‘Need’ for smaller distribution centres

Apr 30 2008 by Mike Birkett for The Journal

TWO years ago the property industry saw a big upsurge in the market for national or large regional distribution centres.

That trend in the North East has seen the emergence of distribution “hubs” such as those found in east Durham, Wynyard and Faverdale, both on Teesside.

However the recent Atisreal research into home deliveries suggests that we could be faced with a scenario where there will be a greater need for smaller units of 10,000-50,000 sq ft around major urban centres able to handle both articulated vehicles and smaller local delivery vans.

For utmost efficiency, these units will need to be cross-docked, itself a relatively new distribution concept in the North East which will see large-scale goods delivery in one side of a distribution facility, followed by goods sorting inside the building, with goods then going out the opposite side of the building in smaller volumes and smaller vans.

These cross-dock buildings are not currently provided by the market and the challenge will be how to build them and provide them at competitive rates. The reality is that they will be more expensive than a more standard density building.

How this rental value is achieved in the first stages of this market is likely to be via some form of gearing mechanism allowing for comparison to more standard density units, but as the class grows and evidence of rents on similar buildings becomes more prevalent, enabling owners to gain evidence more easily, these gearing agreements are likely to fall away.

Despite the biggest issue in meeting these needs being cost I believe that those who assess these findings early will do well.

For example, our client DHL Exel is currently working on a new strategy for servicing the increased demands stemming from the growth of home deliveries across their customer base. Companies that do nothing, however, may face a bleak future.

Paul Nicholson is director of agency at Atisreal’s Newcastle office.