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Urban logistics: crossing the last mile

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As a result of the pandemic and consumers not being able to go out and shop, shopping online for anything from groceries to clothes has become an accelerated practise. Consumers demand competitive prices and short delivery times, which means that the last mile of delivery is the most expensive and complicated. Urban logistics, which involves inner city warehouses, hubs and transportation, is of growing interest to many companies and investors. What exactly does this look like across Europe?

Here we speak to Thierry Bougeard, Head of Logistics, Oliver Wissel, Director European Logistics & Industrial Advisory, Igor Roguski Head of Industrial & Logistics for Central and Eastern Europe and René Jeannenot, Associate Director, Logistics France all from BNP Paribas Real Estate.

Can you tell us about the general state of urban logistics long with the main difficulties?

Oliver Wissel: 

Being in the midst of the Covid-19 crisis, logistics is becoming more and more important and increasingly present in the city. Most of us are now all shopping online with goods coming from big boxes outside of city centres, therefore the goods need to come into the city and reach the customers. The level of lockdown currently varies across different countries and because of that, people are mainly staying away (or having to stay away because the shops are closed due to lockdown) from going to physical shops. As such, online shopping is booming and that has a positive effect on urban logistics. This has encouraged more creative logistics infrastructures, like micro-depots, which are now more numerous in city centres. 

The increasing presence of urban logistics does create some challenges particularly when it comes to accommodating the vehicles that transport goods. Greater amounts of goods being delivered means more traffic on the roads and the need for more parking spaces where products can be unloaded. In Germany, there is a particular demand for the delivering of beverages, which are delivered in under 90 minutes. To be able to achieve this there must be inner city warehouses with enough parking available. 

In cities like Berlin, the idea of banning lorries from the city is one that is currently being discussed. In Amsterdam, this is already partly the case. This means there will likely be a rise in more sustainable delivery options such as traditional and electrical bikes. When cities, like Paris, have access to water, goods can also be transported by boat. 

Thierry Bougeard: 

The Covid-19 period has demonstrated that e-commerce is increasing because shopping centres and shops are closed and people have turned to shopping online. 

The market, from a real estate point of view, was not prepared for this boom and increase in activity. Even the most well-known companies have basic e-commerce strategies, so we are working with them to help define a clear strategy with a good distribution network. The problem that they face is one of distribution. E-commerce activity is the whole supply chain from general storage and how to deliver as quickly as possible to the consumer. Companies rely on delivery companies to deliver their goods, with the last mile being the most expensive stage of the logistics chain. Most delivery companies, like DHS or UPS, are the most active players as they are the ones delivering goods and must improve their network and infrastructure. This means being able to deliver but also return goods to the factories, and cope with seasonal events such as Christmas or Black Friday. The delivery aspect is the only physical part of the e-commerce and any problems that occur such as late delivery or a lost parcel, mean that the consumer has a negative image of both the merchant and the delivery company, making them less inclined to pay for higher delivery fees.  

Igor Roguski: 

Our observation is that there are many more deliveries being carried out in our cities and this is only going to increase. In Poland, we believe that the number of vehicles in our cities will grow, because of the growth of new delivery services, such as grocery and food, alongside increasing e-commerce. Because of Covid-19, there is much less normal traffic on the roads, as people are getting used to home working and children are not at school. Even the higher density cities in Poland such as Warsaw are still relatively small in comparison to other European cities and can be easily crossed in rush hour. However, because of greater amounts of large and small delivery vehicles, after the pandemic is over, congestion is expected to increase and commuting times will therefore grow. For Polish cities, we believe that vehicles will be much more environmentally friendly, with more bikes and electric vehicles. In a few years’ time, once legislation has changed I imagine there will be many more autonomous vehicles around. 

One delivery service that is very popular in Poland is self-service lockers. The company, InPost, that adapted this for Poland has managed to grow the biggest parcel service across the country. They are five times bigger in terms of volume than DPD, one of the leading delivery companies on the Polish market. They offer both parcel delivery and the locker service and have taken over most of the exchange of documents between municipalities and community offices. The service is very competitive as you don’t have to wait for anyone and it’s cheaper than their competitors. What’s more, because of Covid, it’s comfortable not to have physical exchanges, therefore people tend to choose this option rather than regular courier services. I think we will see a lot more of these types of services, particularly technologically driven ones as technology is something Polish people like to engage with. 

René Jeannenot:

In the Paris region, there are a number of old warehouses that have not been transformedand which are used for urban logistics. The most emblematic is Pantin Logistique, which is spread over 150,000 m2 and three floors. In terms of new development, there is also La Chapelle Internationale by Sogaris, which is an industrial and logistics building in the 18th arrondissement of the capital. In Paris, urban logistics is as much about location as it is about supply and demand. How can clean vehicles provide the supplies needed for the centre of Paris? Shouldn't delivery times be extended? 

Many investors have decided to support their occupier customers in all parts of the logistics chain, from very large regional platforms of 100,000 m2 to urban logistics with surfaces often under o5,000 m2. The aim is to offer a range of solutions for all aspects of the sector. There is therefore a very strong demand today in urban logistics for location, whether for new developments or reconversions. The main difficulty is to find buildings or land and then to convince the community to accept the idea of setting up an urban logistics hub. Atr the moment urban logistics, particularly in the Paris region is part of a changing mindset on the part of operators, as well as some major developers such as Sigro or Vialog in Gennevilliers or Valor in Le Bourget. We are also seeing pure player investors position themselves urban logistics assets. The effects will be felt equally in the big French cities such as  Lyon and Marseille, who will also need urban logistics. 
 

Thierry Bougeard

Across Europe, many investors are asking us for such last mile products which simply don’t currently exist. With a growing need for same day or even one-hour deliveries, the need for urban logistics infrastructures in the city is becoming more present. These will likely be made available through mixed-use buildings, combining offices and housing with logistics.

Thierry Bougeard
Head of Logistics, BNP Paribas Real Estate
Europe

How can logistics be put back into the heart of urban policy in the future?

Oliver Wissel: 

By new developments such as pick-up points. In Spain for example, the e-commerce company Alibaba has set up pop-up shops in shopping centres where you can see and touch the products, providing the ease of online shopping with a physical experience. 

With reverse logistics, there are also a lot of conversations about the C02 emissions that are linked to this activity. The system is made to make it easy for the consumer to send products back, so it’s taken for granted and the consumer doesn’t realise how much money it costs. Now however, there is more pressure to be more conscious of the environment, especially because of the amount of space reverse logistics uses.  

Thierry Bougeard: 

In Paris for example, the “Réinventer la Seine” (Reinvent the Seine) programme looks to improve inland waterways transport which would update the idea of mobile warehouses which combine barges and land modes of transport, such as electric vehicles and scooters. At present only Franprix and XPO Logistics have committed to such a system but many more are looking to benefit from this kind of transportation network. Also in France, the Renault group has paired with La Poste to conceive the delivery service of the future, notably by the creation of an autonomous vehicle. 

This will change though as retail warehouses transform into last mile and urban logistics infrastructures. As retail declines, traditional infrastructures can be converted into pick-up points for example. When shops were developed, they calculated the population around them so these pick-up points will be strategically placed to attract a range of consumers.  

Igor Roguski: 

There are more and more examples of mixed retail and logistics schemes. In Poland, one of the biggest e-commerce shops, which sells shoes and apparel, has entered shopping centres. However, instead of having shoes on display, customers measure their feet with tablets and choose the shoes virtually, picking them up from the counter when they are ready. I think there will be many more of these kinds of shop formats. 

Within Poland, there are a few cities that are highly congested but these are the smaller cities like Krakow that are more monocentric. If you look at the bigger cities like Warsaw, the reality is that they have many centres. For the smaller city where everything is built around one city centre, it is more likely that last mile delivery systems can grow in order to avoid congestion. In the future, deliveries will happen from the stores themselves so in the next few years there will be a slight change to the retail facilities to become last mile services. 

René Jeannenot:

Above all, it is a question of convincing local authorities to free sites that can be developed for urban logistics.  Investors and operators must also commit themselves to buildings that are environmentally sustainable. For their part, transporters must also get involved with clean vehicle fleets so as to work against pollution and noise. It is through these conditions that an efficient and sustainable urban logistics company can develop with town centres.

Igor Roguski

We have observed a rising interest by investors to want to go into city centres in order to get closer to the market, as they see a current opportunity to grow their margins and profits on such investments

Igor Roguski
Head of Industrial & Logistics for Central and Eastern Europe, BNP Paribas Real Estate
Poland

Can Covid-19 act as an accelerator for the integration of logistics into the city?

Oliver Wissel: 

I would say Covid-19 has pushed the urban logistics class forward about five years. 
Pre-Covid, we had a booming office and hotel market, which meant that retail and urban logistics couldn’t compete with the rents. In fact, the urban logistics class doesn’t really exist yet as the infrastructure isn’t ready despite investors wanting to buy into it. Urban logistics can’t therefore compete with other asset classes yet but it is rapidly developing and this might change in the upcoming years. 

Igor Roguski: 

In Poland, we like to go to the shops. Because of Covid, many supermarkets are open 24 hours so people can shop at any hour of the day. Polish consumers are now very often choosing to shop in retail parks for convenience and the era of huge supermarkets is over.  People don’t want to go through aisles of products to find what they are looking for. 

Before Covid, people didn’t really buy groceries online but it became more popular as a result of the pandemic. However, the infrastructure was not ready for this demand and delivery times can take up to a week, which means people want to go out to shop.The e-commerce providers just weren’t able to develop as quickly as the market required, particularly as they didn’t have the proper storage space available. . After a whole year of functioning through a pandemic, many providers have upgraded their services, but the question is, once the pandemic is over will these new shopping habits remain the same or will they change again?  Nevertheless, people value convenience and short delivery times, so those who want to succeed on the e-commerce market will have to invest in warehouses either within the city limits or at the centre of bigger cities.

René Jeannenot: 

The health crisis has had a direct impact on the increase in e-commerce sales. The change in consumption patterns, which was at first desired and now constrained, has accelerated an already existing trend with significant progress in terms of volumes year on year. We can naturally expect a new record for e-commerce in 2020 under the impetus of the health crisis. This will accelerate the need for urban logistics, from the warehouse to home delivery and the pick-up location, via click and collect. A certain number of promoters who are thinking on the scale of districts or tertiary buildings are reflecting, sometimes guided by the municipality, on the integration of urban logistics within their programmes. We are also called upon to think about buildings built over two levels in order respond to the lack of land.

Oliver Wissel

Being in the midst of the Covid-19 crisis, logistics is becoming more and more important and increasingly present in the city. Most of us are now all shopping online with goods coming from big boxes outside of city centres, therefore the goods need to come into the city and reach the customers

Oliver Wissel
Director European Logistics & Industrial Advisory, BNP Paribas Real Estate Germany
Germany

What changes do you expect to see in terms of urban logistics in the future?

Oliver Wissel: 

Electrification will be more important in the future, for example online suppliers of beverages are asking how much electricity is available because in the coming years they plan to change their transporters from fuel burning to electricity. 

There is an interesting project in Hamburg where they are building a two-storey warehouse, where the idea is to have an underground transportation belt. In cities like Hamburg, this is possible because the commercial areas where the warehouses are, are close to the city centre. 

Thierry Bougeard: 

Everybody is talking about last mile logistics at the moment, urban logistics and light logistics is a concept. It’s the concept linked to the online activity but there are currently no developments specifically dedicated to urban logistics, managing this new very central urban logistics is therefore new for logistics actors. Currently old buildings are being refurbished and reconverted to last mile delivery concepts. Across Europe, many investors are asking us for such last mile products which simply don’t currently exist. With a growing need for same day or even one-hour deliveries, the need for urban logistics infrastructures in the city is becoming more present. These will likely be made available through mixed-use buildings, combining offices and housing with logistics. The question though is how to build up more inner city warehouses and delivery services, whilst responding to the growing need to reduce noise and pollution.  

Igor Roguski: 

We have observed a rising interest by investors to want to go into city centres in order to get closer to the market, as they see a current opportunity to grow their margins and profits on such investments. The rent for these types of facilities is much higher than in the outskirts of the cities. That is why those inner citiy facilities were and are not used for last mile delivery. In Polish cities most last miles delivery services are located on the outskirts of cities, as providers can keep their prices low thanks to lower rents. When we compare the market to last year, not much has really changed. In fact, many properties that were marketed very loudly on the market as inner city warehouses have not even begun to be built. One company even stopped building such a property halfway through construction, as they did not have enough tenant demand. Perhaps as the trend is big in cities such as London and Paris, we will see this coming to Poland in the next few years.

Rene Jeannenot

Many investors have decided to support their occupier customers in all parts of the logistics chain, from very large regional platforms of 100,000 m2 to urban logistics with surfaces often under o5,000 m2. The aim is to offer a range of solutions for all aspects of the sector. There is therefore a very strong demand today in urban logistics for location, whether for new developments or reconversions

René Jeannenot
Associate Director, Logistics France, BNP Paribas Real Estate
France