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Investment Institute

How has e-commerce shaped the logistics real estate space?

  • 30 June 2021 (5 min read)

Key points 

  • The e-commerce boom has left many retailers needing to rethink the structure of their supply chains to meet consumers’ expectations
  • Online retail generally requires more distribution space than physical retail
  • Partnerships between logistics firms and online retailers could be key to meeting larger fulfilment orders and faster delivery times

Over the years, consumer habits have evolved, largely thanks to continued technological advancements that have resulted in the ubiquity of the internet and the subsequent proliferation of smartphones. As a result, more consumers have become comfortable with online shopping, which has supported the e-commerce boom.

The gradual shift from physical retail to online retail transactions has inevitably accelerated since the COVID-19 pandemic, with many businesses capitalising on the ‘stay at home’ economy during global lockdowns.

However, this has increasingly exerted pressure on most businesses to meet consumers’ expectations of ‘same-day’ or ‘next-day’ deliveries – with retailers beginning to reach their limits of what can be achieved with their existing supply chains. From pure play online retailers to department stores, devising a clear strategy to deliver goods across multiple channels while upholding a consistent customer experience remains a challenge for many businesses – and this is where logistics real estate companies can add value.

E-commerce growth driving demand for logistics real estate

Retailers account for around 40% of logistics real estate demand, with up to two-fifths of this proportion accounted for by e-commerce1 . Furthermore, online retail generally requires more distribution space than physical retail. Some of the reasons behind the increased use of warehouses include a wider variety of available products, more inventory, larger parcel-shipping operations, and value-add services such as processing returns.

Many of these logistics properties are able to operate efficiently through automated systems, with key operations ranging from unloading and storage to picking, packing and shipping. Common types of automated equipment said to generally reduce shipment-processing times by 50% include conveyor belts, palletisers (stacking goods onto a moveable wooden structure), and even autonomous forklifts.2

Typically, these warehouses and distribution centres will be strategically positioned, with transportation links and close proximity to populations in mind. Good locations include those near major airports and ports – to cater for both domestic and international deliveries – as well as highways and city centres.  

Examples of companies leading innovation in logistics real estate

As the transition towards a digital world continues, it is important that retailers – both digital natives and digital migrants – prioritise having a digital-first strategy. This includes having a robust distribution plan to ensure the smooth running of their operations in order to meet their customers’ expectations. Examples of companies providing such support include:

Prologis*: A global leader in warehouses, the US-headquartered firm leases modern distribution facilities to the business-to-business and online retail market. It typically integrates sustainable design features into both new and existing buildings – from using recycled and locally sourced construction materials to installing energy-efficient lighting systems.
In May 2021, homeware retail specialist Dunelm signed a 10-year lease for a warehouse within Prologis’s 7mn sq ft DIRFT III development in the East Midlands, UK – due to be completed in September3 . Dunelm hopes to grow its home delivery segment and its click-and-collect operations, which have seen increased demand since the COVID-19 pandemic. The building will help support this high level of demand, and its close proximity to the M1 and M6 highways, as well as the West Coast Main Line, will provide fast reach to the vast majority of the UK population. The new facilities also align with Dunelm’s ambitious targets around sustainability and carbon reduction, with features that include rainwater harvesting and LED lighting.

Goodman Group*: Another global leader in this sector, the Australian-headquartered company manages  around 400 properties in 17 countries around the world – from logistics and industrial facilities, to warehouses and business parks. The logistics giant is known for building multi-storey warehouses, particularly across Europe and Asia where land shortages and proximity issues are more prevalent.
Toll, a leading express road freight provider within Australia and Asia-Pacific, enlisted Goodman to help build a larger facility to meet growing demand from their customers in New South Wales – while also looking to increase their market share in online retailing logistics. Constructed close to two major highways, the logistics space included a state-of-the-art conveyor and sortation system with the capacity to move 35,000 parcels per hour.

Tritax*: A UK-headquartered logistics real estate fund manager, with over £5 billion of high-quality assets integral to modern supply chains across Europe. Over the last 25 years, the firm has acquired and developed real estate assets with an acquisition value of over £6.6 billion.
E-commerce giant Amazon has signed a 20-year lease for Littlebrook, a 2.3mn sq ft state-of-the-art logistics facility in Dartford, UK, which opens in August 2021 – set to be among the largest warehouses in Europe.4  The four-storey facility will be equivalent to around 30 football pitches, and was earmarked as being inside a critical ‘last journey’ location inside the M25 highway.

Opportunities in a post-COVID-19 era

The rapid growth of the e-commerce market has truly transformed consumers’ shopping experience, with quick and convenient access to a vast range of products at their fingertips – and this trend will continue to become more pronounced as technology advances.

Logistics companies can help create supply chain efficiencies, while also helping retailers to grow their businesses at scale. The profound impact of e-commerce on warehouse demand can be seen through market consolidation experienced in recent years. Firms like Prologis* continue to broaden their footprint in key logistics markets through deals like its $13 billion acquisition of Liberty Property Trust in February 20205 .

At a time when online shopping continues to thrive, partnerships with logistics real estate providers may be key if online retailers expect to meet larger fulfilment orders and faster delivery times. This, in turn, could support businesses who wish to capitalise on the e-commerce boom, retain or grow their market share, and ultimately remain ahead of the competition.

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