eCommerce driving demand for ‘big box’ space

Despite continued economic uncertainty, struggles on the high street and the softening of consumer spending, demand for space in the ‘big box’ logistics sector remains strong.

Retail accounted for the largest share of floor space in 2018, taking up 40% of the 22.6 million sq ft of big box vacancies, according to research published by property specialist, JLL, while logistics companies took up 34%.

Meanwhile, the research reported that eCommerce was a major driver for demand for logistics floor space last year, accounting for 27% – with 6.1 million sq ft taken by both retailers and 3PLs acting on behalf of retailers.

The research pointed to a diversified eCommerce portfolio – while Amazon dominated the demand for space two years ago, a much more varied number of retailers are taking space to meet eCommerce demand now, including Pretty Little Thing, Asos and Wayfair.

The news comes as reports about retailers stockpiling for a no-deal Brexit are sparking fears that warehouse space is running out. 

But JLL's concerns about Brexit are more reserved. Tessa English, director, JLL industrial and logistics research said: “Looking forward, and given the strength of demand in 2018 and the political and economic uncertainty surrounding Brexit, take-up in 2019 may not necessarily reach the levels recorded in 2018. We do anticipate occupier sentiment to remain strong. The growth of online sales will also continue to drive demand for logistics space this year.”

The John Lewis response

JLL launched its report at an event in Central London this week, where retailer John Lewis spoke about how the changing retail landscape has had an impact on property investment.

Nigel Harris, partner & senior asset manager of group property and development at John Lewis Partnership, explained how the retailer is changing its stores and logistics operations to satisfy the customer need for experience in their shopping journey. But he insisted it is going to take more than “the best ever Black Friday and Christmas Eve” it saw in 2018 to stay ahead of competition on the high street.

Looking forward, Harris said: “Shops will be more than a place to buy something, they will respond to new behaviours and needs of shoppers. While customer service remains the glue that holds the entire experience together.”

Terry Murphy, partner & director of national distribution centre operations at John Lewis Partnership, described its stores as a mixture of “theatre and cathedral” with an increase in personal experiences such as stylists and beauticians.

“Other retailers are doing the same and we hope this might reverse some of the decline we’re seeing in our high streets,” he said.

But the increased demand for next-day delivery and click & collect is a strain on Harris and Murphy as they make decisions on locations of distribution centres which have to be able to support next-day delivery from Aberdeen to Truro. Out of total sales in 2017, 44% were online and half of those were delivered via click & collect – and Murphy said this trend only increased in 2018.

The retailer has also had to redesign its DCs to meet the insatiable appetite for eCommerc. For example, dresses and shoes are frequently purchased together, so despite dresses being hung, they are now stored close to shoes which are laid flat to make picking more efficient.

Murphy also pointed out how the increase in eCommerce activity has had a knock-on effect on returns: “It’s heart breaking coming in on Boxing Day, because we launched our autumn/winter clearance online on Christmas Eve and orders are processed on Boxing Day where you’ll see three suits in different sizes go past, or three dresses – two will be returned. And what we have to do is re-press, re-steam, re-bag, put them on a hanger, and give them an RFID tag or barcode.”

He said while fashion items are returned by customers quickly, it is never as quickly as the retailer would hope in order to turn around the items to be available for purchase before they are further discounted.