Warehousing is a rapidly growing requirement, and we must find more space to accommodate it within the urban fabric.
Much has been written about how the retail and office sectors are being transformed by the sudden acceleration in e-commerce and remote working, but a more modest asset class undergoing its own disruption has received scant attention. Warehousing, already in flux in recent years, has been affected by the disruption of supply chains and the abrupt collapse in sales of numerous goods. Somewhat counterintuitively, these conditions have resulted in an unprecedented demand for storage capacity.
An early sign seen in April was the dramatic plunge in value of the West Texas Intermediate (WTI), the most-traded oil futures contract in the world. The worldwide March lockdown had severely impacted the demand for oil, but – despite OPEC’s mid-April agreement to remove nine million barrels a day from the market – US producers continued to extract oil, saturating refineries and storage tanks. As the trading for futures of WTI came to a close on 21 April, it became apparent there were no longer viable options in Cushing, Oklahoma, to store the oil due to be delivered. The lack of storage had turned an underlying asset into a liability. As traders rushed to dump their contracts, the world recorded its first ever negative oil price.
Around the same time, a similar scramble for storage space was taking place in the European cold storage sector. The emerging consumer preferences for fresh food and online groceries had, in recent years, been fuelling the growth of cold storage volumes. But the pandemic brought unexpected additional demand when restaurants, hotels and other mass caterers were forced to freeze their food during lockdown. Linear Logistics, the largest temperature-controlled warehouse operator in the world, revealed concerns about capacity in its 15 UK facilities.
Storage in urban centres is rapidly evolving from a real estate commodity to a strategic asset
Ambient storage has experienced a similar fate as companies have had to adopt a more conservative approach to stock management. Fast-moving consumer goods manufacturers, for example, have accepted a dent in their working capital to guarantee supply of essential goods, stocking additional products in light of potential manufacturing disruptions and unexpected surges in demand from both cautious retailers and panicking consumers. Segro, the UK-based warehouse owner and operator, recently reported higher than expected first-half results and its valuation is up by double digits in the year to date. Segro is now the biggest real estate investment trust listed on the UK market, overtaking its office-focused peers.
Beyond the private sector, governments have been stockpiling protective equipment and medical supplies while households have been hoarding non-perishable food and toilet paper. Some of this additional storage capacity will naturally readjust once the pandemic is controlled. However, it would be wrong to assume that we will fully return to a world of negative working capital and just-in-time deliveries. National governments are becoming increasingly uneasy about reliance on importing strategic goods and services, resulting in escalating trade tensions and the repatriation of supply chains for food staples and medical supplies, as well as digital infrastructure and other public goods. As it is impractical for every country to produce everything, it seems inevitable that some of the stockpiling is here to stay.
So, what does this all mean for the built environment? In the UK, out-of-town warehouses and distribution facilities are likely to need to expand in response to increased demand, and there will be more competition for optimal sites near to rail and road networks, currently identified as the most sustainable locations for housing in planning policy. On the other hand, storage in urban centres is rapidly evolving from a real estate commodity to a strategic asset. The growth of e-commerce during the pandemic has hastened the pressure on fulfilment and last-mile logistics.
Road networks have become clogged with delivery vehicles, outpacing the decline in private cars. In the capital, Transport for London figures indicate that light commercial traffic makes up nearly one in eight vehicles. There are also tensions at the point of destination. Before the pandemic, corporate managers were increasingly intolerant of the flurry of employees’ package deliveries at the workplace, pointing to the lack of adequate storage space in most commercial buildings. The current distribution model is not sustainable, either environmentally or operationally.
It may be an unglamorous building type,
but it will be an increasingly important one
Meanwhile, cities are failing to make adequate provision for storage space, and high land values are displacing warehouses further away from metropolitan areas. In London this has been exacerbated by planning policy intended to address the housing crisis in opportunity areas such as Nine Elms, Old Kent Road, Old Oak and Park Royal. The designation of strategic industrial locations in the London Plan has fallen short of providing adequate protection for B8 use (storage and distribution), and the recent introduction of additional permitted development rights in national policy has further increased the vulnerability of the existing warehousing stock.
Perhaps the one alleviating factor is the surge of click-and-collect, as an environmentally and operationally efficient solution. It is easy to see how an extensive network of well-connected urban depots would go a long way in addressing the challenge. This solution would involve large fulfilment centres in urban gateways and smaller click-and-collect warehouses around public transport hubs, facilitating the collection of goods by commuters on their way home. Current warehousing technology has eliminated the constraints of vertical storage, so these depots would make efficient use of land and their massing would be no different from residential or commercial blocks.
What this all means is that we need to integrate more storage space into the fabric of our cities. It may be an unglamorous building type, but it will be an increasingly important one in the post-covid world. How we design and plan for storage space will require a more concerted effort from policy-makers, developers and architects. A positive step in this direction would be to abandon the notion of storage space as a use class, and to conceive of it as infrastructure instead. It’s likely to be that critical to our future.
