Posted by: Alexandra Tornow
Jones Lang LaSalle EMEA Research
Don’t we all appreciate the promise of the almost unlimited choice the online world is providing us with, and also the convenience of when and where to pick up our order or send it back without any additional cost if we don’t like it? But do we actually consider what this means in terms of the process and the huge changes currently taking place in logistics to support the growth of online-driven, multi-channel distribution?
Do we recognise that with consumers very much in control – with the internet providing all sorts of information for comparing prices, quality, availability and much more – and becoming ever more demanding in their expectations, the logistics sector is nowadays becoming the most critical part in delivering the best multi-channel customer service?
The change in distribution markets has far-reaching consequences for occupiers, developers and investors in the logistics real estate market and is supporting the emergence of a new logistics real estate landscape.
The continued strong growth in multi-channel retail and e-commerce, coupled with an increasing drive to reduce delivery times, will lead to a significant increase in demand for logistics facilities. This supports the development of new types of logistics buildings, including large and small e-fulfilment centres, parcel/sortation centres, cross dock facilities, the so-called “dark stores” to service online food sales and processing centres for returned items.
With the seed of online-driven retail sales taking hold in the European soil, large e-fulfilment centres are popping up across the major markets in Western Europe. Pure-play, online only retailers such as Amazon, Zalando and ASOS are driving this development to date, but as online sales gather pace other retailers will start to acquire dedicated facilities as well.
From a location perspective, the key drivers for e-fulfilment centres are often different from the standard ‘centre of gravity’ considerations that drive the location decisions for warehouses that service stores. The most obvious driver in the location decision matrix is the sheer size of the buildings – in many cases exceeding 100,000 sq m plus an additional requirement for large yards and parking facilities. Given their scale and the intensity of labour involved, access to a sizeable and competitive workforce represents an equally important driver. Amazon’s Dunfermline facility in Scotland, its largest in the UK (at 92,300 sq m) for example, employs some 750 permanent staff and up to 1,500 temporary staff during the Christmas peak. All these considerations mean that names like Koblenz, Rheinberg, Mönchengladbach, Pforzheim, Pas-de-Calais or indeed Dunfermline have appeared on the logistics landscape.
At the other end of the multi-channel supply chain are parcel hubs that are smaller in size (between 5,000 and 20,000 sq m). These are typically specialist warehouse facilities designed to facilitate rapid through flow which are organised as hub-and-spoke systems.
From a location perspective, these facilities require good proximity to major population centres for final delivery and are typically found in, and on the edge of, major urban areas. Demand for these facilities is increasing significantly in line with the growth in parcel volumes.
No doubt, the re-positioning of retail supply chains in order to deliver a fully integrated multi-channel –omni-channel – shopping experience for customers will be one of the central drivers of change in European logistics real estate markets over the next decade and beyond. As the new location decision matrix is starting to become the new normal, we expect to see two key developments.. Firstly, the development of large centres around new locations that today would be considered as non-core distribution locations. Secondly, a significant revitalisation of urban development led by growing demand for smaller units servicing the distribution of parcels that will be driven not only by the strategic importance of the e-commerce supply chain, but also by another key driver of change shaping the sector, namely the growth of urban logistics.