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London last mile warehousing demand rising

21 March 2024

New research by last mile specialist developer Valor says more than a third of Londoners buy their groceries online nearly four times as much as the national average putting increased pressure on the Capital’s last mile delivery infrastructure.

By Liza Helps Property Editor Logistics Matters

ACCORDING TO a survey of 4,000 people in London on their grocery purchasing patterns, 40% buy groceries online at least once per week with almost half the basket sizes between £40 – £99. A further 61% want groceries next day or quicker.

Valor Head of Research Qiong Xu, said: “Our research suggests that the proportion of food purchased online is significantly higher in London than national data suggests, and with grocery spend being largely non-discretionary we can expect these online channels to continue to grow despite economic headwinds.”

The Office for National Statistics reported that just 8.8% of food retail sales (by value) were online at July 2023.

Xu added: “Despite the challenges posed by higher inflation and consumers’ return to brick-and-mortar shopping, the online channel continues to demonstrate resilience, with consumers blending their online and offline shopping behaviours.

“Consumer behaviour and the preference to buy more goods online is shaping how cities develop and is creating more demand for critical last-mile infrastructure. In order for grocery retailers to meet consumer expectations around deliveries it is vital they have the right distribution facilities in the right locations to complement their store portfolios. The primary cost in fulfilling orders is transport but well-located last-mile facilities reduce vehicular miles and reduce the carbon cost, which is increasingly important to the conscientious consumer.”

The continued growth of online grocery channels and expectations around rapid delivery is underpinning demand for specialist last-mile distribution facilities in London, particularly in East London sub-markets that are experiencing rapid population growth and locations that offer excellent road connectivity.

The need for new development to meet this growing demand is increasingly acute. Valor estimates e-commerce revenue growth will require 187 million ft2 of additional logistics demand in the UK between 2023 and 2027 including 42 million ft2 n the Noth and South Circular corridor. To satisfy this demand alone, a 7.2% year on year increase total would  be required  versus a current annual growth rate of just 0.43%.

These figures are not going to get any smaller when you take into account that London is set for growth.  A Centre for Cities report out this week notes that during 2020-21, the most Covid-affected year, London saw abnormal out-migration to the rest of England and Wales, and it was this that drove the decline in London’s population with around 191,000 people leaving the capital - 88,000 more than in a normal year. However, the same research notes that this has now reversed with six out of the 10 absorber Inner London boroughs, with net inflows in 2021-22 that were higher than the five-year pre-pandemic average. Data is not yet available up to 2023 but, combined with the recovery in migration from abroad, London’s population had almost returned to its pre-pandemic peak by mid-2022 and is now likely to be well above it.

Andrew Carter, Chief Executive of Centre for Cities, said: “While there was a ‘race for space’ during the pandemic, this data shows it to have been short lived. The population dip during Covid was considerably smaller than the figures in the hundreds of thousands that some predicted.

“The big challenges associated with London remain. London’s infrastructure is creaking under the weight of its population. Policymakers have to shake off any assumption that population changes mean questions over the housing shortage and infrastructure will solve themselves.” And that is particularly true of the Capital's  logistics space.