With a change in consumer purchasing habits, most notably the increase in ecommerce, we are witnessing a retail transformation, which is heavily influencing supply chain strategies in the logistics sector.
Many occupiers will look to reset their supply chain models in 2021, resulting in next generation distribution centre rollouts – which will mean a significant increase in demand for new purpose-built facilities and lower rates of lease renewal outcomes for older style facilities. Modern distribution centres will cater for both traditional network fulfilment, but also, importantly, focus on the ability to support efficient distribution of goods direct to the consumer. Over time, we expect to see a change from a national distribution centre model to a network of state-based distribution centres that can deliver goods to consumers within their delivery time expectations.
In 2021, occupiers will look for shorter lease terms to de-risk capacity and operational constraints of existing distribution centres - with a heavy focus on investing in next generation distribution centres to support this transformed environment.
Occupiers are becoming more discerning in selecting development partners. They want a partnership in the true sense. They want to select a landlord who can provide flexibility and scale of property options that allows them to grow over time. Landlords with a rigid approach to lease commitments, who cannot accommodate a land bank of alternate sites, are likely to miss out on some market opportunities coming out of the back of COVID-19.
Occupiers know it’s time to assess, and potentially change, their networks due to the transformation of consumer purchasing habits, but many may not yet have consistent and reliable data to support bullish capacity growth. This will mean many occupiers will plan in the short- to medium-term and look to establish a new distribution centre model that can cater for the growth they know is coming but may not yet be able to commit. Or they might look to partner with a landlord who can facilitate growth within their portfolio, with comfort that flexibility is available to them.
From what we are seeing with our customers, they fully expect consumer growth in certain sectors, but it is still a balancing act with getting that all-important board sign off. Recent consumer trends are evolving at speeds that mean there is not enough data for executives to declare a permanent shift in consumer behaviour, therefore at the start of 2021 we may observe a wait and see approach with a large volume of transactions in the back half of the year when the consumer data is better understood.