LOGISTICS BRIEFING Last-mile delivery centres set to become a new asset class

A quiet revolution is happening in the logistics sector and those prescient enough to embrace it will reap rich rewards, delegates heard on Tuesday at the PropertyEU European Logistics Investment Briefing at the London headquarters of Savills.

‘Those who win in logistics will win in retail, and in order to win a total reconfiguration of supply chains is needed,’ said Kevin Mofid, director of commercial research at Savills. ‘Last-mile delivery, for example, is on the cusp of becoming a new asset class, as urbanisation is one of the key mega-trends, and companies will need space close to where people actually live.’

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Click here to watch video highlights of the European Logistics Investment Briefing

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According to a recent PwC survey, only 17% of retail CEOs believe their supply chains are optimal. There is much scope for improvement, and the structural change happening in the UK market will accelerate into Europe, Mofid said. ‘There will be more M&A in the sector, and investors will look to logistics for its income-producing returns and as an alternative method to access strong retail covenants.’

He gave three examples to show how crucial adapting to change is: the first is John Lewis, the UK department store, which saw the importance of online trading to complement its in-store offer and invested in a high-tech and highly efficient storage and distribution centre in Milton Keynes, near London.

‘The cost of the original building was £20 mln but they have since invested £200 mln to expand it, fit it out with conveyor belts and make it fully automatic,’ Mofid explained. Within 15 minutes of the order being paid for online, the product is being shipped. Such prescience and efficiency are what determines the winners in the current market, in which consumers are increasingly used to receiving their products when and where they want.

The other example is Amazon, which is already a dominant force in the UK, representing 10% of the entire logistics market, as one in 10 of all available units are let to the US company. The new development is the launch of Amazon Prime Now, first in the UK, then in Italy, with plans to roll it out elsewhere in Europe: the service guarantees delivery within a one-hour window wherever you are.

‘This is a real game-changer in logistics, because it is altering people’s habits and expectations, and retailers will have to adapt to this trend,’ said Mofid.

The third example is Sainsbury’s recent bid to acquire the Argos chain, a decision which Mofid described as ‘a masterstroke, because the supermarket chain is buying into the Argos delivery system and they will be able to access that infrastructure for grocery deliveries, strengthening their core business.’

Looking further ahead, another development will have profound implications for the logistics sector: driverless vehicles. According to a DHL report, before the end of a 15-year lease unmanned trucks will be on all the streets of Europe. If this comes to pass, driver hours will no longer be an issue and there will be a move to cheaper locations.