The journey towards innovative logistics real estate networks has only just begun

Recently, I had the pleasure of speaking at a number of conferences about retail logistics. This sector, propelled by the rise of e-commerce is undergoing rapid change, and consequently is of huge interest to the real estate world.

The interest is warranted. The recent e-commerce boom will continue to impact logistics real estate as technologically empowered consumers are forcing retailers into the next level of customer service. Today, customers are no longer content having the choice of different channels to shop. They require a seamless experience, and more and more retailers – recognizing the signs of the time – are shifting towards an omni-channel approach to offer customers the service they demand.

This puts supply chain optimization firmly on top of any retailers’ agenda. To retain, extend or build competitive advantage, a retailer needs an efficient logistics system that can support growing transport volumes, and guarantee the correct product is delivered in perfect condition to the right place at the expected time, and return items across every channel.

The increasing importance of retail logistics is most evident when looking at leading pure-play e-tailers such as Amazon, Alibaba, eBay and more recently Google. These companies dominate online markets for two simple reasons. Firstly, they provide innovative and effective platforms for customers to buy products from a large (almost endless) range of retailers globally. Secondly, they offer flexible delivery options that suit customer’s personal needs. Flexible delivery options are based on an efficient logistics network that provides transparency of inventory and highly automated warehouses (in the case of Amazon, although more so in the US than in Europe). Indeed, those pure-play e-tailers continue to focus on developing their physical network of logistics fulfilment centres along with implementing new creative ways to serve last mile delivery.

The positive news for physical retailers that continue to expand their online activities is that retail sales growth in the last few years was highest for those retailers that have been able to integrate their physical and online presence into one single concept. However, like the pure online players they too need to focus on their logistics strategy. As a result, their real estate networks must continue to evolve and adapt to the new omni-channel requirements.

In terms of logistics real estate, going forward, the increasing complexity of retail supply chains; the shift of traditional shop based activities into logistics facilities; the seemingly insatiable growth of on-line sales (and in particular the strong upturn in cross-border online sales); the need for faster delivery times; and the challenge of processing a high volume of returns, will lead to a different logistics real estate landscape. It will bring a further evolution in the specification and location of logistics buildings.

The ongoing and rapid change in retail models and the associated need to continually adjust distribution channels makes it difficult to make accurate predictions about the exact shape of this evolution.  However, JLLs latest market analysis shows that, in terms of real estate there are some clear patterns emerging. Amongst the most obvious are the incremental occupational demand for logistics facilities, a rising quality of logistics assets driven by new building features and growing requirements for units exceeding 50,000 sq. m of space.

As the lines between online and bricks & mortar retail continue to blur and the pressure on last mile delivery (both to stores and online customers) remains staggering, there is no shortage of predictions about the future evolution of retail and logistics real estate. One thing is however certain. Retailers and logistics companies are only at the beginning of their journey towards new, innovative logistics networks. This means we will see continued strong occupational demand for logistics facilities; and the stock of high quality assets will continue to grow significantly. In an all property context, this will keep logistics real estate high on the agenda of investors and developers.

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