Time to Deliver: Geography, home delivery and value
Julian Roche Chief Economist
The principle of time and value In the past, geographers and urban planners reckoned that residential locations closer to the Central Business District (CBD) were generally more valuable. The theory was called the bid-rent curve1. Here it is in graphical form—it uses a formula based on the distance from the city centre after ‘curve’.
RENT = 1/S
1 km
5 km
10 km
S = 3.14 S = 75.40
S = 235.62
Source: Transport Geography (2020)2
There were some complications—irregularly shaped and multiple urban hubs as well as poorly planned road networks rendered the calculation much more complex, but generally it held approximately for most cities—certainly it was true for the UAE, Saudi Arabia and other Gulf countries. So long as people needed to commute to work, the CBD reigned supreme, and deliveries to homes were very occasional – it was a winner of a theory.
The Value of Distance However, several factors are now militating against its relevance. Working from home is probably the most significant long-term factor, but another is increased deliveries to homes. The vast majority of such deliveries are by road. Road times from warehouses (TFWs) are therefore the most important contributor to any new supplement to the theory. Already, data from firms such as Tom-Tom are the basis for traffic performance analysis by location. Further, retail players like Carrefour have taken their own steps to identify specific areas within Dubai, where they will make deliveries3.
1
2 3
Alonso, W. (1964) Location and Land Use. Cambridge, MA: Harvard University Press. 1964 Available at: https://transportgeography.org/?page_id=4934 Retrieved 27 May 2020. Carrefour (2020) Groceries. Available at: https://www.carrefouruae.com/mafuae/en/groceries Retrieved 27 May 2020.
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TIME TO DELIVER: GEOGRAPHY, HOME DELIVERY AND VALUE
Delivery by air using drones is also now closer to reality. Subject to legal flight paths, tight regulation, and with blockchain and Internet of Things helping to smooth the airways4, drones will steadily augment, and change, the Value of Distance (VoD) of different developments. A lot is already happening5. Project Wing, a GoogleX project, is an autonomous delivery drone service which had the green light to test deliveries last year in Australia6. The UAE is well ahead in the queue of countries for such services to go operational. Geographic Information System (GIS) data based on traffic can therefore be supplemented with a series of drone-from-warehouse (DFW) estimates. These airborne DFWs will be more reliable than road travel time estimates as they are not subject to intra-day fluctuations caused by congestion. Any given location will have a range of DFWs, each associated with the nearest smart warehouse of relevant distributors and vendors. Take a weighted average of TFW and DFW data based on projected consumption of different commodities by the average resident in a given development, projected over time by delivery method, and discounted appropriately, and there is the basis for a contribution to a 21st century supplement to traditional concepts of the bid-rent curve. Welcome to Value of Distance (VoD). Here in graphical form where: WH is the Warehouse W is the weight determining the relative importance of each warehouse
W3 W3
WH1
ins
12
W2 W2
60 m
m
in
s 14
35 mins
8
ins
20 m
12
W4 W4
WH3
m
in
s
m
WH2
s min
in
s W1
W1
WH4 30 mins
(
The resulting equation 1 to determine + 1 30 W4VoD: + 1 60 W2 + 1 8 W1 35 W3DFW VoD = X% TFW + (100-x)% where: X% is the relative importance of road versus drone transport TFW = [(1/35 W1) +(1/60 W2) +(1/30 W3) +(1/8 W4)] DFW = [(1/12 WH1 W1) + (1/14 W2) + (1/20 W3) + (1/12 W4)]
(
Source: Cavendish Maxwell 4
IoDLT (2019) The Future of Drone Delivery Systems - NEM Catapult & IoT. Available at: https://www.iotforall.com/drone-delivery-
system/ Retrieved 27 May 2020. 5
For an overview, see Kellermann, R. et al. (2020) Drones for parcel and passenger transportation: A literature review. Transportation
Research Interdisciplinary Perspectives 100088 Available at: https://www.sciencedirect.com/sdfe/reader/pii/S2590198219300879/pdf Retrieved 27 May 2020. 6
LaMonica, G. (2019) ‘Project Wing’ Could be Delivering a Package to Your Doorstep Very Soon.
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TIME TO DELIVER: GEOGRAPHY, HOME DELIVERY AND VALUE
Capturing future value Cavendish Maxwell is among those firms that is combining GIS traffic and DFW data to assess actual VoD for a number of different residential developments, and even the attractiveness of some office locations. It is a complex balance of competing factors:
Current and future road development plans. The UAE is exceptionally good at announcing and adhering to its transport masterplans. Not all countries are equally effective, which makes the UAE a good place to start. The impact of congestion, even around the development itself. The ‘last mile’ problem has a significant potential impact on VoD. At what time during the day deliveries are required makes a big difference to how long they take to get to their destination. The pace of regulatory and technical development for drones throughout the UAE and the Gulf in general. The US Federal Aviation Administration (FAA) 7 previously underestimated the rate of adoption but authorities everywhere are now assessing the very different market of 2020. How organisations such as Amazon, Talabat, the UAE Department of Health and Careem are developing their delivery strategies. This also depends on drone delivery capacity: The delivery drones of Uber Eats (now Careem) had a range of around 29 km and could achieve speeds of over 100 km/hr, subject to regulation. Development will also depend on the availability of suitable drone landing sites, not only at points of delivery but also warehouses themselves.
Conclusion The bid-offer curve never explained everything about value, and nor will VoD. But there is mounting evidence that it is playing an increasing role in determining value. Developers will be well advised to take advantage of the new models being developed as they determine their future choice of development locations. Brokers will likewise want to use VoD as a selling point for purchasers and tenants alike.
7
FAA Aerospace Forecast 2019-2039. CBN News [on line] 15 November 2019. Available at: https://www.faa.gov/data_research/
aviation/aerospace_forecasts/media/FY2019-39_FAA_Aerospace_Forecast.pdf Retrieved 27 May 2020.
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TIME TO DELIVER: GEOGRAPHY, HOME DELIVERY AND VALUE
DUBAI
ABU DHABI
SHARJAH
MUSCAT
2205 Marina Plaza Dubai Marina P.O. Box 118624 Dubai United Arab Emirates T: +971 4 453 9525
605 West Tower, Abu Dhabi Mall Tourist Club Area P.O. Box 126609 Abu Dhabi United Arab Emirates T: +971 2 448 4677
1801 Sarh Al Emarat Tower Buhaira Corniche Street P.O. Box 38583 Sharjah United Arab Emirates T: +971 6 715 0444
Villa 836, Way 3012 Al Sarooj P.O. Box 3438 Muscat Sultanate of Oman T: +968 24 694 150
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