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Are we heading into an age of connected warehousing?

by usiscc
December 3, 2019
in Warehousing
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Are we heading into an age of connected warehousing?
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Are we heading into an age of connected warehousing?

Are we heading into an age of connected warehouses? As property editor David Thame discovers, the property industry is confronting some more basic electrical problems first.

Last month British online fashion retailer ASOS reported a 68% slump in profits. It was grim news for one of the trailblazers of online retail, and it puzzled observers who thought ASOS had the teens-and-twentysomething’s fashion scene cornered.

The answer soon emerged: the huge profit slump was due to automation problems in its Berlin hub warehouse in Germany, and similar problems in the United States. Shares surged once again as ASOS disclosed that it is working on a major overhaul of its warehouse and technology capabilities, as it transforms from a UK-centric pattern to a more genuinely global logistics set-up.



This little tale, one of many dozens of similar little tales, shows how central automation has become to retail profits, both online and offline. And that, in turn, reflects on the warehouse property itself, a lesson not lost on the developers, investors and brokers who provide it.

But has the logistics property business fully grasped the requirements of the connected modern warehouse? Or are they offering the same old product, hoping occupiers will be able to adapt them to fast-changing automation needs? Do connected warehouses add up for the property business?

Nestlé and XPO Logistics

The answer is a bit more complicated than a simple yes or no. Take a trip to Leicestershire to see how the industry is reacting. In July last year NestlĂ© and XPO Logistics agreed to work together to create what they called the ‘digital warehouse of the future.’

The pair are behind a 638,000 sq ft distribution centre at the new SEGRO East Midlands Gateway Logistics Park close to junction 24 of the M1 motorway at Kegworth, Leicestershire.

The Nestle facility will be a testing ground for new XPO Logistics sector technology and, presumably, a big help to consumer distribution in the meantime, and is due for completion next year. The site will feature the latest robotics and automation co-developed with Swisslog Logistics Automation.

James Polson is London-based national head of the Industrial & Logistics Division at property consultant Lambert Smith Hampton and was involved in the property deal that enabled the Nestle/XPO warehouse. His testimony suggests that the property sector is treading a fine line between satisfying logistics sector needs for connected warehouses and imposing expensive and perhaps unnecessary (or simply useless) add-ons.

“We’re in the middle of a transition from shops as retail locations, to sheds as retail locations, and we are still doing a lot of that in the buildings of the past, which are still being built. That creates problems and tensions. So with the Nestle deal the building is not absolutely what the funding institutions expect, but it is cutting edge,” Polson says.

“The big issue is the infrastructure required to support each building’s, whether that is digital connectivity or power, and all we know today is that needs will be very different for each individual operator. There is no one size fits all rule, and so developers and landlords look at this and think ‘how can we come up with a building that suits as many potential occupiers as possible.’

“I think the property industry is waking up to the compromises this involves, but perhaps not at the speed some occupiers would like. But, again, the difficulty for developers is that what suits occupiers is changing all the time. In the 18 months it takes to build a warehouse, a really cutting-edge innovation could go out of date. It’s as quick as that.”

In other words, landlords and developers have powerful incentives to keep warehouse property simple and flexible. They want to be up-to-date but not so painfully modern that innovations age quickly into redundancy.
 

Electrical supply

For a truly connected warehouse to work, many landlords believe they need to focus less on fancy innovations, or the mysteries of 5G wifi, and perhaps a little more on some very basic issues like the availability and capacity of electrical supply.

“Robotics, automation, electric vehicles, these all take vastly more electricity than developers have been used to providing at warehouses,” says Polson.

“Traditionally landlords would have looked at 200 kva power capacity for a warehouse. That has now been stretched to 50-750-kva for a warehouse with a clever stacking operation. Today the minimum is probably 1mba, so roughly five times what the capacity requirement was only a few years ago, and a half to a third up on even recent experience, if the evidence of recent pre-lets is reliable.”

Developers are responding by reserving electrical connections earlier in the process, and being more inventive, adding extra electrical capacity by installing solar panels and other fuel-efficient or energy-creating measures. The difficulty is that even the solar-panelled roof of John Lewis’ 1 million sq ft warehouse cannot make up for an inadequate grid connection, and adequate grid connections are expensive and hard to make.

“For developers, electrical power is an unknown. It is in the hands of regional providers, and you cannot argue with them. They tell you the costs and the timescales and if they decide you need a new substation then the costs can rise dramatically. This is a liner on the budget that is usually in hundreds of thousands but can rise into millions, and in those circumstances,  developers are balancing the costs and the risks,” says Polson.

The particular cost they are balancing is the huge up-front cost of installing a large-capacity power supply well ahead of construction, which is the best time to reserve supply if you don’t want to find yourself crowded out of the market. The risk they balance it with is that they will have spent a small fortune only to see a site undeveloped for years, or the building sit empty (which is extremely costly) or, worse, to discover the power wasn’t needed, or is in any case still inadequate to occupier’s needs.

“The trouble for developers is that booking a large power supply isn’t a simple issue like buying a good motorway site. It’s just not so simple,” says Polson.

Expensive waste of time

Then comes issues of digital connectivity, and this is an area with which some in the property business do not wish to become involved. The difficulty is a variation on the problem they face with electricity supply: whatever they do may turn out to be an expensive waste of time.

“Yes, everybody wants fibre optics, but every occupier has different occupier needs on connectivity, everyone likes to choose their own providers, every provider is different, and this is a huge task if you are asking landlords and developers to sort it out,” says Polson.

“Of course, landlords and developers can smooth the way, they can make life easier for occupiers, but not making a fuss about wayleaves both in lease paperwork and on the industrial estates themselves. They can adapt the paperwork, be helpful, not just say ‘no’ or make it complicated. But in the end they are always reluctant to go much further to provide facilities themselves because they are always worried that occupiers will simply rip it out.”

The most useful contribution developers can make, say some insiders, is simply to stay silent and concentrate on basics like providing the larger yards required by the increased traffic flows generated by well-connected digital warehouses.

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