Third-party logistics operators (3PLs) are gobbling up warehouse space like there’s no tomorrow. They account for 35% of all spaces transacted in 2019 – massively up on the more typical 19% share they have had in recent years, according to Savills.

Online retail has been growing steadily and now accounts for close to 20% of the overall retail market…it is difficult for retailers to stay on top of everything and to be periodically investing in this software or that racking system, agrees Colin Steele, partner and head of business space at property and planning consultancy Rapleys.

Uncertain outlook

The sheer uncertainty retailers dace is a further factor inducing them to limit their longer-term commitment and to instead rely more on 3PLs, says Steele. Typically, 3 PLs look for commitment of up to three years, with break clauses, he says.

‘Shorter leases are what the market was wanting anyway and the 3PL approach is an extension of that trend,’ he adds. ‘Retailers are finding it difficult to justify signing up for 10-year plus leases. Even three years is a longer-term position for them now.’.

Onerous lease commitments on balance sheers are a further disincentive for financial directors in retail and manufacturing. ‘If a property becomes surplus, you have to make provisions for the full liability of the lease,’ explains Steele. ‘On some buildings, that can blow a massive hole in someone’s P&L. It’s a major mind-focuser for finance directors.’

However, given the significant demand for space, landlords are in a position to resist demands for shorter-term leases, says Steele, further strengthening the hand of the 3PLs and encouraging their customers to grow their business with them. ‘If anything, I think lease lengths have been edging out and incentives have been shortening.’

‘Another factor in the 3PLs favour is that traditionally logistics requirements tend to come up very quickly in what is a relatively short procurement window. There is a temptation to give the problem to the 3PLs to sort out.’

Growth begets growth. The 3PLs’ greater buying power and familiarity with landlords and developers means they can do multiple deals as well as fast-track construction. ‘Development has been been as quick,’ says Steele. ‘You have very slick procurement now.’…

For the full article go to Property Week (27/09/2019).

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