Surging demand for delivery services over the past 20 months has had significant implications for urban logistics, with growth in the on-demand grocery delivery market giving rise to several new companies offering deliveries within minutes.
Companies such as Weezy, Getir, Zapp and Gorillas are increasingly taking space in urban centres across the UK, although the vacancy rate for urban units under 100,000 sq ft is just 3.2% and is expected to fall further. In many inner London boroughs, vacancy rates are close to zero.
Hub-and-spoke is currently the prevalent operating model for ecommerce or B2C fulfilment. Our analysis of these networks found that 20% to 25% of warehouse space was allocated to the ‘spoke’ facilities servicing the last-mile delivery. For example, Ocado services its London-based customers by fulfilling orders at its centralised customer fulfilment centres in Erith or Hatfield before transporting goods to spokes around the city, at Enfield, Ruislip, Park Royal, West Drayton, Wimbledon, Weybridge, Dagenham and Waltham Forest. These spokes typically range between 30,000 sq ft and 85,000 sq ft (averaging around 50,000 sq ft).
New tech solutions are enabling better use of space and exciting new urban fulfilment formats are emerging
Our recent Future Gazing report highlighted that ecommerce sales are forecast to rise from 27% to 30% by 2025, resulting in an additional £37bn worth of online retail sales. With every billion pounds of online retail sales requiring around 320,000 sq ft of urban logistics space, this could drive 12m sq ft of additional last-mile fulfilment space requirements over the five years. That is equivalent to 16 Wembley Stadiums.
The question is: with competing property uses putting pressure on the supply of industrial land, how will fulfilment models adapt to allow companies to meet the faster delivery times being demanded? The past year has given us a few clues.
Retailers with a store network are making use of their existing urban real estate and retail distribution network and switching the function of the space to service home deliveries, ie a dark-store format. For instance, Sainsbury’s repurposed some of its unused central London convenience stores as dark stores. This was because of a sharp decline in footfall as office workers, who comprised their customer base, worked from home. Switching to a dark-store format allowed Sainsbury’s to flex up its home delivery operations during the pandemic without relying solely on in-store fulfilment. We will see more supermarkets opening dark stores to assist with distribution in urban areas with high demand for online delivery.
New tech solutions are enabling better use of space and exciting new urban fulfilment formats are emerging. Some retailers are converting some retail space or extending their building footprint to accommodate micro-fulfilment centres. These small units typically occupy 3,000 sq ft to 10,000 sq ft and can be built into the backroom or on the perimeter of existing stores, allowing access to densely populated urban areas without the need to invest in a new facility or adjust existing distribution networks significantly.
Next time you are wondering where all these delivery bikes and vans on every street are coming from, the answer might very well be a hidden unit near you.
Claire Williams is industrial research lead at Knight Frank
I&L space shortage points to an uncertain future
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The dark-store revolution