The industrial and logistics sector has long been the part of the real estate industry that has been able to proudly wave the jobs creation flag to planning departments and beyond. With each industrial unit built came a host of jobs, real labour and real income for real people.
But with the age of automation and a rise in robotics, is the industrial and logistics sector set to undergo a seismic change?
That was one of the main threads of discussion at EG’s Industrial & Logistics summit this week.
Robotics expert Chris Middleton set the scene, revealing that in China some 66,000 industrial robots were bought last year – one-quarter of all industrial robots built in 2016.
With one robot currently being able to do the jobs of 15 people, he said this equated to taking 1m people out of the industry. However, he added that for every 10 jobs replaced by automation, 2.5 new highly skilled jobs were created.
Why does this matter?
But what does this matter to the industrial and logistics market? If the rise of robotics continues, could the sector lose its employment use carrot?
Peter Ward, chief executive of the UKWA, did not think so.
“Ignore robotics at your peril,” he said, “but this is a really practical industry and we need to keep our feet on the ground.”
He said there was still a labour shortage within the sector and that Brexit would increase that shortfall.
“Technology is not the cure-all. It is not the panacea,” he said. “This industry will continue to be a very hands-on industry.”
Jonathan Wallis, development director at DB Symmetry, agreed.
“Logistics is a real jobs creator and tech is throwing away the very argument we had.
“However, automation will take years before it gets to a level where it significantly hits jobs in warehousing.”
John Clements, European development director at Verdion, said he was not seeing a fundamental shift towards automation yet and added Verdon’s clients were still demanding traditional logistics space.
“We have got to have our eyes to the future, but we have to deal with the reality of day-to-day requirements,” he said.
Marcus Madden-Smith, partner at Stephen George + Partners, said: “The vast majority of produce that we are designing is standard kit.
“That is only being challenged where there are external pressures such as land value.”
External pressures
For the last-mile or urban warehousing market, those external pressures were around intensification of use. Land in urban areas is in high demand, making prices higher than the traditional industrial hinterland.
To make industrial viable in these areas, space has to be worked harder, meaning the development of mixed-use industrial with residential, office and leisure use, multi-storey developments and, of course, automation.
To hammer home just how expensive last-mile delivery can be, John Lewis senior asset manager Nigel Harris said: “It is three times more expensive to deliver you a pair of socks than if you walked into a store and collected it yourself.”
Add in the 10m units returned to John Lewis last year, and it’s clear just how complicated and expensive last-mile delivery is, and how far the logistics sector is from getting it right.
And funding that necessary intensification of use is not easy, agreed experts.
Madden-Smith said the vast majority of lenders were sector-specific and were not yet comfortable funding mixed-use industrial assets.
“Funders are still very traditional,” added Wallis. “Until the funding market changes its attitude then the occupational market will have to morph around what is realistically deliverable.”
Verdion’s Clements also pointed to the desirability of the industrial developers and operators to build urban warehousing, or rather, lack of it.
“The margins are not viable to move closer in – especially in London,” he said. “Automation will make things more efficient but there is a limit to how close you can get to a city centre before it becomes financially unviable.”
And it was this issue around cost and funding that kept panellists at the summit largely confident that the Midlands’ Golden Triangle, with its more traditional big box units, would retain its place as the centre of the UK industrial market.
“There is always going to be strong demand in the Midlands because of the distance goods have to travel,” said Clements.
Wallis added: “A two-tier market exists now. There will always be the motorway model requirements and the intensification of uses for last-mile but there is room for both to co-exist.”
THE FUTURE IS FLEXIBLE
When it comes to the future of the industrial and logistics market, who better to have a view than the man who has developed a “Tinder for warehousing” and a robotics expert. Charlie Pool, chief executive of Stowga, an on-demand warehouse space provider, and Chris Middleton spoke to EG.
LISTEN: Robotics and Tinder: the future of UK industrial & logistics?
Pool: “As supply becomes more constrained from a lease perspective it is going to force people to think more innovatively about the space they have available.
“That means forcing them to optimise their spaces. At the same time that is happening, businesses like ours, which you can bracket under the sharing economy, are coming and are opening up people’s minds to the idea of rethinking how they use space.
“It would have been unthinkable 10 years ago – pre Airbnb – to think about sharing a warehouse with another customer who you just met online like a dating service. But, actually, we have found people are very open to that idea. Airbnb has completely normalised that.
“Rethinking your business is key. Open your eyes because in this industry the real estate side and the logistics side is a relatively slow-moving, relationship-driven, backward industry that is going to be changing and evolving very quickly over the short to medium term. It will be those companies that think outside the box that will be able to keep up and stay ahead of the competition.”
Middleton: “Data is the key in all of this. The more we gather data about how services and warehouses are being used, the more that feeds back and creates a virtual circle into how services are developed and designed.
“All businesses are going to have to become a lot smarter and the more the data they can gather, the better.
“Stop thinking in simple terms that robots are going to replace jobs and think about how these new types of technologies can make you rethink your business completely and make you do the same things a lot better, a lot more locally, a lot more efficiently and more autonomously.”
To send feedback, e-mail Samantha.McClary@egi.co.uk or tweet @Samanthamcclary or @estatesgazette
