Tuesday 24 April 2018

Developers go the 'Last Mile' to meet online shopping demand

An artist’s impression of a logistics unit at Mountpark, Baldonnel on the N7 in Dublin
An artist’s impression of a logistics unit at Mountpark, Baldonnel on the N7 in Dublin

Donal Buckley

Online shopping has created a demand for delivery and collection properties within Dublin's M50, decades after similar types of properties were pushed out of city centre side streets and into the western suburbs.

Interestingly, this latest trend is also providing developers with strong arguments for the rezoning of industrial land in order to also accommodate higher value, mixed-use developments.

According to property consultants CBRE, retailers and distributors are under increasing pressure to deliver consumer products and perishables into major global cities, often within narrow timeframes.

As a result, adequate delivery sites in and around urban population centres are needed to accommodate changing consumer demand patterns. The term the 'Last Mile' has become the focus of logistics operators as they target sites convenient to urban areas. "This is also known as city logistics," says Garrett McClean, executive director in the industrial and logistics department of CBRE.

"In recent years consumer expectations have changed and supply chains have been forced to adapt accordingly. Dublin is experiencing growing demand from e-commerce operators, including parcel delivery specialists and third-party logistics firms which specialise in managing all aspects of exports from one end of the supply chain to the other. Some of these entities have requirements in excess of 18,580 sq m (199,993 sq ft)," he adds.

John Carrigan of Cushman & Wakefield agrees about demand for Last Mile accommodation in Dublin and says there have been a few recent examples where developers have bought industrial-zoned land with plans to develop office, retail and residential accommodation while devoting a proportion for such city logistics accommodation.

These developers appear to be hoping that the logistics accommodation would enable them to meet the zoning requirement while at the same time also developing higher value accommodation on the sites.

Some of these city logistics properties may also integrate more attractively with retail, office and residential than would traditional warehouses.

Kevin McHugh of William Harvey says that when delivery companies take smaller properties inside the M50 they may need warehouses with roof heights of only six metres, compared to more modern logistics properties which could have up to double those eaves heights.

He expects to see demand coming for space in locations such as the Dublin Industrial estate in Glasnevin or industrial estates in Inchicore.

But he also believes that it's not just the online sales which will affect demand for logistics space inside the M50 as traffic is another issue. Already the city council has banned large trucks of five axles from the area within the canals.

"A ban on diesel would see greater use of electric vans and bikes for deliveries," he adds.

"At present Dublin is a small enough city so deliveries can be made within the M50 within 30 minutes but that may change with traffic trends," he says. In addition there have been increased complaints from cyclists about delivery vans parking on cycle lanes. But these can be alleviated by the way property owners and employers have been working with delivery services. Examples include the new Parcel Motel collection points that are located at petrol stations and car parks.

In addition, some employers are locating lockers for their employees in office buildings so that their employees can have their online shopping delivered to their work places during business hours rather than have to stay out of work to collect deliveries at their homes.

"In one Smithfield office building the employer converted the former print room into locker space for employees," Carrigan says.

Perhaps the largest example is Ikea's order and collection point in Carrickmines just outside the M50, which opens at weekends until 7pm to facilitate collections. Matthew Walaszek, senior research analyst at CBRE Ireland contends that: "Young urban populations are driving global consumption; in Dublin - where individuals aged between 25 and 39 make up 26pc of the city's population - this is a major driver for the growth of 'last mile' logistics".

He says that while there is increased demand for logistics accommodation in the city centre, prospective developers of such space would face significant competition when bidding for sites because developers of residential, student accommodation and hotels are also seeking such sites.

"Residential in particular is going to garner much more interest considering the housing crisis. When there are industrial lettings in these areas, they are typically short-term, as these are high-value redevelopment sites," he adds.

But such competition is not new. For instance towards the end of the last century, South William Street had traditionally been a location for fashion wholesalers supplying city centre retailers. Then as investors and developers saw opportunities to exploit its proximity to Grafton and Wicklow streets, they began to convert the warehouses into restaurants, shops and night clubs.

Developer Michael Cotter then saw the opportunity to meet the demand from those wholesalers and specialist clothes stores who were being priced out so he developed warehouses, trade counters and showrooms to accommodate them in Fashion City, Ballymount.

Now as bricks and mortar independent fashion boutiques and wholesalers are being squeezed by both international chains and online retailers, it may well be that Fashion City itself may find opportunities to respond to the demand from Last Mile operators.

Agents say that rents for logistics space have risen by between 6pc and 15pc over the last year, depending on quality and location.

Carrigan says that increased demand for old warehouse space within the M50 has pushed rents there to between €6 and €7 per sq ft while new space outside the M50 is quoted for around €9.50 per sq ft.

Both agree that rent increases have encouraged developers such as Rohan, as well as IPUT with its Vantage scheme and Green Reit with its Horizon Logistics Park to develop new logistics space outside the M50.

Walaszek also agrees that within the M50 "we may see a combination of uses, whereby developers incorporate a logistics component into a retail or mixed-use scheme in an effort to get closer to the urban population".

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