The surge in consumer demand has caused occupiers to adapt
Currently there are few ‘purpose built’ or ‘built to suit’ Urban Logistics units, but I believe these numbers will grow. This current undersupply is largely a factor of the underlying shortage of suitable urban ‘brown field’ sites which have seen large swathes of industrial land being replaced by more valuable uses such as residential and data centres. However, the rapid emergence of ecommerce accelerated by the pandemic and coupled with ever changing consumer appetites has meant many Third Party Logistics (3PL) operations have had to adapt their supply chains at speed. So quickly in fact that purpose-built facilities have not necessarily been an option.
Competition in the 3PL sector is fierce and over the last 12-18 months there has been increased consumer focus on the speed and accuracy of parcel delivery, a trend that will become ever more acute. This further consumer scrutiny and demand has led many of the principal 3PL operators to take up accommodation they may not have done so in a less dynamic market.
SMEs consolidate and look to ecommerce
A further trend which should not be ignored is that many small and medium sized enterprises (SMEs) supplying consumer goods are actively looking to expand their online function. Many existing SME business models involve occupying an office suite and separate warehouse accommodation, but this may be changing. We are seeing some SMEs begin to consolidate operations within a single building (office & warehouse combined) in the pursuit of cost-efficiency whilst maintaining the platform required to effectively access ecommerce markets.
Short term business continuity becomes long term business strategy
There is an argument to suggest the definition of Urban Logistics has become even more blurred with traditional in-situ warehouse units and multi-let estates. Both are soaking up some of the pent-up demand from 3PLs and businesses intent on expanding their online footprint. At the start of the pandemic and subsequent lockdown we saw many 3PLs sign up to short term, temporary accommodation in order to stockpile goods and better meet the anticipated surge in ecommerce demand. Much of this temporary accommodation has since been retained, in part as it has quickly been absorbed into existing supply chains, but also as a defensive position given the chronic shortage of industrial space. Firms have adapted units for their own requirements and expanded within estates.
Investors have also contributed to widening the definition
Investors have also played a role in widening the definition of Urban Logistics as they have begun to package up and tag traditional industrial portfolios as Urban Logistic accommodation regardless of their tenant line up, configuration, specification, or even location and proximity to urban areas.
Going forward we will continue to witness the adaption and change of Urban Logistics as 3PLs, retail businesses and SMEs strive to keep pace with consumer demand. In terms of occupational take up in this very young submarket we have barely scratched the surface as delivery time and accuracy are squeezed more and more. The implications of this unprecedented ecommerce demand on the industrial sector, and what the future may hold for Urban Logistics, will be discussed in forthcoming articles.