Dark Stores: A New Opportunity - Boodle Hatfield

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27 Oct 2021

Dark Stores: A New Opportunity

Written by

Katherine Worrall View profile
3 min read

Twelve months ago, you would have wondered what we were referring to if we had mentioned Weezy, Gorillas or Getir. Now the three companies are rapidly expanding household names.

All three are disrupting multiple markets by providing competition to the much slower Ocado, Waitrose and Morrisons delivery services, taking away business from corner shops and fighting dark kitchens for affordable space in or near to high density residential areas. It is that latter element which is of most interest to property investors.

One key differential between Weezy, Gorillas and Getir on the one hand, and Sainsbury’s “chop chop” delivery service and Deliveroo’s grocery offering on the other hand, is that the former rely on dark stores which are inaccessible to the public, whilst the latter source produce from customer facing stores. This means that a dark store need not be in an area with high footfall or with a sizeable car park, it can instead be squeezed into a railway arch, a warehouse or an industrial park. Therein lies the opportunity as those property investors who have some appetite for risk could purchase or repurpose previously unpopular space in areas which do not lend themselves to traditional uses with a view to letting, or selling, that space to a dark store provider.

Interested property investors will need to think carefully about a variety of factors including:

  • For landlords, the covenant strength of the dark store entity they are contracting with. Current providers have expanded rapidly thanks to venture capital but are still in their infancy stages and their potentially lower covenant strength brings with it a higher risk of non-payment of rent and/or insolvency. Two interesting points to consider:

    (A) Whether the dark store provider's long term liabilities could be skewing the profits currently showing on its accounts. This was an issue that affected some landlords of co-working spaces, for example, where the provider tenant had rapidly expanded and was benefiting from a large number of units in rent free periods.

    (B) Whether there is a high risk of the dark store provider consolidating with others. Consolidation could result in the closure of stores in cross-over locations, or see a landlord fall the wrong side of a corporate restructure. If we take food delivery companies as an example, the market there was consolidated in 2020 with some fallout.

  • The suitability of the space they are offering. Can the space cope with the level of bike or vehicle traffic necessary to re-stock the store and deliver the goods? How will local residents react? Will the environment be capable of being brought up to food hygiene standards, if relevant?

  • Whether the proposed dark store use falls within the existing planning use for the space or not and, if it doesn’t, whether they will be able to secure appropriate consent from the local authority.

    An early conversation with the local authority might, for example, offer some comfort as to whether consent is likely to be forthcoming.

Notwithstanding the various factors that need to be considered, for property investors looking for a different opportunity, this could be a new and interesting market to explore.


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