The UK warehousing market has outperformed all other sectors in terms of growth over the past year. According to research by real estate specialists Cushman & Wakefield, Q3 2021 was the sixth consecutive quarter in which take-up exceeded 13m sq ft. With 48.9m sq ft taken in the first three quarters of the year, 2021 was on track to surpass 2020’s record annual take-up of 53m sq ft.
This booming demand has pushed the availability of warehouse space to a record low of 49m sq ft, falling below 50m sq ft for the first time since Cushman & Wakefield began recording supply in 2009. With UK vacancy rates dipping below 2% and rents have risen by as much as 15% in some locations, there has been speculation that the UK will soon run out of warehouse space.
Trends in UK warehousing
Changes in the warehousing sector are highlighted in the recent report by Savills for UKWA that compares the latest data to that recorded in a similar report in 2015. The first trend identified is the rising volume of UK warehouse space. While the 2015 report found nearly 428m sq ft of space, by 2021 the total had risen to 566m sq ft, an increase of 32% in just six years.
The second trend identified is that warehouses are getting larger. The average unit size grew from 217,000 sq ft in 2015 to 340,000 sq ft by 2020, with average warehouse eaves height increasing from 11m to 14m over this period. The 2021 report found that units over 500,000 sq ft make up 34% of total space, compared to 30% in 2015. Units over 1m sq ft, which accounted for 14m sq ft in 2015 (3% of the total stock), now account for 48m sq ft (9% of the total) – an increase of 242%.
The Savills/UKWA report also showed the continuing importance of the Golden Triangle, with warehouse space in the East Midlands increasing by 45% between 2015 and 2021. Together, the East and West Midlands account for 35% of the UK's warehousing space.
E-com growth driving change
What is driving change in the UK warehousing sector? Well, the pandemic and Brexit have amplified trends that were already evident, while some emerging sectors in the UK economy have also had an effect.
The huge impact of the growth in e-commerce, which was accelerated by the social restrictions resulting from the Covid-19 pandemic, can be seen in the changing occupier profile within the Savills/UKWA report. While high street retailers were the leading occupiers of warehouse space back in 2015, they are now outstripped by 3PLs, who have increased their footprint by 42% to lead the field. Meanwhile, online retailers have increased their warehouse space from 8m sq ft to 60m sq ft, an eye-watering 614% rise. Of course, parcel and wholesale sectors have also benefited from the growth in e-commerce, with space increases of 73% and 51% respectively.
Brexit has also had an impact, with European companies wanting to be closer to their UK customers, thereby adding to the demand for warehouse space. Along with the pandemic, Brexit has revealed the fragility of supply chains and periodic shortages of products have led companies to seek more storage space for stockholding.
New sources of demand
Another factor in the mix that is driving demand for space is the emergence of new customers in the UK warehousing market. These include manufacturers in the electric vehicle and clean energy sectors. Research by Savills from 2020 suggests that each additional £1bn invested in manufacturing processes requires an additional 175,000 sq ft of warehouse space for the wider supply chain. Other new customers in the warehousing market include data centres and companies in the creative industry. For example, Netflix recently took a 250,000 sq ft site in Enfield for content production.
These new sources of demand, combined with the convenience of online retail – which requires distribution space instead of retail space – mean that the UK's warehousing market is likely to remain buoyant. Indeed, in the recent Emerging Trends in Real Estate report from PwC and the Urban Land Institute, logistics was second only to data centres in the sector prospect rankings for 2021.
Real estate services provider, CBRE reported that speculative space under construction in the UK in Q3 2021 reached a record high of 13.7m sq ft. However, given the shortage of warehouse space, many industry pundits believe that the response by developers will be insufficient to meet demand – especially with supply chain disruption and the spiralling cost of construction materials continuing to impact efforts to build more warehouses. In addition, the shortage of available land is an ever-present constraint for UK warehousing, leading to calls for reform of planning regulations to increase the supply of land, particularly at critical locations such as motorway junctions.
Land is not the only brake on warehousing growth; labour availability is an increasingly challenging problem. Wage inflation post-Brexit and increasing levels of intralogistics automation are gradually alleviating the issue. However, the potential recovery of the hospitality sector as the pandemic recedes may attract labour away from warehousing – a factor that points to the elephant in the room: Covid.
For warehouse capacity, so much hangs on the future development of the pandemic and, in particular, its impact on e-commerce. Forrester, the global market research company, predicts that online retail will account for 35% of all retail by 2025, meaning that another 64m sq ft of warehouse space will be needed for this sector alone. Indeed, research from Prologis states that for every extra £1 billion spent online, an additional 775,000sq ft of warehouse space is required. However, it should be noted that there has been some rebalancing in favour of high street retail recently; ONS data for November 2021 shows online's share of retail falling to 26.9%, its lowest since March 2020 (22.6%) and well below its peak of 36.8% in February 2021.
It is not only the volume of e-commerce that affects warehousing demand but also its nature. With speed of delivery becoming ever more important, logistics providers are now seeking smaller warehouse units that are close to urban areas. This shift in warehouse location is supported by demand for sustainable deliveries in electric vehicles, which are suited to urban deliveries.
Automation will be key
While it is not at all clear what the future holds in terms of e-com volumes, land supply, labour availability, new variants of coronavirus, growth in emerging technology sectors and planning reform, we can be sure of one thing: the efficiency, accuracy and speed of the systems supplied by AMHSA members mean that logistics automation will play an increasing role within UK warehouses.
As the UK’s leading authority on automated material handling with over 60 members, AMHSA seeks to accelerate the adoption of world-class intralogistics automation across the UK supply chain. Visit www.amhsa.co.uk, call 07517 610514 or email [email protected]