Major retailers are implementing a framework of regional distribution centres - mega hubs serving smaller satellite units, stores or the consumer directly or via courier service.
The mega shed is a relatively new and rare commodity. It is not available on the shelf. Delivery is largely development-led with significant incubation periods and increasingly expensive and sophisticated fit-out required in order to reach full operational status. Strong and growing demand significantly outstripping limited supply is resulting in reduced incentives, rental growth and increasing initial lease lengths. Retailers recognise that these buildings are important for the long-term success of their business.
The UK has the highest per capita online spend in the world and this is growing at about 15% year on year with increased mobility delivered by tablets and mobile devices. It is difficult to think of an area of the world better suited to e-retail than the UK - we are an island with a finite land resource, densely populated, with a mature network for transportation of goods by road, rail, air and sea. Our ports are undergoing something of a renaissance as growing investment has responded to increasing container-ship imports. According to government forecasts, the market share of intermodal container traffic between the country’s ports and its hinterland is set to increase from the current level of around 30% to 63% by 2033.
The high street has witnessed contraction with a showroom focus for customers to ‘touch and feel’ before they buy, increasingly from the comfort of their armchair and hence less space is given over to storage. This places greater importance on reliable and swift deliveries to avoid empty shelves. The high street is here to stay but a large part of retail sales have and will continue to move into big boxes where rents and staff are cheaper.
In 25 years, computers have profoundly influenced the way we live - there is more information immediately available and we are part of an instant global economy. Assuming that you have a fit-for-purpose product that the market wants, your success as a retailer increasingly relies upon the speed and reliability of your logistics platform.
Real-time sales can interface with a computerised warehouse, triggering deliveries. Doorstep delivery times have reduced to next day and disappointed customers need only vote with a click rather than their feet.
The nirvana of speed, reliability and efficiency lie within the mega shed. They lie in the form of location (access to ports for goods inwards and motorways for delivery to store or doorstep) and computer linked mechanisation with the product delivered from a big box in the right location. Efficiency affects price. Speed and reliability affect availability. The combination translates into success.
The property market continually evolves, against which investors are looking for stability coupled with opportunity.
People understand how e-retail is now unavoidably and fundamentally interwoven within the fabric of our daily lives, and investors are increasingly recognising the importance that big boxes have to play in delivering the revolution in retailing.
Colin Godfrey, partner, investment analysis and product delivery at Tritax