UK Logistics Market Outlook 2022: Evolving Urban Logistics Markets

Continued demand for last mile

In our ‘Future Gazing’ research, we analysed the distribution networks for online retailers that tend to operate a hub-and-spoke model and found that they typically allocate 20-25% of their total warehouse footprint to last mile or spoke facilities. Our analysis shows that each additional billion pounds of online retail sales requires 320,000 sq ft space in last mile or spoke facilities.

Over the past two years, online sales rose by £45 billion, and further growth is anticipated, with annual online sales expected to increase by a further £31bn by 2026. This could drive further requirements of c.10m sq ft of last-mile fulfilment space over the next five years.

Q-commerce demand to continue and evolve

We anticipate further demand from the q-commerce, or on-demand delivery sector. The rapid growth in this segment of the e-commerce market has driven up competition and rents in highly urban locations, where the availability of space is highly constrained.
Expansion of the ‘dark supermarkets’ has slowed as the main players near their current targets and consolidation in the market has started to take place, with Getir acquiring Weezy and GoPuff acquiring Dija and Fancy. However, the consumer adoption of q-commerce is likely to see further growth, and players in this arena continue to drive fierce competition for suitable units.

Operators in this market tend to run lean operations, often partnering with a larger retailer to take advantage of their supplier base and logistics infrastructure. As the market matures, we expect operators in this market to focus efforts on improving their margins, this will necessitate dealing directly with suppliers, growing their logistics operations, and taking additional, larger facilities to act as distribution hubs.

We saw this with Getir acquiring three units totalling 110,925 sq ft at the newly completed Waltham X development in Waltham Cross, London. This was a significant departure from their typical MO; targeting units sub-10,000 sq ft to function as dark stores. The Waltham X site benefits from close proximity to major roadways, including the M25 and M11. They are expected to utilise these facilities as distribution hubs from which to restock their dark store network.

Changing occupier profile and requirements

Changing occupier profiles are being driven by the rise in e-commerce coupled with rising rents and land values. Increased competition in the urban logistics markets is pushing up pricing and some long-standing owner-occupiers and traditional occupier groups are reassessing their location choices. Some owner-occupiers will be taking the opportunity to realise the strong capital growth recorded over the past few years and tenants approaching lease expiries will be evaluating whether their business can or should absorb the rent increases or relocate.

Increasing emissions regulations may be another factor driving some relocation choices. Last year saw London expand the ULEZ (Ultra Low Emissions Zone) and other UK cities are set to introduce or expand emissions regulations over the coming years. These measures will impact many SMEs that currently operate older, more polluting fleet vehicles.

As the users (and ownership) of urban logistics space evolves, as too will the way the space is utilised and the requirements in terms of specification and facilities. Emissions regulations, traffic congestion, and an increasing number of more sustainably-minded delivery firms are driving increased requirements for bicycle parking and EV charging facilities. As the ownership base shifts, away from private or SME ownership, towards more institutional investors, ESG criteria and institutional building standards will become more important.

Land-use intensification & co-location

Historically industrial land has been undervalued and eroded, large swathes have been converted to other uses, often residential. London has lost 24% of its industrial floorspace over the past twenty years, and Manchester 20% (Centre for London).

The lack of industrial land means that operators will need to come up with creative solutions, there is a need to use space more efficiently and policymakers and developers are pursuing policies of intensification and co-location.

Multi-storey logistics facilities are one way of intensifying the use of industrial land but such facilities are expensive to build. Higher site density is also favoured by planners but this is not always practical for operators, parcel carriers, for example, tend to require low site density ratios. Co-location also poses problems and often comes with restrictions in terms of the types of operations, vehicle movements, and operating hours to appease neighbours.