With global supply chain in disorder, the focus becomes local

21 Feb 2021

By Claus Brewer

2020 has had an impact on everyone in some way and, while each of us has dealt differently with the challenges the COVID-19 pandemic has brought, there are some shared outcomes that have emerged. Among the biggest changes and drivers of new activity in the property sector include:

  • The growing importance of eCommerce which grew in just a few weeks to levels predicted to be reached only in five years
  • The role of industrial and logistics and retail sectors of the property market have had to align to respond to the rapidly changing market demands
  • Delivery, and especially last mile landscapes, have shifted to new delivery patterns

These dynamics have highlighted the importance and key role that supply chain plays in every organisation, regardless of industry, and the property sector’s importance in enabling supply chain performance has become apparent. 

In our research report, Building Immunity Through Real Estate Post-2020 we highlight how vulnerabilities in New Zealand’s supply chain were exposed when product flow from China effectively stopped during lockdown. As a result, governments and businesses are reviewing supply chains, and over the coming years we expect a gradual increase in supply chain diversification.

The lockdown saw a structural nudge upward in online retail sales, which is set to accelerate, with ongoing real estate impacts. According to Prologis analysis, eCommerce requires three times as much space as bricks and mortar retail, which will result in a surge in demand for warehouse space. Online spending in New Zealand in August 2020 was up 31% on August 2019, which has driven requirements for new eCommerce space. To accommodate this growth, large national and multi-national developers are developing spec build industrial buildings in Auckland’s Airport, Wiri and Otahuhu industrial precincts to meet that need.

eCommerce will drive demand for new warehouse space and infill delivery hubs. Additionally, demand for cold storage will increase as more grocery shopping is done online. Moreover, to accommodate changing consumer expectations, infill development in close proximity to the population base will become increasingly prevalent. Existing secondary stock with minimal racking would be ideal to be repurposed for last mile delivery provided it is well connected to the road network and surrounding population. It is anticipated that as online retailing has been widely adopted during COVID-19, the roll out of infill last mile delivery warehouses will be accelerated.

With the increased pace that we have had to learn and change over the past year, and despite the challenges, some key learnings are emerging:

  • Freight and logistics are essential services and in future crisis management situations careful consideration needs to be given to ensure operational sites, including distribution centres, remain operational
  • Increased online shopping is here to stay and based on the forecasted penetration rates, solutions integrating property and products will be essential
  • The distinction between retail and logistics property will diminish as integrated solutions grow to meet market demands from consumers