Savills have reported that the take-up of industrial and logistics space by online retailers has increased by 731% in the last decade.
In parallel to this, an insatiable demand for new housing – particularly in the high value markets of London and South East – has seen a huge amount of industrial property lost to residential development.
In the commercial property market – like any other – strong demand and supply constraints are invariably a formula for rising prices. However, in the context of the industrial sector as a whole, it is important to see the fulfilment phenomenon in proportion. The truth about internet retailing is that it is often a low-margin business. This particularly true in the grocery business where the major supermarket operators are compelled to offer online shopping and home delivery to retain competitive advantage and market share. It is not a profit driver.
Similarly, in the online fashion sector, JDA/Centiro report that that 17% of shoppers over-order knowing that they immediately return several items. This adds a further layer of cost and causes practical problems at the distribution centres which have to receive the returns. All of this eats into margins and – if the current status quo remains – could place a question mark against the continued ability of retailers to pay rising rents.
Of course, not all industrial property either by size, location or specification is suitable for fulfilment or logistics use, but still benefits from strong occupier demand.
In a post-industrial economy, calling particular properties ‘Industrial’ was always going to be a misnomer. The core of demand in the sector is from a myriad of business types from panel-beating and sandwich making to fine art storage and plumbing supplies. Most of these operate from relatively modest multi-let estates rather than the giant sheds which are associated with the likes of Amazon.
These multi-let investments have a broader base of income and are inherently more able to adapt to changes in occupier demand. They may not be as glamourous as their online-orientated counterparts but it may be that the resilience of their income streams is every bit as robust and possibly less fragile.