Most property minds will be focused on sleds rather than sheds as the year draws to a close. Christmas 2014 is set to be the first in years for which the purse strings can finally be cut loose as the economy recovers.
But what many families haven’t factored in is a potential downside to the property recovery – a sheds shortage. During the recession, when online sales became a force in retail, consumers became reliant on retailers and delivery companies taking short-term leases on sheds as flexible accommodation to deal with the spike in demand around Christmas time.
Royal Mail, the market leader in the online delivery sector, has taken as much as 2.5m sq ft in short-term leases in each of the past four years between 2011 and 2014, according to the firm’s property brokers, and is this year taking 10 temporary hubs around the country.
But the picture is changing rapidly, as the industry grapples with a supply squeeze. As the recession left the country awash with empty warehouses, owners were eager to sign temporary lettings to stave off empty rates by signing an online retail supplier between October and January. This year they are proving less accommodating, leaving the distribution industry reeling at a time of unprecedented demand.
If that notorious transatlantic import, Black Friday, was anything to go by, online sales this year will be up by 60%, with £36.5bn in sales predicted. IMRG MetaPack’s Delivery Index forecasts that 2014 is set to be the busiest year on record for the UK’s online retailers, with 222.5m online parcels shipped in November and December (see graph).
Good news for receipts, but a headache for supply chains, particularly in a recovering sheds market where landlords are turning their backs on retailers looking for short-term space, or demanding premiums as high as 100%.
BNP Paribas Real Estate director Jonjo Lyles is one agent feeling the squeeze for his occupier clients: “It’s becoming difficult [to find short-term sheds] because of the lack of supply. This year we’re looking at the lowest level of stock we’ve ever seen. Anyone with a shed bigger than 50,000 sq ft already has a tenant or isn’t interested in short term.”
Those acting for landlords face similar difficulties. Savills director Toby Green says: “Occupiers took advantage of the poor economic environment and an oversupply during the recession to acquire these units on a flexible basis. This year those opportunities are drastically reduced – even where buildings are available – and most of the buildings where we accommodated the parcel firms are let on long-term commitments.”
The need for flexible space equipped to react to large swings in orders couldn’t be more crucial at this time of year. In 2011 the retail industry was forced to admit it had been sideswiped by online growth, and some parcel firms are still licking their wounds. With retailers ruthlessly cutting costs, it is less a matter of sacks of coal and more of contract re-tender notices.
Operators are being forced to find ways of making do. Firms like Geopost are moving fast to snap up 20-year leases on sheds before rents rise, while Royal Mail this year has foregone its usual
short-term rental favourite at the 246,803 sq ft Tetris building in Greenford in Ealing, West London, taking a 10-year lease instead.
Wincanton has now started to open the 3PL’s excess space out to retailers as “shared user infrastructure”, offering up to 70,000 sq ft of dedicated warehouse space in Wincanton sheds around the country on a pay-as-you-go basis, or on a more traditional lock-in agreement for several months. “Now it’s important to sweat the assets, your processes and your efficiencies,” says Wincanton retail managing director Liam McElroy. “As a retailer, I’d go to my 3PL and look for a flexible solution if they’ve got the infrastructure, before looking for space on the open market. We can open up a window for a short period, share resources on site, and dilute the costs.”
TNT director of operations Simon Harper agrees that leasing temporary sheds in the current climate is no longer a cost-effective option: “We run extra shifts at different times, and tend to flex up the operation by operating across days where previously we wouldn’t run operations. That helps us to stay cost competitive – if we went out and hired big sheds, you get a step change in cost these days.”
Delivery firms more exposed to the wild swings on the online market are taking drastic measures, including hiring open storage space and throwing up temporary marquees to serve as makeshift sheds. Argos is planning to turn 150 larger stores into mini distribution centres to supply nearby satellite stores, and has opened a collect store in Cannon Street Underground station, EC4.
UPS and Yodel are letting customers pick up orders
from newsagents and petrol stations in order to reduce the strain on their networks, while the industry scrabbles to recruit hundreds of thousands of temporary distribution staff.
Despite these efforts, any unexpected spike or
deviation from forecasts will place a strain on capacity. Centre for Retail Research director Joshua Bamfield expects the industry to cope in 2014 by stretching resources, but says the failure to address digital real estate requirements will be a wake-up call this year for retailers and developers.
Spare a thought, then, for those distribution managers anxiously checking their lists twice to make sure they’ve got enough stock to fill your stockings this Christmas.
Logistics supply involving units of 100,000 sq ft and over
Grade-A (new and good-quality secondhand) supply
Q3 2014 13.5 m sq ft
y-o-y change -29%
New supply
Q3 2014 4.7 m sq ft
% change from most recent peak (March 2008) -84%
Vacancy rate for modern logistics stock
Q3 2014 6%
