1. [1] Europe’s
s Online Consumer (2011) and The Role of Real Estate in the Multichannel World (2012), CBRE
[1] Forrester Research CBRE
EMEA ViewPoint
www.cbre.eu/research December 2012
ONLINE RETAILING: IMPACTS, CHALLENGES AND
OPPORTUNITIES FOR EUROPEAN LOGISTICS MARKETS
By Richard Holberton, Director, EMEA Research & Consulting
OVERVIEW
Online retailing is an established activity across much of Europe and expected to grow further over the next few years. It is
already a significant driver of logistics market activity, and its future growth will introduce significant challenges and
opportunities for the logistics networks needed to support it. This is not merely a case of increased demand for generic logistics
space. It will also require the development of higher-specification logistics buildings tailored specifically to the needs of online
specification
retailing, and capable of handling higher levels of mechanisation and process complexity.
The relentless drive for higher performance standards around delivery of goods will also impose demands on the capacity and
flexibility of parcel delivery networks close to the final point of consumption. In response it is likely that more retailers,
distributors and parcel delivery companies will need to develop specialist capacity with high throughput, cross-docked
capabilities around the edge of major cities. Overall we are at an important point in the intersection of retailing and logistics in
Europe, and one that offers significant opportunities to those able to respond to occupiers’ highly dynamic requirements in this
fast-maturing sector.
INTRODUCTION
The scale and likely expansion of online retailing has Overall internet access in Europe has risen by nearly 400%
been the subject of considerable discussion in recent since the year 2000, and credible estimates put the rate of
years. Indications are that strong growth in online future growth in online retailing in Europe at 12-15% per
retailing across Europe will be sustained into the future, annum over the next five years2.
accompanied by an increase in both technological
innovation and a wider range of channels through As a key part of the “supporting cast” logistics networks are
which online orders may be placed and satisfied. crucial to facilitating these rates of growth, so the
consequences of these shifts for logistics markets are likely
Our recent survey-based analyses1 highlighted two key to be profound, albeit uneven. Firstly, the growth of online
trends in this segment of retailing, one relating to the retailing to date has been supported largely by existing
prevalence of online shopping among consumers, and logistics infrastructure, sometimes with a degree of
the other to the pursuit of multichannel strategies by adaptation but, at least in the case of multichannel retailers,
retailers. Across Europe 40% of 16-65 year olds use rarely driven explicitly by the locational and specification
the internet to shop and 47% browse for goods online. needs of online retailing. It is likely that future growth will
Both behaviours are significantly more prevalent in require the development of more dedicated and specialised
northern and western Europe (Sweden, Germany, UK logistics platforms, in terms of both quantum and process
and France) than they are in southern Europe and CEE. capability.
Retailers expect the online proportion of their total Secondly, from the perspective of a multichannel retailer,
sales to double from 5% to 10% over the next two there is a growing variety of possibilities in relation to the
years. While 70% currently regard themselves as method and location of both order and fulfilment. Each
primarily traditional “bricks and mortar” retailers most presents its own challenges around supply chain, inventory
have begun the process of evolving into multichannel management and logistics solutions.
retailers, with 63% expecting to be fully-integrated
multichannel retailers over the next two years.
1. Europe’s Online Consumer (2011) and The Role of Real Estate in the
Multichannel World (2012), CBRE
2. Forrester Research
© 2012, CBRE Ltd.

2. However, the very fact that distribution for online Growing contribution of online retailing to
EMEA ViewPoint
retailing needs to reach more, and different, logistics markets (% of logistics leasing
destination points suggests a reconfiguration of
transactions driven by online retailing)
supply chains. At the very least, it is likely to induce
demand for a wider range of logistics property
formats.
Thirdly, our survey analysis identified aspects of the
“delivery experience” - such as security, cost, ease of
returning goods etc. - as key concerns that may act
as deterrents to the further penetration of online
retailing. At the same time retailers are keenly aware
that as existing customers become more comfortable
with the experience of online retailing, their
expectations for more - and faster and cheaper -
delivery options will intensify.
The delivery experience is increasingly a major Source: CBRE
differentiator for retailers and there is growing
awareness that getting it wrong could have Lesser contributions are reported in France, Ireland,
widespread and immediate impacts. As a Sweden, Italy and Poland although the latter three -
consequence there will be significant attention and along with Russia and the UK - are expected to see
investment, including in real estate, in getting it right. substantial growth over the next two years. Overall it
This will have major implications for logistics and
is evident that online retailing, already a significant
distribution assets, accentuating the need for
innovative and highly-flexible networks that include driver of logistics markets in some of the larger
high-quality facilities close to the final point of European economies, will continue to grow in
consumption. importance in the short to medium term.
We are at a pivotal point in the relationship between FUTURE NEEDS
retailing and logistics in Europe, and one that offers
significant opportunities, as well as challenges. The implications for the logistics requirements of
While many uncertainties remain, it can certainly be retailers and their distribution partners are profound.
expected that the pace of change will accelerate Traditional supply chains transport goods from a
from here. manufacturer or importer via a regional distribution
centre and (sometimes) a local warehouse, to a
CURRENT IMPACT shop. For online retailing, a variety of models is
possible, since there may be several end destination
Given the variation in the extent of online retailing in points or combinations of points - including the
different parts of Europe it is perhaps not surprising customer’s home, the physical store or an entirely
that its current impact on logistics markets is also separate location, such as a collection locker. Our
highly variable. We estimate that, over the past two analysis indicates a roughly equal split between
years, online retailing has underpinned up to 60% of collection from the store and delivery to home/work
leasing activity in the logistics market in The as the preferred means of receiving goods bought
Netherlands, and up to 40% in Germany, Spain, online.
Russia and the UK. This comes through a variety of
routes, mainly the online retailing arms of So the physical structure of supply chains will need to
multichannel retailers but also the activities of pure change, in several ways, to respond to the
play online retailers such as Amazon. Different imperatives of growth in online retailing. In essence
cultural norms and shopping habits clearly have a there is a need for logistics networks - mostly
bearing on the contribution of online retailing to designed for transport delivery between small
total sales and hence may affect the ultimate rate of numbers of fixed points - to adapt to a much more
internet penetration in different countries. fluid set of demands as well as a wide range of
existing constraints.
December 2012
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3. There are many factors that affect the need for, and MORE OF THE SAME OR SOMETHING
EMEA ViewPoint
ease of, adaptation of current premises, as well as DIFFERENT ?
the adequacy of existing stock. This includes the type
of goods being distributed, the extent of any existing Importantly, the real estate demands of logistics and
store network, the split between online and store- distribution for online retailing are different from
based sales, the means of fulfilment and the typical those of traditional store-based retailing. This means
size and the frequency of deliveries. This is, in any that the impact on European logistics markets of
case, a nascent process in Europe so there is no future growth in online retailing will be more than
“one size fits all ” solution, or indeed industry just one of scale. A number of differences can be
consensus on optimal solutions for any given identified:
situation.
Location and proximity to population centres: This
centres:
So while future growth in online retailing will clearly plays a significant role for conventional store-
certainly produce an increase in demand for logistics based retailing too, but its importance is heightened
buildings, it is by no means certain that this will in the case of online retailing by the greater number
amount to “more of the same ” or, conversely, and dispersion of final delivery points. The need for
whether it will generate demand for buildings that effective integration with local parcel delivery
differ from current stock in terms of location, size, networks is a further factor.
configuration or technical specification. An important
feature, however, is that it will represent additional Access to labour: Logistics buildings dedicated to
labour:
net demand for new operations and facilities, with online retailing typically operate at higher
existing facilities largely unaffected and continuing to employment densities than others, because of the
play a role in reconfigured supply chains. need to despatch a larger number of smaller
packages. This greater demand for labour tends to
Retailers’ own views offer one indicator of the range reinforce the need for proximity to urban areas but
of possibilities and based on this evidence, demand has other impacts too, such as the need to provide
will rise for regional distribution centres and, to a rest and refreshment areas, and provision of car
lesser extent, local warehousing and store stockroom parking and/or access to good public
space. transportation. The high levels of automation and IT
systems typical of dedicated logistics facilities also
Retailers ’ distribution needs arising from generates demand for skilled, specialist types of
multichannel strategies labour so the skills profile, as well as the size, of the
local labour pool is important. Both of these points
raise the contribution of labour to total operational
costs, and may raise the attractiveness of areas
where assistance with employment costs is available.
Design, process capability and mechanisation: In
mechanisation:
many circumstances, there may be both a high level
of automation, which in itself requires additional
security, and more labour-intensive manual batch
picking and sorting. Throughput in terms of number
of packages is higher by definition, and this tends to
create the need for an increase in loading docks and
cross-docks. Higher availability of mezzanine space
for packaging and order customisation is often
needed.
Customer satisfaction, network density and final
delivery:
delivery: Customer demands for speed, quality and
Source: CBRE
cost of delivery are becoming more exacting at such
a rate that it is a challenge for retailers and
distributors to keep pace. For some products in the
more advanced markets, same-day delivery is
superseding next-day as the minimum requirement.
At the same time, customer tolerance for incorrect
orders is diminishing.
December 2012
February 2012
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© 2012, CBRE Ltd.

4. These trends have implications for the configuration CONCLUSIONS
EMEA ViewPoint
of logistics networks and the functionality of
buildings. Ensuring that all product lines are Online retailing is a rapidly growing activity that will
permanently in-stock and available for error-free account for a growing proportion of future sales.
delivery will require a denser network of local Retailers are actively addressing the challenges of
facilities close to the final point of consumption. becoming genuinely multichannel. There is
substantial variation across Europe in the usage,
In some instances, this final stage of the supply penetration and growth potential of online retailing,
chain will remain outsourced to local courier delivery and in the extent to which it is driving activity in
companies. However, it is very unlikely that the logistics markets. As a result, the transition to a
increased volume of online orders – and higher logistics platform capable of supporting online
demands in terms of service quality – can be retailing operations is a complex and challenging
satisfied from existing parcel depot networks simply one for many retailers and distributors. For some, a
by increasing throughput. As a result more retailers, variety of approaches may be needed, either
distributors and parcel delivery companies will need sequentially or in parallel.
to develop greater specialist capacity with high
throughput, cross-docked capabilities around the At a general level, we expect a significant increase in
edge of major cities. These new cross-docks will demand for logistics properties. This will be manifest
need to be able to handle a higher volume of both at the large-scale end of the size spectrum in
shipments per hour than conventional space in order strategic distribution hubs, and in smaller delivery
to accommodate the expected scale of contract depots and cross-dock facilities on the fringes of
fulfilment. major population centres. Growth in this second
area could be very rapid and, because it is driven by
Tying these different aspects together, initial the need for proximity to multiple delivery
evidence from across the major European markets destinations, has the potential to generate net new
shows that location and level of mechanisation demand close to, or within, most large towns and
feature most strongly in the list of specific cities. This process is not well-advanced in a
requirements. This reinforces our view that we are European context and will require a certain scale of
nearing the point where more of the logistics real capital to develop, such as has been deployed by
estate needed to support online retailing will have to specialist REITs in the US, resulting in a liquid
be dedicated, specialised buildings sited around the transactional market.
periphery of major urban centres.
While some of this growth may be accommodated in
What do logistics buildings for online the very short-term by existing distribution/logistics
retailing need to offer ? facilities, over time it will necessitate major changes
to supply chains and hence generate demand for
higher-specification logistics space capable of
handling higher levels of mechanisation and process
complexity.
In addition, customer expectations around the
“delivery experience” are only going to become more
demanding for retailers, distributors and courier
companies. While acceptable trade-offs between
price, speed, security and reliability will eventually
emerge, satisfying these demands in respect of the
location, number and capacity of distribution
facilities will remain a major challenge.
The very immaturity of this market means that
exploiting these opportunities effectively will require
Source: CBRE a thorough understanding of occupiers ’ dynamic
requirements in this fast-maturing sector as well as
their relations to established networks. We expect
the evolution of these processes over time to alter the
meaning of “core assets” in the sector in terms of
both location and specification, with significant
December 2012
impacts on land markets and prices in the vicinity of
major population centres.
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© 2012, CBRE Ltd.

5. EMEA ViewPoint
CBRE GLOBAL RESEARCH AND CONSULTING
This report was prepared by the CBRE EMEA Research Team which forms part of CBRE Global Research and
Consulting – a network of preeminent researchers and consultants who collaborate to provide real estate
market research, econometric forecasting and consulting solutions to real estate investors and occupiers
around the globe.
For more information regarding this ViewPoint, please contact:
EMEA Research
Richard Holberton
Director
EMEA Research
CBRE
St Martin’s Court
10 Paternoster Row
London EC4M 7HP
t: +44 20 7182 3348
e: richard.holberton@cbre.com
EMEA Industrial and Logistics
Amaury Gariel James Markby
Managing Director Head of EMEA Industrial and Logistics Investment
EMEA Industrial and Logistics EMEA Capital Markets
CBRE CBRE
145/151 rue de Courcelles Henrietta House
Paris Henrietta Place
France London W1G 0NB
t: +33 1 53 64 36 85 t: +44 20 7182 2746
e: amaury.gariel@cbre.com e: james.markby@cbre.com
Guy Frampton Garrett McClean
Executive Director Senior Director
EMEA Industrial and Logistics EMEA Industrial and Logistics
CBRE CBRE
Henrietta House 3rd Floor, Connaught House
Henrietta Place 1 Burlington Road
London W1G 0NB Dublin 4
t: +44 20 7182 2150 t: +353 1 618 5557
e: guy.frampton@cbre.com e: garrett.mcclean@cbre.com
Disclaimer
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Economist.
December 2012
February 2012
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