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Industry Trends

The collapse of BHS is the latest reminder that ecommerce has fundamentally changed the way people shop.

One well-documented consequence of this shift is the continuing growth of the logistics property sector. But, ecommerce is also influencing the sector in a more subtle way. At Prologis UK, it is prompting us not only to consider the design and size of our buildings, but also to think about the way we manage our parks.

Paul Weston looks at 3 key factors affecting this market sector.


Driving the market

According to Gerald Eve, take-up of UK logistics property in 2015 was 44.4 million square foot, 5% up on 2014 and the highest figure recorded.

The total floorspace taken for internet retail distribution (not including parcel delivery companies or 3PLs) during the year was 5 million square foot, 12% of the total and a significant increase on the 3% recorded for 2009.

Looking ahead to future demand, we have taken the ratio established by an analysis of our European portfolio, which shows that 930,000 square foot of additional logistics floorspace will be taken for every £1 billion of new internet sales. Euromonitor is forecasting an additional £18 billion in UK internet retail sales to 2019, which could potentially lead to demand for around a further 17 million square foot over the next three years.

 

Need for speed

Along with the amount of space, we are also looking at the type of buildings ecommerce operators will need.

Since consumers expect ever faster delivery times, operators are under pressure to move goods through the supply chain as quickly and efficiently as possible. To help customers meet these demands, we have evolved our traditional building design to offer a layout that facilitates fast-moving operations.

These new buildings - which include the 310,000 square foot Amazon fulfilment centre at Prologis Park Dunstable – are longer, narrower single-sided units with 50% more loading doors than a traditional single-sided logistics building. For some customers, the benefit of this streamlined layout is that goods can be received at one end of the building and sent out at the other, increasing the speed of the operation. But, no matter how the customer organises the flow of goods within the building, the increased number of loading doors means that the process of receiving and despatching goods is quicker.

Similarly, a longer, narrower building allows for more yard space than a traditional unit provides. With a bigger yard, the customer has more circulation space for delivery vehicles and therefore, a faster and more efficient operation.

The location of an ecommerce building is also critical for speedy delivery times and we have seen a consistent demand for large fulfilment centres at sites with easy access to the national road and rail network. But, ecommerce companies are increasingly seeking a more varied portfolio with smaller units close to residential populations for last mile urban logistics. As a result, there is strong demand for smaller logistics buildings in densely populated residential areas, but very little availability.

To help meet this new requirement, we have again adapted our approach in the UK and we are building our first small unit scheme at Prologis Dawley Road in Hayes, West London. The new development offers units ranging in size from 2,870 square foot to 52,540 square foot, all of which have been designed to meet our usual high standards. The buildings will complete this summer and – in line with our expectations – they are attracting a great deal of interest.
 

 

Delivery challenges

One of the obstacles to the development of urban logistics space is the lack of industrial development land.

Another area of concern is the traffic congestion that the increasing numbers of deliveries could potentially create. There has been extensive research into this area and some innovative suggestions have been made, such as cargo cycles and UberRUSH.[4] On a more practical level, we are working with our customers to mitigate the problems that can be caused by the traditional last mile delivery vehicle – the white van.

There is no doubt that delivery vans can cause congestion. Out of hours deliveries and shared loads can help to reduce this, but on our parks we also take a proactive approach to traffic management and as our recent experience shows, this can help minimise the problem. Last year, Amazon took the 75,316 sq ft at Prologis Park Heathrow for its Amazon Prime service. During the first few days of operation, hundreds of vans turned up at the same time, blocking the estate roads and creating serious difficulties for other occupiers.

Paul Johnson, our facilities manager took immediate control of the situation and talked to Amazon as well as to all the other occupiers on the park to work out a traffic phasing plan. With the help of the park security team, the plan was put into action and traffic on the estate roads quickly returned to normal. Amazon has agreed to allocate slots to its delivery drivers, a measure that is not only easing congestion at the park, but also on the surrounding road network.

The influence of ecommerce is pervading every aspect of the logistics property sector. It is starting to change not only the way we think about logistics property, but also about the way that we manage our parks. It will be interesting to see what happens next.

 

Prologis Grange Park DC7

As Prologis Grange Park DC7 shows, our high quality buildings are designed to help customers run their operations as efficiently as possible.
Read the other articles in the latest Prologis Review, Summer 2016
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