal heights, dock level access loading, up to 50m self-contained and secure yard areas.
The second phase is expected to deliver over 200,000 sq ft and is being marketed on a build to suit basis.
Nathalie Charles, at AXA IM – Real Assets, says: “The Baytree Dagenham site is exceptionally well-located to take advantage of the growing demand from large retailers for urban logistics and distribution assets, which gives us confidence to back this development in advance of securing a tenant.” Gulliford says: “Developers are trying to take a broader view and putting forward constructive suggestions to the likes of the GLA to push forward the idea of protecting industrial land. It is having some effect.”
This article first appeared in Logistics Manager, December 2017