How rapid delivery has led a space race in the UK’s cities

Speed is well and truly the new battleground in food and drink. Amazon is partly to blame – it was, after all, offering same-day delivery before supermarket CEOs were even on wi-fi. Deliveroo’s recent leap into grocery has also played a role. And let’s not forget rapid delivery, which is managing to normalise shopping bags on doorsteps within minutes.

Still, the new arrivals are managing to expand fast. The UK is predicted to have 1,500 grocery dark stores by 2030, according to Interact Analysis, up from approximately 200 at the moment.

In February last year, Getir, which delivers within 10 minutes, announced it would increase its number of London fulfilment centres from five to 20 and expand into zones 3 and 4. Rival Gorillas occupies around 35 micro-fulfilment centres across UK cities already, while ‘go-to platform for everyday needs’ Gopuff will no doubt be part of the scuffle for space as it expands across the UK following a $1bn injection last July.

In doing so, they’ll all be fighting for extremely similar features in their commercial units. “The new q-commerce firms are typically looking for small spaces within highly urban locations from which to operate dark stores,” says Williams. “Their business model relies upon offering rapid deliveries within 10-15 minutes so location is critical. They need to be within close proximity of their consumer base to offer this.”

That’s in contrast to supermarkets, which typically operate van fleets rather than bikes or scooters, incorporating several steps on each route and thereby making it possible to opt for larger, less centralised units.

“We’ve got clients offering £9m per acre. Everyone is saying: is this sustainable?”

The sheer level of activity has pushed up prime rents “dramatically” in the capital, adds Williams. “For units under 20,000 sq ft, we have recorded growth of 52% over the course of 2021 in west London and 38% in east London,” she points out.

Rosso points to the ferocity of the competition. “In west London we were involved in a site disposal where it was £7m per acre, and we’ve now got clients offering us £9m a mile up the road,” he says. “That’s within a month. Everyone is saying: is this sustainable?”

For some operators, the answer will be no. Even those with more cash at their disposal will have to think carefully about expansion, says Neil Dryer, real estate partner at law firm Russell-Cooke. “Last-mile logistics is notoriously expensive in terms of the cost of warehousing in inner-urban areas and maintaining the fulfilment and delivery infrastructure.

“The recent surge in occupier demand for inner-urban space has naturally pushed up rents even further, exacerbating these cost restraints,” he adds. “Plus, with the rise of free delivery becoming a standard option for home deliveries, consumers are becoming less willing to pay additional fees for just-in-time deliveries. The increased costs are therefore being shouldered by the retailer.”

So if players want to sustain their expansion, they will likely have to employ an increasingly creative approach to commercial space – and how to use it. Already retailers seeking out urban logistics space “are exploring quirkier solutions for last-mile delivery, such as old retail units that may have good access for commercial vehicles, car parks that can be converted into warehousing or logistics accommodation, and even office buildings with a ground floor basement for storing supplies,” says Rosso. “That’s all being looked at.”

Even railway arches have become coveted spaces, with reported rent rises in the past year of around 50% in some cases, and traditional independent traders facing eviction as a result.

Conversions

Landlords too have begun to recognise how non-traditional units in their portfolio can be adapted. As such, a growing number of houses, offices and retail units are being converted into commercial logistics hubs.

In May 2021, British Land announced it would shift its own strategy away from its traditional portfolio of shopping centres and office buildings and towards urban logistics. Already its urban logistics pipeline is worth a reported £1bn, with £189m in land recently acquired to cater to this demand for urban last-mile fulfilment. It has plans to convert both empty retail centres and central car parks (an underground Finsbury car park was bought for £20m). LondonMetric too has also “further refined its portfolio into urban logistics, which now accounts for 50% of the portfolio”, says Smith.

There’s also the potential to make dual use of existing retail space. That’s illustrated by the ongoing trial between Tesco and Gorillas announced last year, which has seen the rapid delivery app set up micro-fulfilment centres at five large Tesco stores. It’s seemingly a win-win: Tesco is able to offer its products in 10 minutes, while Gorillas reduces the cost of renting prime space. Just a month later, Asda announced a similar partnership with Just Eat to add a selection of 1,000 of the grocer’s products fulfilled from five stores.

It shows how traditional grocers can use the potential of their existing store networks to optimise their own delivery offers. But equally, it shows rapid delivery operators are willing to think differently to make costs add up. They may be similarly creative with their standalone sites if they are to justify increasingly exorbitant rents, says Gaston Tourn, chief marketing officer at Appear Here, which links companies seeking out space with landlords. “These rapid delivery apps are smart enough to know it’s a wasted opportunity for them to use premium spaces purely for fulfilment and logistics,” he says. “What brands will realise is it doesn’t work economically.”

Tourn therefore expects rapid delivery firms to start using their expensive locations as marketing tools. Traditional retailers typically put only 8% of costs into marketing, he points out, as their physical retail presence does a job in showcasing their brand.

E-commerce brands with premium locations are now waking up to that opportunity, he suggests. Already Tourn says Gopuff has leased spaces at Boxpark in Shoreditch for exactly this reason, serving coffee while encouraging passers-by to download their app. While in this case Gopuff leased the space specifically for marketing purposes, Tourn believes businesses will increasingly leverage their existing prime fulfilment sites for the same reason.

It’s just one of the more innovative ways businesses will have to learn to extract extra value from their extortionate urban spaces. Fail to do so, and they could leave their impatient customers tapping their foot on the doorstep.