The rise of micro-fulfilment is accelerating. Here’s what you need to know

Micro-fulfilment is transforming the way logistics work across cities. Paying attention to this trend and the demand for last mile delivery offers some interesting opportunities for investors and startups alike.

Image: Mathyas Kurmann via Unsplash

The logistics sector is undergoing enormous disruption. In the near future, consumers will be able to receive their items as little as one hour after they place an online order. This might sound like madness, but if you think about it, rapidly-delivered services are already familiar to most urban consumers. Trailblazers like Deliveroo, Ofo and Uber have already made extreme efficiency a day-to-day reality for food, bikes and rides. When it comes to logistics, the principle is largely the same — but the potential is even further-reaching and there’s a lot going on behind the scenes.

Tomorrow’s delivery logistics will operate in a similar way to the innovative app platforms that have already enjoyed wide adoption by the general public. Like their predecessors in other industries, the companies and platforms powering a new approach to logistics will focus on cities to start with. When packages are ready for delivery, an app worker will receive a notification to come and collect from a distribution centre in their neighbourhood. The worker could be anyone with the appropriate means of transport for the delivery, likely a motorbike, bicycle or simply a pair of feet.

This short distance run in a localised area is what’s referred to as a ‘last-mile delivery’ and it’s historically proven to be one of logistics’ biggest pain points. But thanks to the accelerating rise of micro-fulfilment, last-mile headaches could soon be a thing of the past.

Micro-fulfilment refers to the idea of placing small-scale warehouse facilities in accessible urban locations, close to the end consumer who is making a purchase. While some of these micro-fulfilment centres will be their own dedicated buildings, others will occupy spaces that are already part of the urban tapestry, such as central car parks, the stockrooms of local shops or even the basements of office buildings. Its rollout will make rapid delivery services more seamless and affordable, as well as helping to relieve congestion in cities and creating fresh opportunities in the gig economy.

“In 2017, e-commerce sales totalled $491 billion and these companies required an additional 50 million square feet of warehouse distribution space. Last mile distribution makes up a significant part of this need.”

The demand for micro-fulfilment is already clear. Research by PwC highlights the importance that both businesses and individuals place on same-day and next-day delivery today. Put simply, consumers and the businesses that serve them want goods faster and more flexibly than ever before, and they expect this to be provided either for free or for a nominal fee. Moreover, consumers are primed to welcome and adopt changes based on their previous experience. Sharing economy platforms have done a good job of training the market to make use of spare space and to perform logistics tasks with their smartphones.

Right now, retail juggernauts like Amazon Prime and Walmart offer unlimited next-day delivery options, and most smaller companies simply can’t compete. But the introduction of micro-fulfilment is set to change this quickly, democratising the landscape so that players of all sizes can offer the same level of efficiency and flexibility to their customers.

For real estate, the implications of all this are huge. According to data from CBRE, 1.25 million square feet of distribution space is required for every $1 billion in e-commerce sales. Year-on-year, those sales have seen a steady and consistent growth rate of 10%. In 2017, e-commerce sales totalled $491 billion and these companies required an additional 50 million square feet of warehouse distribution space. Last mile distribution makes up a significant part of this need.

The property sector’s appetite for small warehouses in central locations has become increasingly apparent. Institutional investors are buying up urban industrial buildings fast, recognising that these previously overlooked assets will be big business in the years to come.

As a result of consumer demand for faster and more seamless delivery, the industry has experienced a huge surge of interest in formerly obsolete class-B, -C and -D urban industrial buildings. It’s causing investors to snap up entire portfolios of them all over the world. In fact, rents at class-B urban industrial facilities were up more than 10% year-on-year from 2015 to 2016 and they’re outperforming other industrial assets, according to the research firm CoStar.

Micro-fulfilment is well on its way to transforming the way logistics work across cities. For ambitious investors and disruptive startups alike, getting on board with the trend early could offer a myriad of interesting opportunities. Some of them could even be delivered within the hour.

For more insights, download our latest white paper, The Future of Logistics. This report examines how couriers, tech giants, and disruptive startups are rethinking global supply chains and innovating for tomorrow’s world.

About Dominic Wilson:

Dominic is co-founder and managing partner at Pi Labs. He leads the firm in a general capacity with a specific focus on investments and investors. He also sits on the boards of Brolly, FalconDHQ and Office App. Dominic has a wide background in Private Equity Real Estate worked with both AEW Europe and Savills Investment Management and transacted over €3bn of deals across Europe. Dominic has a degree in Law with French from the University of Birmingham and an MBA from the London Business School.

About Pi Labs:

Pi Labs is Europe’s first VC firm to focus exclusively on proptech investments. It has established itself as a pre-eminent global leader in the early stage domain in this vertical. To date, it has made 34 investments including Airsorted, Land Insight and Plentific. Pi Labs is global in its focus — it has backed founders from 18 different nationalities and regularly receives investment proposals from over 50 countries worldwide. Pi Labs has become the centre of the property innovation ecosystem with a deep track record in real estate, technology and investment .