Inside the walls of smart logistics

The logistics industry is seeing increased investment, driven by technology trends including automation and smart manufacturing.

Much has changed in recent years. Newspapers are full of stories about vast underground and submerged warehouse plans, not to mention the prospect of airships being used as fulfilment centres.

Retailers and distributors are under increasing pressure to deliver consumer products within narrower time frames. The introduction of weekend and ‘next-day’ deliveries has caused the industry to shift its thinking, and particularly to embrace new technologies in order to offset the incremental costs incurred in meeting these increased expectations for speed, accuracy and precision.

From Automotive through to food and health science, each sector has its own challenges, but at the centre of it all is the humble warehouse. Warehouse space is increasingly a key differentiator, with fundamental changes to its size (bigger), its location (closer), and its contents (smarter).

My shed is bigger than yours

The retail sector is at the vanguard of these changes as it grapples with the fulfilment challenges of e-commerce. Most warehouses were built before e-commerce took off, and with online sales approaching 20% of all retail sales, companies are trying to get closer to their consumers by delivering quickly and efficiently.

Simplistically, the big change is more inventory being held centrally (and less in stores), with each online retail sale typically requiring up to three times more space than traditional offline sales.

For example, Legal & General recently partnered with Amazon to fund the construction of their largest purpose-built multilevel warehouse outside of the US. At 2.1m sq ft, the facility in Tilbury is also one of the largest logistics buildings in Europe.

Location is equally critical, Tilbury being within delivery distance of the largest conurbation in Europe. As of 2017, 44% of Americans live within 20 miles of an Amazon warehouse, versus only 5% in 2015 - a dramatic change in just two years.

It’s not just Amazon either: take-up space by retail operators has increased significantly over the past few years and they accounted for almost 60% of all warehouse take-up in in the UK in 2016.

As logistics buildings get sited closer to consumers, the buildings themselves need to expand vertically to be viable in more densely occupied regions and cities.

Sheds are getting bigger, coming closer, and even growing taller, with significant implications from a real estate perspective, affecting optimal location, asset specification, lease length, obsolescence risk and the amount of space required.