Turn the stem time a far depot adds to every route into vans, drivers and kilometres, then into the rent per square metre an occupier can afford to pay for being close.
A last-mile warehouse is worth the extra rent its occupier saves on vans: fewer routes because less of each driver's shift is spent getting to and from the delivery area. On an illustrative 10,000 m² delivery station shipping 12,000 parcels a day, moving from 30 km out of town to 8 km from the customers saves 1,009,980 a year, 101.00 per m² of extra rent the occupier could pay before it is worse off. Against an out-of-town rent of 75, the urban unit breaks even at 176 per m².
Worked in full in Logistics and Industrial Real Estate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
A delivery van has a fixed shift. The time spent driving from the depot to the first drop and back from the last, the stem, is time not spent delivering. Push the depot further out and every route carries fewer parcels, so more vans, more drivers and more kilometres are needed for the same volume. Rent is paid per square metre; transport is paid per parcel. The calculation converts one into the other.
Drops per route = (shift hours − 2 × stem km / speed) × drops per hour
Routes a day = parcels a day / drops per route
Annual cost = routes × (van day cost + km × cost per km) × operating days
Break-even rent premium per m² = (annual cost far − annual cost near) / floor area
| Input | Urban site | Out of town |
|---|---|---|
| Stem distance, one way | 8 km | 30 km |
| Average stem speed | 25 km/h | 45 km/h |
| Rent per m² | 150 | 75 |
| Parcels a day | 12,000 | 12,000 |
| Shift, hours | 9.0 | 9.0 |
| Drops an hour in the delivery area | 20.0 | 20.0 |
| Van and driver a day | 320 | 320 |
| Running cost per km; km inside the area | 0.30; 60 | 0.30; 60 |
| Operating days a year | 310 | 310 |
The urban stem is slower per kilometre but far shorter. Drop rate and in-area distance are the same from both sites because the customers are the same.
Step 1, stem time. Urban: 2 × 8 / 25 = 0.64 hours, 38 minutes. Out of town: 2 × 30 / 45 = 1.33 hours, 80 minutes.
Step 2, drops per route. Urban: (9.0 − 0.64) × 20 = 167.2. Out of town: (9.0 − 1.33) × 20 = 153.3.
Step 3, routes a day. 12,000 / 167.2 = 71.8 against 12,000 / 153.3 = 78.3: 6.5 more vans every day from the far site.
Step 4, cost per route. Urban: 320 + 76 km × 0.30 = 342.80. Out of town: 320 + 120 km × 0.30 = 356.00.
| Routes a day | Cost a day | Cost a year | Per parcel | |
|---|---|---|---|---|
| Urban | 71.8 | 24,603 | 7,626,890 | 2.05 |
| Out of town | 78.3 | 27,861 | 8,636,870 | 2.32 |
| Saving | 6.5 | 1,009,980 | 0.27 |
Step 5, per m². 1,009,980 / 10,000 = 101.00 per m². The occupier is indifferent between the out-of-town unit at 75 and the urban unit at 176. Asked 150, a premium of 100 per cent, it still keeps 259,980 a year. That is the logic behind urban logistics rents that look absurd next to big-box rents: the comparison that matters is with the transport bill, not with the rent of the warehouse on the motorway.
| Parcels a day | Saving a year | Per m² | Break-even rent |
|---|---|---|---|
| 6,000 | 504,990 | 50.50 | 125.50 |
| 9,000 | 757,485 | 75.75 | 150.75 |
| 12,000 | 1,009,980 | 101.00 | 176.00 |
| 15,000 | 1,262,475 | 126.25 | 201.25 |
| 18,000 | 1,514,969 | 151.50 | 226.50 |
The premium scales with throughput per square metre, not with floor area. A delivery station turning 12,000 parcels a day can pay 150; a storage-heavy occupier with half the throughput on the same floor breaks even at 125.50 and would be overpaying. Distance works the same way and faster: with the far site 20 km out the saving is 39.91 per m², at 40 km 169.60 and at 50 km 247.20, because each kilometre both lengthens the stem and removes drops from every route.
The occupier's other saving, labour inside the building, is worked in how much more rent a labour saving buys; rent, cube and net effective rent are in the free workbook for this case.
Because occupiers compare them with their transport bill, not with other rents. A shorter stem leaves more of each shift for deliveries, so fewer vans are needed. In the worked case moving 22 km closer cuts 6.5 routes a day and saves 101.00 per m² a year, so a rent of 150 against 75 out of town still leaves the occupier 259,980 a year better off.
Twice the one-way distance from depot to delivery area divided by the average speed on that road. From 8 km at 25 km/h it is 0.64 hours; from 30 km at 45 km/h it is 1.33 hours. At 20 drops an hour on a 9-hour shift, that difference costs about 14 drops on every route, 167.2 against 153.3.
No. The saving scales with parcels shipped per square metre. On the same 10,000 m² unit, 6,000 parcels a day saves 50.50 per m² a year and 18,000 saves 151.50, so break-even urban rents range from 125.50 to 226.50 against an out-of-town 75.
This article is one calculation from Logistics and Industrial Real Estate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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