Real Asset Insight #6 June 2020

Insight & Strategy – E-commerce & logistics
Left and above: Retailers that are geared up
for rapid distribution are benefiting from the
global increase in online sales
The distress evident in parts of the retail
and retail property segments pre-Covid-19
has been intensified and the pandemic
has accentuated the need to re-examine
retail real estate in all its guises. Meanwhile,
logistics real estate’s already rising status
has been further enhanced with investors
continuing to allocate funds to the sector.
US-headquartered logistics property
giant Prologis concurs that Covid-19 has
accelerated changes in retailing with
significant implications for logistics.
The firm has produced a series of research
reports during the pandemic. The latest,
Accelerated Retail Evolution Could Bolster
Demand For Well-located Logistics
Space, is focused on the US but Dirk
Sosef, Prologis’ European vice president,
research and strategy, says the conclusions
are not confined to the US. ‘E-fulfillment
supply chains need to keep pace with the
continued double-digit online sales growth
happening across Europe. This was a trend
pre-coronavirus and the pandemic has only
accelerated the growth across the region,
pulling forward several years of adoption.’
Amazon may be the best example of an
online retailer taking advantage of the
accelerated switch in demand, but others
are not far behind even if they are not on
the same scale. Nick Preston, director at
logistics property specialist Tritax, which
owns Mango’s distribution building outside
Barcelona, Spain, says the fashion retailer
is another good example of a company at
the front of this curve. ‘They had plans to
extend their building and are bringing that
forward. They are adjusting their strategy to
be able to pick up this material acceleration
in online sales, pick it up really quickly and
hang on to it.’
LOGISTICS RESILIENT
It is widely accepted that a recession will
be a further consequence of economies
being stifled by the measures intended
to thwart Covid-19, but logistics seems
likely to be resilient. ‘Although a recession
seems inevitable with a dip in GDP which
will shape demand in 2020, going forward
e-commerce will gain,’ Saporito says.
Prologis’ Sosef identifies a further factor
that seems likely to reinforce the growth of
demand for logistics property. E-commerce
retailers require more than three times the
logistics space demanded by their bricksand-mortar
equivalents – because they
have a wider range of stock and variants
and carry a larger buffer.
Some responses to the acceleration of
trends in online retailing and thus the
demand for logistics take a little longer
to implement. Firms such as Amazon
and Mango have highly automated stock
picking systems as part of their logistics
processes. Sosef says it is too early to
predict the extent of increase in the levels
of automation, but he assumes there will be
‘We think that 2020 will be the tipping
point for e-commerce, it will reach more
than 16% of total retail sales.’
Jean-Luc Saporito, P3 Logistic Parks
increased adoption of these technologies
simply because staff shortages are one of
the constraints on the sector.
Another constraint on the expansion of
e-commerce and other logistics property
uses is the availability of real estate. In
another recent white paper published by
P3 Logistic Parks, Revitalising the 20th
Century. Why the Future of Logistics
Could be Through Repurposing the Past,
futurologist Sean Culey postulates that
another by-product of the demise of some
retail property is its potential for being
repurposed as logistics space – abandoned
former malls, large stores and solus retail
units are all candidates, in addition to intown
parking garages rendered redundant
as urban congestion measures take effect.
And as Tritax’s Preston points out, some of
these scenarios are already becoming fact
with recent transactions including Amazon’s
acquisition of a former Toys R Us store in
Croydon, south London for a click-andcollect
and final mile distribution point, and
online grocery Ocado leasing a former
DIY store in Merton, south London, where
it is believed to be paying more than the
previous retail rent.
Covid-19 is proving to be life changing but
not all of it is negative. l
Issue 2 July 2020 | Real Asset Insight 23