The gig economy: a new space race

The rise of online retail led many experts to predict the demise of bricks-and-mortar stores. But while the growth of online has clearly had a significant impact on traditional retailers, the more wily have capitalised by resizing their store estates and jumping on the online bandwagon themselves.

Meanwhile, online operators such as Amazon, Made.com and eBay have gone in the other direction and taken physical space - and recently, they have been joined by companies in another burgeoning online sector: the ‘sharing’ or ‘gig’ economy.

Last year, Deliveroo started opening kitchen hubs called RooBox and this month, Uber announced it was looking to acquire leases on sites around transport hubs. So what’s driving this trend and who’s winning the race?

Online food delivery company Deliveroo was the first gig economy company to make the move into bricks and mortar. In April last year, the British company, which was founded in 2013 by former investment banker Will Shu and is now valued at more than $1bn (£780m), announced plans to open standalone kitchens that would enable its restaurant suppliers to fulfil orders within 30 minutes.

The company began with six sites in London and is now looking for 30 sites across the country, fuelled largely by restaurant operators looking to cost-effectively increase their geographic coverage.

“The creation of delivery-only kitchens allows restaurants to take their menus nationwide without the need for a high-street premises,” says a Deliveroo spokesperson.

The company is looking for sites of 2,500 sq ft to 4,000 sq ft with access to water, drainage, power and gas in locations ranging from light industrial (B1C) and car parks to service yards and redundant space or development land.

While interest is growing, it has not yet translated into significant take-up, according to agents. “It’s an interesting trend,” says Kevin Mofid, a director in Savills’ commercial research team. “They’re small units on industrial estates and they’re white-labelling the production of food in certain areas. But we have only seen them take very small amounts of space. It’s limited to urban areas where the density of people and customers are.”

Piecemeal operations

While Deliveroo has prioritised major cities such as Manchester, Liverpool, Leeds and Newcastle for the rollout of RooBox units, it is unlikely that the company will ever become a large occupier of commercial space, he adds.

“You’re not going to see this huge proliferation, with kitchens of 300,000 sq ft and so on,” contends Mofid. “It’s not going to happen because the whole concept is about being close to people and customers and you can’t get close to people operating from big buildings. You have to have small piecemeal operations situated in a highly urbanised environment.”

There are similar dynamics at play at taxi app Uber. It emerged earlier this month that the company, which was founded in the US in 2009 and today has annual revenue of $6.5bn, is looking for car parking space for its drivers in and around major transport hubs.

”The sort of sites Uber is looking for are either plots of land or old buildings; otherwise it doesn’t make much financial sense,” says Simon Lloyd, senior director in the industrial team at Cushman & Wakefield. “They will be competing for sites in urban areas with people looking to do other forms of development, such as residential.”

The whole concept in food delivery is that you have to be close to people - Kevin Mofid, Savills

As a result, Lloyd thinks Uber could struggle to snap up suitable locations. “A hotter market means that pricing will be higher, which means that they must use their assets more intensively,” he adds.

In addition to seeking suitable sites in urban areas where demand for its drivers is high, Uber is also reportedly looking for space around airports. A spokesperson for the company confirms that Uber is seeking space “where drivers can wait near Gatwick and City airports”, although he adds that some of the stories surrounding these space requirements have been “a little overwritten”.

As in urban areas, Lloyd thinks the taxi company won’t find it easy to secure sites. “The major problem is that there are very few [suitable sites] around the airports,” says Lloyd. “Buying sites would be the most secure option, but the opportunities for buying around airports are very limited and there is little choice around.”

Innovative solutions

That is not to say Deliveroo and Uber will not find innovative solutions to the site shortage issue. Digital companies move swiftly and are not bound by some of the restrictions traditional businesses are.

“Technology tends to be more fleet-footed, more innovative,” says William Bellman, director in the industrial and logistics team at Colliers International. “So gig companies are perhaps better at adapting in a difficult environment.”

For Deliveroo and Uber, these new real estate requirements form an important part of their future growth strategies. Deliveroo is looking to expand its offer UK wide and Uber’s search for car parking space is seen as a potential launchpad for other services it has already introduced elsewhere, such as Uber Rush, a service that uses Uber cars as couriers.

Gig companies are perhaps better at adapting in a difficult environment - William Bellman, Colliers

“The car park concept might be a way for Uber to have a stockpile of vehicles on the road in key locations,” says Mofid. “This would allow it to launch Uber Rush in the UK. The biggest question then is: what impact is this going to have on traditional couriers and traditional delivery companies? Will they be threatened? Will they need more space or less space? How they will react? It has the potential to have a very big impact.”

If the expansion of gig economy businesses into bricks and mortar follows the same pattern as online retailers moving into physical stores, it is likely that we will see other online marketplace operators follow the lead of Deliveroo and Uber over the next few years.

No shortage of start-ups

It is hard to say with any certainty which of the current sharing economy companies will need bricks-and-mortar space, but there isn’t a shortage of start-ups operating in this space, says Niall Ingham, a senior surveyor at CBRE Creative.

“More companies are springing up and typically they follow a similar model to the likes of Uber, Deliveroo, etc, in that they are a tech platform that empowers ‘micro-entrepreneurs’ to work on their own time and with unlimited earnings potential,” he says.

“We have been working with JustPark, which is currently based in Kentish Town. It uses an Airbnb/Zipcar-style car model to help private individuals and companies monetise surplus car parking. Storage Share, which is currently in the CBRE/Pi Labs accelerator, uses a similar model to tackle the lack of affordable storage space in London, and we are also tracking the progress of Bevvy, a late-night alcohol delivery service.”

While it is difficult to identify which individual gig economy companies will make the move, Bellman thinks there is one property sector that is likely to benefit from this push: self-storage. Self-storage centres are already used by eBay traders and Bellman believes there is scope for further use by online operators.

“The next-stage revolution for self-storage companies is to have people working within self-storage buildings,” he says. “These buildings are not designed for that at the moment, but there is a potential need market for that.”

Disruptive tech

The property industry is going to have to meet this need - and the evolving physical requirements of once pure-play online operators in general.

“It’s not just the gig economy,” says Bellman. “It’s ecommerce, last-mile delivery - it’s the changing pattern of retail in itself. We’ve got a growing London economy. There are one million people likely to join the capital in less than 10 years and we are moving towards a 24-hour economy, with tubes running all night, which means all the restaurants, for example, will need to offer an increased level of service in terms of food, staff, etc.

“Technology is already disrupting other business areas and the real estate sector is not fully accustomed to it yet and it’s probably not ready for it, but technology is here to stay and we need to embrace it.”

If it doesn’t, it won’t get its share of the sharing economy gig.

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