Post-Coronavirus Logistics: It's Not What You Think

Another day, another logistics property deal. This time Tungsten Properties has paid £7.5M for the 11-acre former Travis Perkins site at Warrington’s Appleton Thorn trading estate. It plans a 243K SF development ready for occupation from summer 2021.

The surge in investor and developer interest in the slipstream of the coronavirus pandemic, and the sector’s impressive rental reliability, has created the impression that the world of logistics and warehousing occupation has changed for the better, and for ever.

But think again is the message from real estate analysts at investment house UBS Asset Management.

Their warning is that if you assume every warehouse occupier is Amazon, or aspires to be Amazon, or is likely to operate like Amazon anytime soon, then you are likely to build the wrong warehouse in the wrong location.

Drones and robotics will not change the industry, and most warehousing will operate in traditional ways, with large local labour forces.

The UBS report said the global logistics sector faces change thanks to a renewed drive to manufacture onshore (rather than in China), the push for automation and digitisation, growing e-commerce and the need to decarbonise.

But the report concluded each of these influences faces in-built limits. These include limited land supply (and not much prospect of this changing), the reluctance of developers to take the risks needed, and the difficulty of moving production in what are, today, global supply chains.

“It is very easy in extreme times to over-extrapolate from current data,” the report warned. “Nonetheless, we have noticed a discernible shift in supply-chain management from cost control to risk management and mitigation. Occupiers are beginning to value being close to the end consumer and making sure they can have confidence in execution and continuous operation of their distribution networks.”

UBS European real estate analyst Sean Rymell told Bisnow that every occupier is probably not investing like Amazon in new technologies and automation, and will continue to need warehousing for largely traditional working practices.

He also warned against getting too excited by drones and robotics.

“Developers need to pay close attention to occupier needs. Bespoke warehousing is the trend, and whilst Amazon are the fastest growing, the market is still a mix of traditional occupiers,” Rymell said.

“There is an undue focus on drones and robotics. Drones that are viable for city deliveries are a long way away. There is no convincing evidence of successful delivery to urban centres, this is an idea that is a long way off. The same goes for robotics. It is a misunderstanding that we’re close to fully automated warehouses. The majority of occupiers still operate on a traditional model, and they want a large pool of labour.”

You can read the full report here.