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10.07.2008
As road congestion becomes an increasingly negative factor in the efficiency and cost of transporting goods around Britain, a new report from property consultancy Gerald Eve shows that the distribution sector is fighting back by exploring new locations, alternative methods of transport and innovative supply chain solutions.
The report, contained within Gerald Eve’s second Prime Logistics research, examines the extent of the road congestion problem, the initiatives being taken and considered, and the impact it is having on the property market.
Choice of location is a key way in which logistics occupiers have sought to avoid the most congested areas of Britain. The North and North East are increasingly benefiting from high-profile relocations by operators switching their import points from southern to northern England. Retailers like B&Q, Ikea, Asda and Tesco have all taken warehouse space in locations such as Doncaster, Hull, Teesport and Goole, giving them access to ports through which they can brings goods into the country without having to transport them across heavily congested areas in the South East and Midlands.
“The ultimate driver is to limit costs by avoiding heavily congested parts of the country,” says Sally Bruer, head of industrial research at Gerald Eve. “Occupiers locating in newly emerging markets can not only achieve operational efficiencies but may also benefit from lower rents and land values, lower wages and even government assistance. Areas of the North, North West and North East have the added advantages of significant availability of development land and a willingness of planning authorities to grant permission for such schemes.”
Such locational choices also reflect a shift in distribution strategies from a central national distribution model to a more regional model. This is having a knock-on effect on shed requirements which are undoubtedly getting bigger. The traditional view that a regional distribution centre (RDC) tends to be 100,000-250,000 sq ft is changing, with some RDCs now being accommodated within larger warehouses of over 400,000 sq ft.
Demand for larger regional warehouses has also led to more space being taken up in newly emerged or emerging areas like South Yorkshire, Cambridgeshire and the Northern West Midlands (particularly Staffordshire). Take-up of sheds in these areas is largely being driven by relocations, with inward investment accounting for almost half of all warehouses of over 100,000 sq ft taken up in South Yorkshire in 2006/2007.
Road congestion has also encouraged a number of retailers and manufacturers to switch to rail, which has the added benefit of boosting sustainability credentials. Asda, Tesco and Superdrug are among those to move goods around the country by rail, while Marks & Spencer and Danone use the Channel Tunnel to transport products to the UK from mainland Europe.
On the back of this growing interest in rail, developers are providing rail-connected warehouse schemes around the country, including a number of developments at major rail freight interchanges. ProLogis has taken this a stage further this year by winning permission on appeal for a new intermodal terminal and 2.1m sq ft distribution park at Howbury Park in Bexley, south east London, potentially paving the way for similar schemes.
However, although there appears to be a greater political will to allow major rail-led schemes, Gerald Eve has found that on the large rail freight parks, significantly less than half of occupiers actually use the rail connections at their sites. The relative cost of moving goods by rail is a key deterrent but this could be reduced by as much as two-thirds if the double handling of containers – from ship to lorry to railcar or from railhead via lorry to warehouse – could be eliminated.
Another potential solution to the road congestion problem is urban consolidation centres. Instead of using several vehicles to deliver to individual destinations within a congested area, one vehicle picks up several deliveries for different businesses from one warehouse (the consolidation centre), which is typically about 50,000 sq ft. To date, only three such urban delivery centres are operating – at Heathrow airport, Broadmead shopping district in Bristol and Norwich city centre – with a fourth to be trialled by the Crown Estate to serve businesses on Regent Street from mid-2008.
This would be the first urban consolidation centre for the capital, although further schemes are being considered in south London, west London (to serve White City shopping centre) and east London (to support the Olympic Park). Although the Heathrow and Bristol centres are reported to have successfully reduced commercial vehicle movements by up to 80%, a number of issues still need to be addressed in such plans, including whether they could be made compulsory for occupiers and how mechanisms such as reduced property service charges could be introduced to encourage use in voluntary schemes.
Looking ahead, Sally Bruer believes such centres will become more popular. “With the sustainability agenda gaining momentum, it is not difficult to imagine a rapid expansion of urban consolidation centres, particularly for those integrated in new developments. In terms of users, they are most likely to appeal to small and medium-sized retailers that do not have the economies of scale to establish their own dedicated centres.”
Other ways that have been explored to limit the impact of road congestion include:
- Moving goods via inland waterways - trialled by Sainsbury’s on the River Thames in south east London and by Tesco, which last year started moving wine imports from the Port of Liverpool by barge via the River Mersey and Manchester Ship Canal to Irlam.
- Shared journeys and warehousing, such as the shared-user facility in Corby operated by Wincanton for three disparate consumer goods suppliers. This principle could be extended to haulage operations, leading to fewer journeys and improved vehicle fill-rates.
The report also highlights the likely impact on property in ‘frontier locations’ bordering congestion charging zones in cities like Manchester, Cambridge and Bristol, where road charging might be introduced. The extra cost of travelling inside the charging zone may lead to greater demand for industrial property – and potentially higher rental or capital values – outside.
Sally Bruer concludes: “Britain’s heavily congested roads have forced the distribution industry to explore ways of combating the problem of increasing and less predictable journey times and costs. It has risen to the challenge by adapting its supply chain strategies and finding better locations, resulting in bigger regional sheds in less congested areas, often close to ports and with rail access. Developers and landlords need to be aware of the opportunities - as well as potential impact on values – that these changes may bring.”
Gerald Eve, chartered surveyors and property consultants, make or save money from property - acting for around 40% of the FTSE100 on property asset management, agency and professional matters.
The congestion report sits within Gerald Eve’s Prime Logistics research document. A 12-page extract of Prime Logistics is available on the website: www.geraldeve.com/insight/prime-logistics.aspx. A full copy of the 75-page report is available at a cost of £495; tel: 020 7333 6288.
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