Home >Blogs>Simon Duddy >Weird scenes inside the goldmine

Weird scenes inside the goldmine

22 February 2022

THIS ISSUE we take look at warehouse property, an investor’s goldmine driven equally by the insatiable demand for space caused by eCommerce and scarcity caused by lack of space and tight planning laws.

Brokers speak in hushed tones about the unprecedented weight of capital being brought to bear on the market. While some of this money is used to fund new build, much simply inflates the value of existing stock. This in turn compresses yields for owners, who move to compensate by cranking up rents. So while it sounds like a good thing that money is pouring into our sector, it isn’t necessarily going to make things easier for occupiers. In fact, it’s likely to add considerable cost, and at a time when warehouse worker wages are on the rise too. Add to this the recalculation of business rates due next year, which is likely to increase the rates that apply to the burgeoning logistics sector and the cost of doing business in the logistics space could rise significantly. This could lead to a significant drag on economic activity and further price rises for the consumer.

Perhaps we can see a precedent in the housing market, where the golden ticket of scarcity and demand has consistently pushed house prices up for decades, even as the economy ebbed and flowed and wages stagnated. In short, it’s good news if you are sat atop that weight of capital as a warehouse owner. Not so great if you are under that weight, as a warehouse tenant. We predict this will lead to a profusion of warehouse space optimisation tactics, from temporary buildings to mezzanines and much more.

Smart move for Ocado?

Ocado has refreshed the technology behind its landmark Ocado Smart Platform. Cleverly, Ocado is using this to broaden its strategic options in the face of stiffer competition than it has ever faced in the warehouse automation for grocers market. Q-commerce and micro-fulfillment are both a threat and Ocado has responded by adjusting its tech in an attempt to counter this. For example, its new robot is much lighter allowing it to cut construction costs and time to install.

It has also unveiled the idea of the ‘virtual regional distribution centre’, basically using local warehouses, linked by software, to back each other up. It remains to be seen how this will work. Computer storage virtualisation works well because software is able to track bits of information stored across disparate locations and instantly recall stored data to the point on a network where it is needed. Fleets of vans on the road network are not bits of data on a broadband connection, however, and it remains to seen how efficiently different warehouses can realistically coordinate to the extent that each has impressive range without the cost of a shared RDC.