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Black Friday Warning: Real Estate Needs To Beware A Logistics Sector Shake-Up


Eddie Stobart is a trucking legend. The haulier is one of the handful of household names the UK logistics and supply chain sector has produced.

Yet Stobart is in deep trouble. Half-year losses were £12M, and the business is haemorrhaging capital. Last week a deal was agreed with the DouglasBay Capital III Fund, managed by DBAY Advisors. The new owners will provide £55M of new funding bringing much-needed liquidity.

Stobart is by no means the only supply chain business to feel the squeeze as its retail customers push already microscopic margins (under 1%) even further down. 

Yet at the same time as occupier prospects look difficult, confidence among landlords in the logistics property business could hardly be higher. Last week’s hotly denied speculation that U.S. private equity giant Blackstone was getting cosy with UK developer Segro follows a spate of big-money-meets-impressive-portfolio tie-ups involving Gazeley, Panattoni, Tritax and DB Symmetry.

As Black Friday looms, with its blizzard of online deals and promises of free returns and 24-hour delivery, these conflicting pressures (online is the future vs. supply chain cost pressure) come into sharp relief.

So should real estate dial down its confidence in the logistics sector? Is the long-term transition from high street retail to online delivery masking the dangerously acute short-term problems created by unaffordable supply chains and unrealistic delivery demands?

Is the logistics property sector living through its own version of the office market’s romance with coworking and flexible workspace, one in which the long-term trend toward agile working distracted attention from the (now obvious) fact that WeWork’s claim about its business model didn’t quite add up?

In short, are the tenants actually able to pay the rent?


Talk to UK Warehousing Association Chief Executive Peter Ward and it is clear that the logistics sector is not in the fine health that logistics property investors like to think it is.

“We’re seeing a spate of mergers and acquisitions among the logistics operators,” Ward said, pointing to deals such as CMA CGM’s acquisition of CEVA Logistics  and  Clipper, which is considering a bid from U.S. private equity house Sun European Partners.

"Contract logistics providers, freight forwarders, everybody is looking around and it is one of the classic consequences of economic problems, because these kinds of deals do not happen when things are going well,” Ward told Bisnow.

“The M&A activity is symptomatic of uncertainty, and huge competition in the sector, and the search for economies of scale. It is the classic defensive merger, where two plus two equals three. And the cause is something we’ve been crying out about for ages, which is margins of less than 1% which makes it very difficult to survive.”

Factor in labour shortages pushing up costs, the cost of investing in robotics or AI, and the fact is the logistics sector can’t afford it, Ward added. It doesn’t have the wherewithal to invest thanks to the madness of next-day delivery and free returns for online shoppers. "Margin erosion is still going on and it has to change. The Stobart situation is a classic example of what happens when you push margins too far.”

The extent of the problem is revealed in research from Cushman & Wakefield. Its Last Link logistics report shows the last link of e-commerce supply chain accounts for 50.3% of total supply chain spend (property, for comparison, was 4.3%). Reducing the drive time between the urban depot and delivery point, or ‘STEM distance’ to 10 minutes or less can save serious money. Cushman said an average-size urban depot that controls its STEM distance generates a saving of €1M per year. Autonomous vehicle technology could also cut costs sharply.

Unfortunately the hard-pressed logistics sector will not be allowed to bank all of the gains because the property industry sees the last-mile sector as a potential cash cow.

“We expect rents for urban depots to increase significantly across major European cities as logistics hubs develop further," Cushman & Wakefield researcher Lisa Graham said of the data. "Strong rental growth potential for last-link depots now puts logistics in the same revenue ballpark as traditional urban land uses.”


Logistics is the new retail, or so the saying goes. That is certainly the fervent hope of those many big names pouring capital into the UK logistics property sector.

According to Savills National Head of Industrial and Logistics Richard Sullivan they are almost certainly right in spotting the long-term trend. What they may have undervalued is the risk of short- and medium-term upsets before we get there.

Sullivan said the logistics operators, and logistics developers/investors, are both seeking the benefits of scale and volume. For operators, M&A activity offers a better chance of consistently achieving margins, he said. For developers/investors the creation of global platforms offers massive opportunities.

“Landlords and investors absolutely should be worried about what is happening to logistics operators, because you simply don’t have a viable real estate proposition if you don’t have an end user with the long-term ability to pay the rent,” Sullivan said.

“There will have to be adjustment somewhere, and ultimately retail consumers will probably end up paying in some form or other. If everything wasn’t in turmoil in the retail sector, I think that pressure for adjustment would be more acute. But for now the conundrum that is last-mile delivery is being paid for by delivery businesses, not by consumers.”

Online retail is still going to grow, but this is not a pleasant time for retailers or for their supply chain partners, Sullivan warned. They are adapting their business models and gradually over time their strategies will pay off, but there is a high risk it won’t for some participants. There may well be some casualties, he said.

It would be grossly overstating the problem to say the logistics property world was living in a fool’s paradise. But supreme and justified confidence in the long-term future of logistics property can (and should) co-exist with supreme caution about today’s retail and supply chain business models. Whether it in fact does will only become clear when the first big logistics firms go bust.