By Bruno Berretta, Associate Director, UK Industrial & Logistics Research & Insight
Logistics is the latest property type to be disrupted to some degree by the on-demand economy, following in the footsteps of the office, hospitality and residential sectors.
An emerging concept is on-demand warehousing, which enables companies to trade unused space on flexible contract terms (with no leases attached) through a digital marketplace. While this type of service is not new – many 3PLs already provide storage and logistics services on a flexible basis – technology removes much of the “hassle” of finding and negotiating with a suitable business partner.
Flexe, Stowga and the others
Pioneered by Flexe, founded in 2013 in the US, this concept is making inroads on this side of the pond, where Stowga is scaling up its business. According to Stowga, the average occupied warehouse is 75% used. This gives an indication of the amount of spatial capacity in the market. In addition to storage capacity, these on-demand warehousing platforms also offer logistics services on behalf of their clients, many of whom are 3PLs and therefore already “know the drill”.
Demand and supply
On paper, on-demand warehousing appears best suited to occupiers with small but highly-variable demand, such as emerging e-commerce retailers, who do not necessarily have the resources to build their own supply chain, or can ill afford to tie-up capital in long leases, whilst at the same time requiring flexibility. In many cases, until now, this demand has been captured by Amazon and crystallised into its fulfilment centres.
Evidence shows this model can cater for larger occupiers as well, to handle unexpected events or peaks in demand. In the UK, it was reported that Stowga was instrumental in solving the “chicken crisis” which followed a failure in the KFC supply chain. In the US, Iron Mountain, a record management company, turned to Flexe to monetise excess space resulting from the shift in document storage from paper to digital.
In terms of supply, on-demand warehousing makes space available that in many cases would not otherwise have been marketed. Potentially this will lead to a modest increase in total market supply, although this ‘grey’ space will not necessarily suit all types of occupiers. Unlike similar concepts, such as Airbnb which competes directly with other players within the hospitality industry, this flexible warehouse space is not in direct competition with longer leases which guarantee operational certainty and are generally more cost-effective.
Recent partnerships, such as Stowga and Gazeley’s tie-up in the UK, show that the developer/investor community has taken note and it is possible to see the value for landlords in having access to additional occupancy metrics, not least to predict demand for traditional space.
But how could on-demand warehousing evolve in the future? What happens in the US is often a good indicator of what might happen in the UK and Europe.
Last year, Flexe began to offer next-day delivery services for e-commerce companies, effectively competing with Amazon. This year, the same provider has integrated its platform with Shopify, an online marketplace, offering e-fulfilment capabilities to merchants selling through this platform. This move has been seen as an attempt to attract online retailers which are unwilling to provide Amazon with precious customer/sales data as a prerequisite for using its sale and e-fulfilment channels. Potentially, we could see online warehousing and retail marketplaces joining forces on this side of the Atlantic as well.
In the event that on-demand warehousing becomes mainstream, it will also be interesting to see whether occupiers begin to adjust their traditional property requirements, knowing they can accommodate seasonal overflows through on-demand solutions. This would counter the current trend which, driven by the rise of mega e-fulfilment centres, has resulted in the average logistics transaction size in the UK increase steadily over the last five years, from 135,000 sq ft in June 2013 to 163,000 sq ft in June 2018.
What can be stated with greater certainty is that new warehouse-related technology platforms, including on-demand warehousing, are bringing greater efficiency and visibility to the sector, ultimately helping occupiers make better use of their space.
In the meantime, the logistics sector will continue to look with interest at the growth of on-demand warehousing.