The global pandemic has forever altered the industrial and logistics real estate landscape. An already thriving industry is now booming, with occupier take-up hitting new heights. Rather than dent the sector’s progress, Brexit and COVID-19 have turbocharged it.
As specialist executive search consultants within the real estate sector, we’ve identified the top three ways the logistics industry is thriving and how it will continue to succeed.
The global pandemic and the subsequent lockdown restrictions accelerated e-commerce throughout the globe. Research from the Office of National Statistics shows a 46% rise in online spending in 2020, fast-tracking e-commerce sales by roughly five years.
What originally began as a short-term fix, has quickly become the norm as consumer habits remain unchanged following the limiting of restrictions.
Speaking to Jack Cox, Head of EMEA Industrial & Logistics Capital Markets, CBRE, he explained, “Nothing in the data suggests that this is anything other than a long-term shift. Market cycles ebb and flow but we’re not talking about market drive, we’re talking about a uniquely secular trend in which consumers are choosing to conduct their activities in different ways.”
Indeed, a 2021 PwC survey found that the more than 25% of consumers who’ve switched to digital intend to continue purchasing online post-pandemic.
“Online, there is an infinite amount of shelf space, meaning the internet wins on choice.” Yet according to Jack, to remain on this upward trajectory, operators need to function in more ways than choice, which brings me on to the following point.
Localised Supply Chains
Disruptions to supply chains in the form of Brexit and the global pandemic have led to a reassessment of centralised production. While large, centralised fulfilment centres can incorporate higher levels of automation and greater efficiencies of scale, same day deliveries or even shorter time frames are only possible if inventory is brought close to the consumer.
“With changing consumer demands, speed has become a weapon, a competitive advantage”, states Jack.
It’s about building resilience too according to Andy Gulliford, Chief Operating Officer, SEGRO plc., who points out that the uncertainty of the future EU-UK trading relationship, coupled with COVID-19, means that companies must minimise disruptions before they appear. A 2021 McKinsey report found that 93% of supply chain executives plan to increase the level of resilience across their supply chain, 40% of whom plan to near-shore and increase their supplier base.
Andy added, “It’s a trend not unique to the UK, rather its being witnessed in economies which have previously been behind when it comes to e-commerce offerings. In Poland, a younger, growing population looking for seamless experience and faster services, is resulting in a rise in demand for localised facilities.”
Increased Investor Interest
Rising occupier demand coupled with a lack of readily available land has created what Jack described as “the perfect storm for investors seeking long incomes”. According to Knight Frank, investment into UK industrial and logistics totalled £9.3 billion in 2020, up from £7.7 billion in 2019.
Andy commented, “The past 18 months have highlighted the essential need for such facilities, which remained open throughout the pandemic, supplying the country. Now these assets are being viewed by consumers and governments as national infrastructure.”
And rightly so, total returns for industrial and logistics are forecast to remain strong over the next five years, expected to average around seven per cent per annum (2021-2025) on commercial real estate and other types.
While some investors are taking advantage of the quick returns in the current climate, others are in it for the long haul. These investors are adapting their portfolios to suit the changing industrial requirements brought by evolving shopping behaviours creating a new normal. Both create greater demand for logistics in real estate expertise.
The industrial and logistics market has been turbocharged over the last year. The global pandemic has accelerated structural changes in consumer and business behaviour that will continue to drive high levels of occupier, development activity and investor demand.
According to CBRE’s UK Logistics Special Market Update, the five-year forecast shows a continuation of growth for the sector with the highest capital value growth across the UK commercial property industry.
And whilst it can be challenging to see these positives in the wake of disruptions caused by the coronavirus; the crisis has undoubtedly given companies a unique moment to reimagine operations in ways that will both boost productivity and create a better future.