Last Hour Logistics: 2020 SPR Research Prize Winners

Wednesday 14 April 2021

Logistics research follows in retail’s footsteps

Introducing the paper for which he won the latest SPR Open Category Research Prize jointly with Farhaz Miah of Hines, Simon Wallace of DWS explained that the germ of the idea emerged at an ICSC shopping centre conference in 2016. He had aimed to console a mainly retail audience with the thought that even if logistics were starting to perform strongly, everything was not necessarily rosy in the sector.  Some assets were already showing signs of being overpriced, while others undoubtedly still had strong growth potential. But how to tell the difference?  One answer could be to apply drive-time methods of analysis from the retail market to logistics. This was what the research went on to do over the next couple of years.

Miah explained that the research was focused on the ‘last hour’ part of the hub-spoke structure that has evolved in the logistics market.  Relating the ‘spending reach’ of postcodes in the UK and Germany – based on one-hour delivery drive times – with granular rental data, it proved possible to identify those locations in the sector with better value occupational markets.  For example, the area of Barking and Dagenham in East London had strong growth potential due to its relatively low logistics rents compared to its catchment area’s online spend.  Inevitably such locations tend to be in or close to large conurbations, but the research found that there can be significant variations in pricing within relatively short distances.  This was equally true for the Ruhr as for Greater London.

In the panel discussion that followed, which was moderated by Siena Golan of DWS, Miah noted that supply-side constraints were often a major reason for pricing variation in the last hour segment. For one thing, the availability of city centre sites tends to be restricted and vacancy rates in such locations extremely low.  Supply limitations have become even more severe as the pandemic has taken hold, so that less constrained locations like East London have benefitted, with Barking and Dagenham rents rising more than 10% in the second half of 2020 alone, for example.

Tolga Necar of CACI, the organisation providing the bulk of the data supporting the research, gave further insights into what makes particular micro-locations more suitable for last hour logistics.  One important consideration is having the right kind of workforce nearby, especially because storage facilities are getting more and more sophisticated, often demanding employees with higher skill levels.  He also stressed that online spending estimates have been changing rapidly through the pandemic as logistics has gained market share from retail stores – making it necessary to recalibrate the figures for this sort of research on a monthly basis.

Much of the remaining discussion focused on how the balance between logistics and retail would evolve post-pandemic.  Miah suggested that the borderline between the sectors would increasingly blur in the future as, for example, click and collect gains further acceptance among shoppers and stores play a growing role as shop-windows for e-commerce.  This in turn raises the question of how the promotional function of stores can be measured and valued by retailers and investors: Necar proposed that external footfall and ‘showrooming’ should be accounted for in such calculations.

Summing up, Wallace stressed that the research showed the importance of realising the value of the data that you have, particularly for newer sectors where information may be thin on the ground.  Meanwhile Miah and Necar emphasised the continuing relevance of this kind of analysis in today’s market, as conditions for last hour logistics are changing as fast as ever.