From the food served up on our restaurant table to the clothes delivered to our office, complex logistics networks keep daily life in London running smoothly.
Now, in response to changing consumer trends, the largely invisible but highly influential industry is undergoing deep disruption—with results that could transform the face of the city.
A recent and significant change in consumer behaviour is the rise of online shopping on smartphones and tablets. With wifi and mobile data services penetrating more and more public spaces, including the London Underground, consumers are now more likely to shop anytime and anywhere, including on their commutes to and from work.
“We’ve seen a marked shift in the way people shop. Online retail sales as a percentage of total sales have increased from 3 percent in 2007 to 16 percent in 2016 while expectations for faster delivery at times that fit around people’s busy schedules are growing. This has big implications for delivery networks around London,” says Tessa English, JLL’s Associate Director of UK Research.
As companies such as Amazon which offers a one-hour service continue to raise the bar, the city’s transport infrastructure is under increasing pressure to move not only commuters but also their online orders simultaneously. This, in turn, poses logistical challenges to retailers. “If you’re offering same-day delivery, you need to have the supply chain in place to fulfil these orders,” says English. “New solutions are needed, one example could be more collection points being set up in London around transport hubs and convenience stores used by commuters to and from work.”
Changing leisure time pursuits
At the same time, the way people are choosing to spend their leisure time is evolving. Reflecting the general consumer trend away from products towards experiences, dining out is on the up. According to Harden’s 2016 report, 179 restaurants opened in London last year, an all-time high.
“This growing interest in eating out has a stark effect on logistics,” says English. “The industries that serve these restaurants will need to process all the goods going to the restaurant through a warehouse and this is creating further demand for industrial space in and around London.”
A similar scenario is playing out within third-party food delivery. Deliveroo’s so-called ‘dark kitchens’ are cooking spaces provided by the company and used by multiple restaurants to serve the delivery market alone. Demand for these being concentrated in densely populated areas where industrial stock is limited and rents are rising.
Consumer spending within the leisure sector is also increasing. The sector accounted for £117 billion in 2016, growing twice as fast as retail and attracting 1.5 times more discretionary spend.
“In particular, people are spending more time and money on health and wellness,” says English. Trampoline halls, for example, are opening up across the city, and CrossFit—a branded exercise club—is already well-established. “These activities often require large warehouse-type spaces, and this demand directly impacts the industrial market.”
Taken together, these trends translate to increased demand for warehousing space in central, accessible locations, from both the logistics and industrial sectors as well as the leisure market. Supply, however, has decreased: Since 2002, over 1300 hectares of London’s industrial space has been lost to other uses, including residential.
“London is a highly polluted and congested city,” says English. “If you have a warehouse in the wrong place, traffic could hamper your whole supply chain.” Environmental targets are also an increasing concern for companies, a factor which can feed into warehouse location decision-making.
New thinking for new times
In response to the challenges posed by modern consumer habits, logistics firms and retailers are turning to a range of solutions. “Consolidation centers allow companies within an industry to share storage space and resources, usually under the operation of a third party logistics provider (3PL), which can reduce localized traffic and improve supply chain efficiency,” says English.
Multi-level warehousing is another option. “Intensifying industrial space—building up instead of out—is a smart way to circumvent the limits of urban land,” says English. This concept is already being rolled out in densely populated cities across Asia. In Europe, Paris’s 18th arrondissement is home to a new ‘logistics hotel’, which optimizes efficiency through a multi-storey layout.
Meanwhile, gathering and analyzing big data is providing companies with valuable insights on which to base location decisions. Companies can leverage digital information about their customer’s orders and cross-reference it with variables such as congestion, to work out the optimal site for a warehouse. Indeed, while technology is a huge part of the solution, it is also a key driver of modern logistics challenges.
“Technology will keep adding levels of convenience, transforming our behaviour, expectations, and priorities,” English concludes. “And as London becomes even more fast-paced and people expect their goods and services on-demand, the appetite for industrial space among logistics firms, retailers and leisure operators will continue to grow.”