A worker works at a Gorillas store in London on May 20, 2021.
Rents are going up in parts of London because of a battle to find space for the grocery delivery boom.
The U.K. capital has seen the growth of companies like Getir, which promise to ship essential goods to people's doors in a matter of minutes.
Such services rely on small warehouses that used to prepare online grocery orders. These facilities are similar to dark kitchens in the world of food delivery.
Commercial rents in prime London locations have gone up due to demand from grocery delivery firms.
In West London, the prime rents for small industrial units of 20,000 square feet or less rose to $46 per sq ft in the third quarter of 2021, up 75% from the same period a year ago, according to figures shared by estate agents Knight Frank.
In East London, rents for small industrial properties increased to £25 per sq ft in the third quarter, up 45% from a year ago.
Tom Kennedy, an associate at Knight Frank, told CNBC that the Covid-19 pandemic had already accelerated the industrial and logistics market by five years.
The rise of dark supermarket companies in London has led to price pressures. They hit our industrial market very hard in the inner-city zone, which in turn has increased the rents a lot.
There are only certain areas in London that work for space. Bidding wars have been created as well.
The real estate company said it was seeing the same trend. According to a presentation shared by the firm, demand for properties over 500,000 sq ft has waned this year, while take-up of facilities under 200,000 sq ft has spiked.
In the past year, Amazon has increased its take-up of sub-200,000 sq ft buildings by 64%, showing that rapid grocery apps aren't the only players impacting the market.
They are part of the sector. They are a force in it. Toby Green, director of the industrial and logistics team at Savills, wouldn't say that they were the driving force.
Data centers, dark kitchens and parcel delivery are some of the sectors that are driving up demand.
Green thinks rapid delivery players are having an impact. He says that they are creating an extra layer of demand and that some firms are willing to pay a higher price for last-mile facilities.
Green said that the market was a bit opaque. There will be less transparency in the deals. There will be deals. They will pay a larger per-sq-ft rate to get a facility in a certain location.
The quick grocery delivery market is important to success, according to industry executives and investors. Companies are trying to be as close to their customers as possible.
Andrew Gershfeld, a partner atFlint Capital who is invested in London grocery app Jiffy, told CNBC that it is a fundamental trend.
The investors in rapid grocery apps say they are cheaper to run than traditional stores because they don't need customers to enter in person and have better insights into their inventory.
The cost of real estate is a rounding error, according to the head of U.K. at instant grocery delivery firm Gopuff. Real estate is not the big cost if you think of the revenue that can be generated on a per-site basis.
The costs can add up quickly. Many rapid grocery services treat couriers as workers, unlike platforms like Deliveroo which only give them less benefits.
The main problem for dark store services is that they need to decrease their picking time and packaging time for orders, according to the CEO of Qvalon.
The companies need to buy stock from wholesalers. The dark store firms have cost pressures.
Rapid delivery firms tend to start in cheaper areas, but then move into more affluent areas once they pay for the real estate, said John Mercer, global head of research for analysis firm Coresight.
Companies have to pay more for the real estate they take as they try to move into more premium spaces and cities.
The global economy may be overheating as investors worry that demand for services may have gone up after countries ended Covid-19 restrictions.
Green said that the market was already experiencing tightness due to supply chain disruptions. Demand for smaller industrial units is stronger than ever.
