Friday, 12 Aug 2022

Surge In Online Shopping Affecting Logistics, Space In High Demand

With people stuck at home and having no other option for shopping than online avenues, online shopping has experienced a huge boom across the world, especially in the UK. The effects of this have rippled out into other industries, with the logistics industry needing to make adjustments to account for the increased patronage from online retailers.

According to UK real estate group CBRE, the UK and the EU will need thousands of warehouses in order to meet the sudden upsurge in demand from online retailers. They estimate that an additional 300mn ft2 will be needed across the EU by the time 2025 rolls around.

The UK, meanwhile, will need an additional 60mn ft2 of warehouse space, about 14{6f764f0318f708328c6abf9082075486836bb668c992439c97bd655ccc97bfe3} of what’s already there, according to CBRE’s estimates, which is notable as the country is already one of the most developed eCommerce markets in the EU and the world.

Property investors have taken an interest in the logistics sector amidst the pandemic, expecting that the change in customers’ shopping habits will stick.

Blackstone Head of Real Estate Europe James Seppala stated that the pandemic caused a sudden acceleration in how people consume goods in the EU, around a 3-5 year jump by their estimates. Notably, Blackstone, via its Mileway platform, has invested billions in the logistics sector.

Seppala explained that goods purchased online need at least 3x the logistics space compared to their brick-and-mortar cousins. If someone looking to invest believes that eCommerce is set to continue growing moving forward, then the need for logistics space is clear.

Notably, the UK’s logistics sector saw a record investment totalling at £6bn for the first half of 2021, which is more than double the £2.7bn recorded in the same time in the preceding year. Overseas investment accounted for at least half of that, up from the 44{6f764f0318f708328c6abf9082075486836bb668c992439c97bd655ccc97bfe3} share in 2020.

Figures from the UK’s Office for National Statistics, however, stated that once shops open once more and things return to more ‘normal’ conditions, online retail might shrink.

According to their data, online spending account for 36.3{6f764f0318f708328c6abf9082075486836bb668c992439c97bd655ccc97bfe3} of all retail sales in the UK in January 2021, which is close to double the numbers recorded before the pandemic. However, with shops slowly reopening, online spending only accounts for 27.3{6f764f0318f708328c6abf9082075486836bb668c992439c97bd655ccc97bfe3} of the total by May 2021.

CBRE’s Tasos Vezyridis expects that eCommerce will plateau at around 40{6f764f0318f708328c6abf9082075486836bb668c992439c97bd655ccc97bfe3} in the UK in the long term, but that demand for warehouse space will still be big. They stated plainly that supply is having a hard time keeping up with demand, and this will drive rents up across the board.

Logistics firms say that customers are asking for faster deliveries, which requires additional facilities in close proximity to town and city centres.

GXO Logistics Chief Investment Officer Mark Manduca stated that the supply of prime logistics space is something that a lot of their customers worry about, noting how the restricted availability of prime sites would be of benefit to the larger logistics contractors operating in the UK; those who can actually compete with the scale of Amazon marketplace and the like.