It’s all go in the distribution centre property market, where dedicated and hybrid logistics models are altering the requirements of retailers, and internet fulfilment are rewriting the rules.
While some plot national retail domination through swanky flagships and iconic statement architecture, others have a less high-profile view of how retailing nirvana might be accomplished in the UK.
From Tesco’s futuristic collection of distribution hubs around the M25 – known as ‘dark stores’ – to the London Gateway project, a different type of retail future is being mapped.
While the race for retail space race might be shifting, the requirements for distribution centre locations are also developing apace. When Tesco opened its 115,000 sq ft online delivery facility in Enfield, north London last year, it was its fourth such dark store, created to meet online order demand in densely populated areas.
The £30m Enfield premises provides the highest level of automation yet, with conveyor belts dispatching trays to pickers with hand-held devices strapped to their arms to fulfil orders from 178 stations. Bryan Lewis, senior asset manager at British Land says: “What we are seeing is store portfolios being positioned to cope with the changing nature of sales.”
Online giant Amazon has also adopted a strategy to get closer to its shoppers and opened a 700,000 sq ft fulfilment centre in Rugeley, Staffordshire and a 1 million sq ft site in Dunfermline in 2011, as the latest in a proposed 20-centre network.
Expansion has been slowed by planning restrictions but the growth ties in with Amazon Europe Marketplaces which opened last year, enabling sellers to list products across all its European websites with one account. It improved its ‘Fulfilment by Amazon’ service by allowing those products to be stored in a fulfilment centre in one country and distributed across Europe.
“Retailers are directly commissioning warehouse space in locations to suit their networks,” says Helen Bunch, managing director of Wates Retail. “This is a growing trend as retailers look to reduce expenditure on freight and speed up delivery times.”
While ecommerce businesses have different location priorities to more traditional retailers, there are variations in demand within the ecommerce sector depending on the nature of the online business.
Grocery distribution centres, for example, are usually located close to the populations they serve. However, consumer goods retailers, without the same constraints, tend to operate from large national distribution centres. Although these operators have to consider delivery costs, they have more flexibility.
“Retailers dealing directly with the public through ecommerce are looking for large distribution buildings over 500,000 sq ft,” says Andrew Griffiths, managing director of Prologis UK, a distribution buildings provider. “There are very few buildings of this size currently available, but the main considerations for ecommerce occupiers are cost and labour availability and they will look at non-traditional distribution locations if necessary. Asos, for example, has taken a 530,000 sq ft cross-docked warehouse [in Barnsley].”
He says: “For the pure etailer, they need large buildings because they have no other stock holding capacity and they need these facilities to function as efficiently as possible. They tend to require a higher loading dock ratio and cross docks because parcels are smaller and the volume of reverse logistics is high.”
Retailers are also starting to consider delivering goods directly to the customer rather than through Royal Mail and are, therefore, looking for parcel hubs between 50,000 sq ft to 100,000 sq ft located close to urban centres, usually highly bespoke with doors on all four sides.
In contrast, retailers are consolidating their distribution operations into fewer, larger regional hubs to increase efficiency. Marks & Spencer, for example, has taken a 1.1 million sq ft distribution centre at Prologis Park Bradford to service its stores in the North.
It seems that, while there is plenty of supply, much of it is not what retailers are looking for or is it in the right location. Director of research, property, at Henderson Global Investors Andrew Schofield says: “E-fulfilment is increasing the demand for edge-of-town sites, while proximity to the stores’ portfolios remains more important for national distribution centres. We’re also seeing distribution become more port-centric.”
Schofield believes that after 12 months dominated by food retail demand, the advent of more bespoke sheds and greater investment in the picking and sorting technology within them will mean the landscape changes over the next few years, especially as some premises can be picked up at a very low per sq ft rate. “Non-food retailers have been relatively quiet when it comes to the mega-sheds but there are signs that this is changing,” he says. “There is no doubt that logistics is becoming more and more important.”
London Gateway and the age of the train
If sheds are enjoying a retail renaissance, then so too is rail distribution as the choice for product movement. Rail-connected buildings with multi-modal facilities are available in a limited number of locations, such as the Daventry Rail International Freight Terminal (DIRFT) in the East Midlands.
Tesco, which has taken an 840,000 sq ft rail-connected warehouse at DIRFT, estimates that, when fully operational, the facility will handle up to eight trains a day, taking almost 100,000 lorry journeys off the road annually.
Recently, logistics space developer Gazeley was given the go-ahead for its first rail-connected UK mega-shed along with Harworth Estates for an 850,000 sq ft rail-connected shed at G Park Ashby-de-la-Zouch, Leicestershire. The site was previously used for the distribution of coal from local surface mines and is in a prime East Midlands location.
But the potential catalyst for greater change is DP World’s £1.5bn London Gateway development, which involves a new port built in the Thames using reclaimed land. The port, which is scheduled to open in the final quarter of 2013, will become one of the world’s most advanced deep-water container ports allowing the biggest ships to import directly to the UK, instead of via rival European cities.
Alongside the port there is planning consent for one of the UK’s largest logistics parks, which will include 9.3 million sq ft of rail-connected sheds, and Britain’s largest privately owned freight and logistics company, Uniserve, is in advanced talks to take a 1 million sq ft shed. Marks & Spencer is also considering a 1 million sq ft shed at the site, while Tesco has looked at the location for a potential rail-connected mega-shed. But the park is not only about large occupiers, several multi-let sheds of up to 500,000 sq ft are to be located there as well.
Comment: Property’s change of pace
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Analysis: Changes in the distribution centre property market