This article was first published on 11 December 2019 in Real Estate. Reconsidered.
Logistics and last mile industrial remain on the ascendant, with significant transactional activity on both the occupier and investor sides. Investors and advisers need to be up to speed with the commercial and technological developments in these sub-sectors to ensure the transaction structure and supporting documents match, or at least anticipate, these developments.
Continued growth and potential consolidation
The expansion and consolidation of the UK logistics and last mile subsectors sees no sign of slowing down and we predict that 2020 will be another bumper year for both acquisitions and lettings as investors who have previously focused on big box logistics expand into last mile industrial too. At the same time, we expect to see an increasing diversification of the investor entrants into these subsectors as they continue to outperform other subsectors and the underlying socio-economic factors behind their expansion (the proliferation of ecommerce and consumer demand for near instantaneous delivery) show no sign of abatement.
The increasing need for last mile depots will also be a feature of the market. With suppliers and retailers competing to offer ever shorter delivery times, warehousing in close proximity to highly populated urban areas is in intense demand. Consumer expectations have evolved and next day delivery is viewed as a standard requirement, rather than luxury, for example with Amazon now being able to offer one hour deliveries via its Amazon Primenow service and the likes of Deliveroo using last mile depots at the location of their 'dark kitchens'. Owners and occupiers will be considering innovative options to maximise floor area in the absence of land availability. Multi-storey warehouses may well be seen, as will mixed used developments, for example the 'sheds and beds' model which sees warehousing and residential combined in close proximity.
To keep up with elevated consumer demand and expectation, occupiers are increasing investment in automation. 'Co-bots', robots which work alongside humans, are already used by various of the key online retailers and distributors, with some of the online distributors (particularly on the grocery side) nearing full automation. Increased automation impacts space layout, workforce requirements and with driverless cars becoming an ever closer reality, both owners and occupier of last mile assets will be looking closely at how these developments interact with their existing warehouse stock. The trend towards automation will require both owner / occupiers and their advisors to be fully aware of the legal ramifications and compliance factors associated with the use of these technologies.
The continued growth of the logistics sector is underpinned by occupier, and in turn consumer, demand. As the market consolidates occupiers will seek both flexibility and uniformity across their European, and in some cases global, portfolios. Flexibility will be required to enable distributors to potentially expand and contract across their portfolios to match shifts in consumer demand across regions or countries. Uniformity may be desired across lease terms to ensure that occupier specific requirements are pre-baked into an occupier Last Mile Logistics // 2 59128059 package and are not renegotiated on each new letting. There will be advantages for landlords in this also as agreed terms and a uniform approach, where practicable, should expedite deal timelines and reduce legal costs. Reflecting the trend towards increased automation, occupier fit outs are becoming increasingly bespoke and high value and, within reason, occupiers will require greater autonomy and control as to how and when such fit outs are carried out.
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