Attractive logistics opportunities

Attractive logistics opportunities are in first and last miles of the supply chain, Savills IM report says.

Exciting opportunities in the logistics sector are increasingly in the first and last miles of the supply chain as retailers drastically overhaul their networks in order to provide rapid same-day or even same-hour delivery to customers’ homes, according to a new report from Savills Investment Management (“Savills IM”), the international real estate investment manager. 

Savills IM has significantly increased its investment in the logistics sector across Europe in the last few years. Its new report says first mile opportunities include mega-sheds of 60,000-100,000 sq m in traditional logistics locations to cover both national and regional markets and in the last mile, cross-docking logistics facilities of 2,000 to 10,000 sq m on the fringes of major European cities.

Other target asset types include:

• Smart, urban warehouses – These are growing across mature and more evolving markets. These warehousing facilities will be more sophisticated and tailored to specific occupiers
• Parcel lockers – An innovative solution and an important move in the market where a large number of clients prefer to pay on collection
• Smart lockers – Self-serve automation arrangements where users can store and pick up their products in cabinets through the identification of specific pass codes

Savills IM says a key game changer for logistics operators is Project Dragon Boat, which is Amazon.com’s plan to launch a global shipping and logistics operation to compete with global supply chain companies. Amazon will provide logistics services for independent merchants selling products on its website and this will put it at the centre of a logistics industry that currently involves not just shippers like FedEx, DHL and UPS but middlemen who handle cargo and paperwork associated with transnational trade.

Kiran Patel, Chief Investment Officer at Savills IM, commented: “Rapidly changing supply chain dynamics serve as a do or die warning to existing players who will need to up their game. In so doing they will drive demand for logistics space.”

Taking end-to-end provision of delivery services will enable Amazon to charge an estimated 30-40% on the mark-up of manufactured cost yet its competitors typically achieve margins of just 1-2% due to the haircut taken at each stage of transportation. By cutting out the ‘middlemen’, Amazon has the potential to reduce its own margin to 20%, for example, but still be able to charge lower prices than its competitors.

The report, entitled Project Dragon Boat and Its Impact on the European Logistics Market, notes that online market share is increasing across Europe but the UK is leading the trend, with around 15% of retail sales undertaken through online channels in 2015.

Patel notes that: “If online retailers wish to survive this then they will need to adapt quickly. This means investing in smarter, more joined up delivery processes, which is already leading to an increase in demand for high capability logistics.”