Future Series: Logistics (May 2021) by James Bompas

Iceni Projects

Industrial & Logistics

www.iceniprojects.com iceni-projects iceniprojects iceniprojects

MAY 2021

Future Work Series Industrial & Logistics

The Big Messages Future Series: Industrial and Logistics The Importance of Sustainability is growing, fast. From electric vehicles to on-site energy generation, it is driving game-changing innovation.

Power is king. The scale of operations and level of automation has high demands.

Jobs are changing and consolidating. The outlook is for increasingly technical skills.

Logistics is a people sector. Staff wellbeing is recognised as central and the logistics workplace is responding.

The planning system is an unwanted handbrake. Warehousing is a part of our critical infrastructure and needs treating as such.

Future Work Series Industrial & Logistics

Executive Summary Future Series: Industrial and Logistics The logistics industry has had an extraordinary 12 months. It has seen an explosion in demand fuelled by online retailing and has managed to respond well to lockdowns and restrictions on movement.

It should be celebrated that the UK logistics sector is so very robust and that it has been so resilient and quick to pivot. However, the pace of change shows no sign of slowing as we exit the pandemic, with current retail patterns reflecting a fast forward of trends rather than a paradigm shift. The need to be sustainable is also gathering tremendous momentum and is being driven both by institutional investors and the consumer. Encouragingly, the push towards enhanced sustainability is beginning to translate into values. COVID-19 has also shone a light on society’s wellbeing, and the importance of our workspaces in keeping us healthy. Workers’ conditions have historically made headline news – for all the wrong reasons. The logistics sector is rapidly evolving to provide better amenities for workers, include more highly skilled jobs, and logistics parks are consolidating to incorporate the wider needs of a business. Workers’ conditions are also being enhanced by the use of AI, robots and smart buildings. And, as a planning-led multi-skilled consultancy, we considered it essential to consider what these changes mean for the planning system. Many respondents talk about delays with the plan-making process and that the logistics sector is seemingly given less importance than housing.

Our Research Iceni Projects has a strong awareness of the UK logistics sector and is fortunate to be working with some of the best-in-class to deliver new projects in England, Scotland and Wales. Iceni Projects interviewed 15 senior executives in the industrial sector to specifically examine the future sector trends. This was supplemented by a questionnaire that was electronically distributed in early May 2021 to the 27,269 readers of our weekly email. Our research has found the following trends: Sustainability is coming, fast. Power is king. Jobs are changing and consolidating. Staff wellbeing is essential. The planning system is an unwanted handbrake.

This report provides a bitesize assessment of the logistics sector and forms part of a wider series of research that looks at the future of our property sectors.

Future Work Series Industrial & Logistics

Introduction Future Series: Industrial and Logistics The pandemic has had a profound impact on the movement of goods and services in the UK. The last 12 months have demonstrated that the logistics sector is an essential contributor to the health and wealth of the nation.

It has become a central part of our critical infrastructure. For consumers that have not historically had a preference for online services, many have been forced to adapt as a result of lockdowns. And, for many, they have found it to be simpler, faster and cheaper. It is now estimated by the Office of National Statistics that the proportion of UK retail sales conducted online hit a record high of 36 per cent in January 2021. COVID-19 has undeniably been the biggest single cause of change within the sector. However, it is not the only factor. Changing consumer preferences (demise of the High Street, online shopping); changes to trading relationships (Brexit, Freeports, the levelling up agenda and US-China trade wars); and technological changes (automation, rapid order fulfilment) are all influencing the sector. For many involved in the logistics industry, five-year Business Plans have been implemented in two years. Our research has found that the areas in greatest demand are urban locations that have minimal restrictions around vehicle movements and, at the other end of the spectrum, for warehouses over 100,000 sq.ft. Logistics is a low margin affair which is why it needs to operate at large scale. Research points to the South East and East Midlands that are currently most in demand, capturing nearly half of the UK take-up. In London, industrial land has been forced to make way for new homes with 2,000 acres being lost in the last year nine years.

Future Work Series Industrial & Logistics

Which of the following are you applying to logistics projects?

REUSE OF RACKING

RAINWATER HARVESTING

69.2%

86.7%

PHOTOVOLTAICS

EV CHARGING

93.3%

100%

ON-SITE BATTERY STORAGE

FUTURE-PROOFING, E.G. PARTITIONING

66.7%

57.1%

Yes

Sustainability Future Series: Industrial and Logistics Sustainability is here to stay. It is far more than a buzzword and the pace of change continues to accelerate.

The need to change is largely being driven by the institutional funds who are experiencing a change in investment criteria. Our research also suggests that approximately 70% of the operators want to improve their position with regards to sustainability. THE SUSTAINABILITY CREDENTIALS OF A WAREHOUSE ARE IMPORTANT TO OCCUPIERS STRONGLY AGREE

AGREE

NEITHER AGREE NOR DISAGREE

DISAGREE

This focus on the generation and storage of electrical power is a key theme explored in more detail below.

What Are the Barriers To Sustainability? Cost has traditionally been the biggest barrier. The decision-making process continues to be about money, rent, values and length of tenancy. However, increasingly, given that values in the sector are adapting and whilst the costs associated with sustainability are higher than “traditional” buildings, this is leading to more marketable sites and, in some instances, better yields. INVESTMENT IN SUSTAINABILITY SUPPORTS INVESTMENT RETURNS

STRONGLY DISAGREE STRONGLY AGREE

AGREE

Approaches to Sustainability The push towards sustainability is something companies want to publicise – and make visible. For example, the delivery of a wind-turbine is given greater priority than rainwater harvesting, due to its increased visibility. Our questionnaire indicated that most respondents considered the use of photovoltaics and EV charging to be the most important approaches to sustainability. Some within the logistics sector are looking to generate and store power on-site to future-proof sites as access to power becomes critical to business continuity and the grid cannot keep up.

NEITHER AGREE NOR DISAGREE

DISAGREE

STRONGLY DISAGREE

Sustainable technology is new and continually adapting. The logistics sector is innovating hard, learning through trial-and-error about what works best. As an example of this, the industry is experimenting with substitutes for steel and cement to reduce the embodied carbon of buildings and construction processes.

Future Work Series Industrial & Logistics

Electric Vehicles The sector is quickly responding to environmental harm caused by our online buying habits. Consumers are increasing being asked to group orders, such as Prime Day or accept delivery slots that maximise driver journey efficiency and costs. The final journey from warehouse to customer is a fraction of the journey a product makes from factory to door but can account for up to half the cost. Many “last mile” delivery companies have invested heavily in electric vehicles, which is accelerating in many cities who are discouraging diesel vehicles and increasing measures to reduce congestion from commercial vehicles. Further information on the sustainable “last mile” can be found here. For national and European movement of goods the future is less clear. A lack of power and vehicles with sufficient range causes a challenge. This could see HGVs transitioning into compressed natural gas or hydrogen. What has yet to be determined is whether “quiet” zero carbon vehicles will change attitudes around planning restrictions, such as hours of operation. The future launch of autonomous vehicles will also aid this transition. WHAT IS THE MAIN CHALLENGE FOR THE ROLL OUT OF ELECTRIC VEHICLES? PLEASE PICK ONE LACK OF POWER

LACK OF VEHICLE RANGE

LACK OF CONSISTENT TECHNOLOGY

LACK OF VEHICLE CHOICE

Notwithstanding the advances being made in vehicular sustainability, the sector remains reliant upon global supply chains which are heavily timesensitive, which places ongoing reliance on aviation. So, what next? Delivery by robot and perhaps drone? This raises interesting questions about airspace over our urban areas, and associated impacts on noise and privacy. Alternatively, will the future look a lot like the past? People, vans and bicycles with technological assistance?

Future Work Series Industrial & Logistics

How important do you think the following are in delivering a successful largescale industrial and logistics scheme? SPORTS FACILITIES, E.G. TRIM TRAIL, GYM Avg. Rating 3.5

 Less Important

More Important 

ON-SITE CANTEEN Avg. Rating 6.6

 Less Important

More Important 

CRÈCHE Avg. Rating 4.7

 Less Important

More Important 

MOBILE SERVICES, E.G. BANKING, DENTIST, HEALTH CHECK-UP Avg. Rating 3.8

 Less Important

More Important 

OPEN SPACE, E.G. PICNIC SPACE, NATURE WALKS Avg. Rating 5.8

 Less Important

More Important 

SOCIAL SPACE, E.G. TV ROOM, PHONE CHARGING, GAMES ROOMS Avg. Rating 5.4

 Less Important

More Important 

People and Skills Future Series: Industrial and Logistics People

An Enhanced Workplace Offer

Shortage of labour supply is a significant issue. There are approximately 2.5 million people employed in the logistics industry. Brexit, COVID-19 and low levels of unemployment has made it challenging to attract staff. The sector is also extremely competitive, with new entrants continually emerging. The London Chamber of Commerce advised of an acute shortage of drivers in London and an unwillingness by some companies to train HGV drivers due to the £7,000 cost per driver. This trend is evident at the national level, with a driver shortage of 76,000 people.

The employment offer has needed to evolve to retain people – and evidence suggests it is working. Employment space now includes wellness facilities, areas for staff to relax, crèche facilities and games areas.

THERE ARE LABOUR SHORTAGES WITHIN THE LOGISTICS SECTOR

Many logistical warehouses are in out-of-town locations, making it harder to pop out for lunch, visit the bank or attend a health appointment. The response to this has been the creation of “parks” rather than individual standalone industrial units to include pop-up healthcare and banking. The need for open space is also increasingly important. This space is progressively moving beyond the five-aside football pitch to now include trim trails, picnic space, outdoor cafés, allotments and wildlife parks providing biodiversity net gain.

STRONGLY AGREE

Automation and Artificial Intelligence AGREE

NEITHER AGREE NOR DISAGREE

DISAGREE

STRONGLY DISAGREE

The mix of employment opportunities is evolving through greater consolidation. Traditional manual jobs are being more automated and more office-based jobs are being introduced. It is increasingly common to co-locate call centres, administrative support and finance in logistics centres. And, because of this, the design of warehouses is changing to have more of a campus feel. The “us” and “them” attitude is disappearing with a visual connection between the office and the warehouse elements. Design is helping to create a “one team approach”. The sector still needs to diversify. The logistics sector is dominated by people who describe themselves as ethnically white (89.8%) and male (86.3%). The number of women starting technical and engineering transport apprenticeships is just 12%.

Delivery models are becoming more complex and non-linear. Being able to respond to returns and stock movements is critical. This is necessitating the need for technological solutions. Companies such as Clipper Logistics who specialise in stock management, picking and packaging have seen a near 200% increase in share price over the last 12 months. Many logistics centres now have a requirement for a data centre, and, again, this has a requirement for power. Our research suggests that increased automation is not (yet) leading to a loss of jobs in the sector. Instead, traditional unskilled warehouse jobs are being converted into engineering and maintenance jobs to support increased levels of automation. A number of logistics operators are supporting this process through collaboration with training institutes to upskill workers.

Future Work Series Industrial & Logistics

Planning Future Series: Industrial and Logistics The Pace of Plan-Making The pace of local plan-making and advancement in the logistics sector are out of kilter. Local Plans that have been adopted in the last 12 months do not respond to the issues facing the industry, such as automation – that’s before you factor in Local Plans such as York (1954) and St Albans (1994).

With employment land in short supply, the sector is going to need to get creative. In April 2021, it was reported that British Land was purchasing retail parks in response to a shortage of traditional warehouse space. This has included the £48 million acquisition of a retail park in Bedfordshire.

A Bias Towards Homes

Power

In interviewing industry leaders, it is apparent that the planning system is regarded as non-supportive. Many point to examples of new homes being favoured over the delivery of new jobs and that existing industrial areas are being squeezed to change. The loss of employment land in urban areas means the need for longer vehicle and less sustainable movement patterns, as logistics locations are forced into more remote locations. There is a chronic lack of quality industrial supply in our biggest cities.

As stated above, logistics centres are increasingly reliant on the electrification of vehicles and automated picking and packing technology. Combined with the need for more data centres and increased workforce consolidation, this means that logistics sites have an insatiable appetite for power. Sites that are allocated for development within Local Plans that do not have economic access to enough energy to support them both now and in the future, are unlikely to be developed without investment in infrastructure. Local grid capacity searches and grid enhancement analyses are key to informing the viability of new sites.

Public Opposition Whilst the demand for logistics-related industries has soared there is a NIMBY mindset also developing in urban locations. Opposition groups are increasingly challenging vehicle movements and, in turn, matters relating to safety and pollution. Effective engagement of both residents groups and local authorities is needed to demonstrate how urban logistics centres operate, and that electric vehicle solutions will not have a detrimental impact on local air quality.

Flexibility In terms of operational space the key is flexibility. For the customer, and the next customer. Building height is increasingly important. If you are a company with unpredictable growth rates, then it is far easier to expand upwards rather than outwards.

Onsite technologies such as rooftop PV and battery storage will help to supplement power demand. Other developers are looking to provide zero carbon power near to sites with solar farms located nearby. This has the dual benefits of a futureproof, secure power supply, together with associated low carbon credentials.

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