In a town in Southeast England known as Andover, more than a thousand workers operate day and night where they lift, sort and move groceries for online retailer Ocado.
These are not traditional employees. They are robots – each about the size of a washing machine. Each week, they process, handle and distribute around 3,500 items or around 65,000 orders. They do not need wages, rest breaks, leave or retirement benefits.
Welcome to what in some cases may be the warehouse of the future. It’s known as a ‘dark warehouse’ and involves facilities which are fitted with multi-million dollar automated systems which receive, process, fulfil and dispatch orders without human intervention.
Say an online customer orders a pair of sneakers. The warehouse automatically generates a goods order. This triggers a robotic forklift which goes to where the goods are located, selects the item from vast racks of stock and delivers it to a sophisticated dispatch area. From there, it is loaded onto a waiting truck and can arrive within 48 hours.
Some operators are looking to deliver not via trucks but with drones. In 2017, Chemist Warehouse teamed up with Google parent company Alphabet in a trial to deliver a selection of more than 100 products including toiletries and over the counter medicines via drones which could fly at around 120 kilometres per hour in Royallla on the NSW/ACT border.
All this raises questions about how the role and nature of warehousing is changing, how the built form of warehouses is evolving in response and how industrial property landlords can future-proof their assets. To explore these issues, Sourceable spoke with Janet Weston, Director at property services firm Knight Frank, and David Hall, Director of Industrial at real-estate services firm Colliers.
At the outset, Weston and Hall say that for now, the extensive capital costs associated with the type of facilities referred to above means that take-up is predominately restricted to the large-scale retail goods and distribution space.
Within this sector, Weston says companies are engaging consultants to review their supply chain logistics, technology and inventory processes. In terms of buildings, these operators are approaching developers to deliver bespoke facilities which are tailored to meet their specific requirements and for which they are prepared to fork out premiums.
Outside this, however, take up of these technologies is yet to happen in any significant way.
According to Hall, there are two reasons for this.
First, the capital which these require make it difficult to deliver a payback and suitable ROI within the typical timeframe of a ten to fifteen year lease. This is important because the technology may be obsolete by the time the lease term concludes.
As well, making these facilities adaptable to accommodate changing requirements over time is hard. Whilst larger retailers such as Coles generally have the scale to alter their setup as product lines change, Hall says this is difficult for those with less extensive operations.
As a result, he says many traditional operators are eschewing full automation for now in favour of adding machines which handle existing parts of operations faster and more efficiently. Such systems can operate within existing space and can be changed, removed or adapted as needed.
As for large third party operators such as DHL and TNT, Hall says these have expended considerable effort in refining existing operations and will invest in automation and robotics only where they can see a strong case for doing so.
In terms of the built form of warehouse assets, Weston and Hall see strategies diverging along two streams.
First, custom built facilities are being delivered to a number of occupiers who demand these and who have the scale to justify paying a premium for these assts. As mentioned above, this is mainly happening in the fast moving consumer goods (FMCG) sector.
It is here that dark warehousing, full robotic automation and (later on) ports to facilitate drone delivery are likely to be found.
The other stream are ‘speculative’ facilities built by developers with the hope of securing tenants and on-selling to investors. These are more generic in nature and design.
Even with these facilities, however, future proofing strategies are being executed in several ways.
First, Hall says there are longer load faces. On this score, a number of developers are moving away from square box designs in favour of rectangular arrangements under which the long side of the facility is used to accommodate multiple docks and doors. Under this type of arrangement, manufacturers and warehouse operators can receive goods in through one end, dispatch out the other and design the system internally with efficient sortation arrangements which facilitate multiple points of ingress and egress.
Next, to accommodate features such as robotics in the future, some developers are increasing the density of their slab and floor. This is done to accommodate higher point loads – the load which is applied to a singular point on any surface (in this case, the floor) at any point in time. In its speculative Building 3 development at the Calibre industrial estate at Sydney’s Eastern Creek, for instance, Mirvac adopted a design which accommodates a nine-tonne point load.
Whilst floor densities with a point load capacity of six or seven tonnes are sufficient to accommodate stacking activities under current systems, Hall says greater point load capacity may be required going forward to handle vibration as tenants make greater use of robotics.
An interesting area of considerations involves how site traffic can be better handled and accommodated. On this score, Hall and Weston say developers are looking at better catering for heavy vehicles to enable these to move around the site more easily.
One way is to provide more vehicle space. In the case of large B Double semi-trailers, Hall says these may take 28 meters to turn around. Where the space allows them, say, 45 metres, this affords a larger envelope around the facility to help prevent undue traffic jams or delays.
This, however, presents a trade-off in that landlords also wish to maximise site coverage (the area of the site covered by the building) upon which they can charge rent. Indeed, Weston says, some landlords are seeking to achieve greater coverage and increase what would typically be coverage of around 55 percent to 60 percent.
Another interesting area is height. On this, Hall says that for several reasons, most speculative product will not go above 13.7 meters. At this height, the stacking arrangement will be eight pallets high. With current racking systems, this is the most which can be achieved with a seven tonne point capacity in floor slabs. Going higher would require denser (and more costly) slabs. This is also the point above which much of the materials handling equipment would need to be upgraded. Finally, above that point, new sprinkler systems would be needed to ensure that water flow is sufficient to reach the floor.
More radically, there are multi-storey warehouses. Already, Goodman Group is looking at a 4-5 storey warehouse in Sydney.
According to Weston, this is being driven by constraints on land supply and rising land values. This is particularly prevalent in Sydney, where land prices in some ares are pushing $2,000 sqm.
In Melbourne, Weston says there is less impetus for this as land prices (approx. $250 per square meter) are lower and there is still land available for development. Courtesy of population growth and residential encroachment on industrial land, however, she says Melbourne could reach the point where multi-storey warehouses are considered within a decade.
Another strategy is land banking, On this score, Weston says some institutional investors such as Charter Hall buy up land and wait for tenants who want bespoke developments. Some go as far as obtaining development approval. When a tenant is found, the development can often proceed with only minor tailoring to meet specific tenant requirements.
Speaking of possible future-proofing strategies going forward, Weston says owners of smaller space (3,000 to 5,000 sqm) which is nearby consumers could reposition their asset as smaller distribution centres for larger chains. Opportunities in this area are growing, she says, as shorter lead times demanded by consumers feeds through into pressure upon retailers to access product from locations which are closer to market. Whereas many consumers needing new tyres may in the past have been happy to leave their vehicles for a day, now they want turnaround in a few hours. This is difficult where stock needs to be transported from large centres across town. Instead, many vendors will want smaller centres from which they can deliver at short notice.
Hall, meanwhile, urges landlords to consider flexible designs which could over time accommodate two or more tenants with smaller footprints. Whilst many industrial groups have expanded their footprint in the past, he says some may reverse this and scale back in response to greater efficiencies. Were this to happen, he says flexible designs could help landlords respond by bringing additional tenants into the same space and accommodating two or more tenants with smaller footprints rather than singular ones with a larger space needs.
As well, he says owners should consider building to the highest possible specification up to the point that this does not compromise the achievement of return hurdles.
Around Australia, warehousing is undergoing change.
With sensible strategies, industrial property landlords can position their assets to respond to this.