SPR COVID19 Webinar 2: Impact on the Industrial & Logistics Sector
Thursday 21 May 2020

Logistics has its moment in the sun

Speaking as a panellist at this online SPR seminar, the second of four on the impact of COVID-19 on different UK real estate sectors, Paul Weston of Prologis proposed that the impact of locking down the population has given logistics real estate its ‘moment in the sun’ – and certainly a more positive experience than any other commercial property sector.

But he stressed that even for logistics the pandemic had been a two-edged sword, with those facilities supplying the hospitality sector and much of retail facing big challenges. Each panellist at this event agreed that the crisis was likely to have a varying impact across logistics operators and the different real estate formats they occupy.

Tessa English
of JLL, who moderated the seminar, noted that growing e-commerce had already been fuelling a shift from big-box to urban/last minute facilities as the predominant logistics format, and Chris Urwin from Aviva – who are now uprating their estimates of e-commerce penetration – noted that the lockdown is accelerating this trend.  In the longer-term potential dislocations in global trading patterns could mean that those logistics facilities closer to the consumer could face lower risks than those that were higher up international supply chains, he suggested.

Answering a polling question, just over half the audience at this event said that they were spending more time shopping online than they had done previously.  However, although online grocery enjoyed a surge as the pandemic took hold, Edd Fitch of LaSalle Investment Management believes that the supermarkets’ direct home delivery model might not necessarily build on this growth due to its low margins, but that click-and-collect formats – such as that currently being trialled by Aldi – could well fare better.

The seminar included an interesting discussion about the effect of the COVID-induced recession on labour availability for logistics operators, something which had recently been proving a bottleneck for the sector.  Weston noted that given the high cost of automating warehouse processes, rising unemployment and a larger pool of available labour could potentially slow moves to automation, at least in the short term. However, Urwin stressed that as this was new technology, automation costs were likely to come down quite rapidly.

A number of audience questions were debated at the seminar.  Answering one on the likely impact of COVID-19 on logistics leases, both Fitch and Weston agreed that there would be a reduction in their length as well as greater flexibility, particularly for smaller spaces, while lease structures were ripe for updating as many ‘pain points’, such as dilapidations, remained. 

And questioned about whether Amazon had become too dominant in the UK market, the panellists opined that this could be seen as another doubled-edged sword. On the one hand, they have clearly made a positive impact on the development of the sector as a whole and have forced their competitors to raise their game.  But if one could redesign the market from scratch, investors would undoubtedly benefit from a wider based demand at the larger end of the space spectrum.

Tim Horsey