UK’s online expenditure challenges retailers whilst fuelling demand for logistics space

Len Rosso, Head of Industrial & Logistics for Colliers International.

UK total online retail sales for November and December 2019 are likely to exceed £20 billion for the first time, bolstering demand for retail-related logistics space for occupiers to cope with quick turnaround deliveries throughout the year and the festive season, according to Colliers International.

For 2019 to the end of September, 55 per cent of overall industrial lettings for large distribution warehouses greater than 100,000 sq ft has been for bespoke design and build hubs to cater to the growth in quick turnaround deliveries, boosted by online shopping. Q4 provisional activity reflects this trend which will persist into 2020.

A combination of Black Friday and Cyber Monday sales from November, plus continued wage growth in the economy and the Christmas season means that shoppers are set to buy online in unprecedented numbers, representing around 23% of total shopping spend across the UK during this period.

Len Rosso, Head of Industrial and Logistics at Colliers International commented: “Over the last five years, demand has increased among retailers and third party logistics providers looking to secure bespoke larger warehouses. Online customers have become accustomed to fast shipping, and more sophisticated parcel courier services offering last-mile, same day and next day delivery, forcing retailers and parcel couriers to invest significantly in future-proofing their supply chain operations.

“To meet this online demand, retail occupiers are now willing to pay a premium to fulfil their logistics requirements so they can be ready to cope with the rush resulting from peak periods.”

Andrea Ferranti, Head of Industrial and Logistics Research at Colliers International added: “The success of a retailer’s online strategy is closely linked to the distribution sector and supply side functions, hence why we have seen strong level of take-up nationally for both large distribution warehouses and urban logistics space to cope with increasing demand.

“In the past, a supply chain was primarily designed to serve store networks. Nowadays, online demand and the associated logistical needs can be make or break for retailers.”

Colliers’ analysis shows that when it comes to free shipping and returns, costs around last-mile and next day shipping are increasingly challenging the sustainability of a retailer’s business model. More often than not, these costs are absorbed by retailers as they compete to provide a better shopping experience and capture increased online customer spending.