There is currently more than 30m sq ft of empty warehouse space in the UK, despite reports of a Brexit-related surge in demand for space.
This week, the UK Warehousing Association said its members had experienced a rise in demand, mostly for short-term requirements, as a result of Brexit. In a survey of its members carried out in December, 85% had received Brexit-related enquiries. In total, 75% of those surveyed are now full and unable to take on any more business.
UKWA chief executive Peter Ward said: “We are facing a ‘perfect storm’ in the warehousing and logistics industry, with little speculative build in the pipeline, urban development land earmarked for residential but not for the warehousing required to fulfil rising consumer demand, and a severe labour and skills shortage, exacerbated by the ‘Brexodus’ effect as Eastern European immigrant labour heads home.”
Certainly, it is probable that many UKWA members are facing a spike in demand related to Brexit enquiries, as well as other pressures such as labour shortages. But are their issues, particularly the concerns around a lack of supply, reflective of the wider UK warehouse market?
Take Richard Perriman, UK supply chain development manager at Horizon International Cargo, which owns 120,000 sq ft of warehouse space in the UK. He says that Horizon’s largest site in Kent, near the M20 access route to Dover, is “slightly above capacity”.
“We could find extra space, but on paper we are above capacity,” he says. “I think it is Brexit related. Clients that have been with us for a period are holding more stock than they were.”
However, unlike many other landlords that focus exclusively on warehouse space, Perriman says he is able to offer space on more flexible terms, alongside his transportation business. “We are able to offer warehouse space to clients for indefinite periods of time – sometimes just a couple of weeks.”
What demand?
UKWA members may be enjoying an uptick in demand, but the picture for the overall market is very different. According to Savills, there is currently 31.4m sq ft of vacant warehouse space on the market. There are also 40 units under construction which total 8.4m sq ft.
So in total there is just shy of 40m sq ft available for people to take new leases on if they so wish.
While there is plentiful warehouse space available, the current market is balanced compared to previous years.
This year, supply is at the highest level on record since 2014, when there was 34m sq ft of empty space. But levels have remained broadly stable at the 25-35m sq ft mark since 2014 and are far lower than the levels seen in 2009 when supply hit 94m sq ft, according to Savills.
Moreover, the likelihood is that much of the current empty space would be unavailable on shorter lease terms, which goes some way towards explaining why more flexible landlords like Perriman are experiencing a boost in demand.
Kevin Mofid, head of industrial research at Savills, comments: “We are not really seeing the type of impact on the actual property market that you would expect after reading some of the press. We have not yet seen any deals for new warehousing that would link directly to Brexit or stockpiling. There is no major surge in demand; the actual vacancy rates at warehouses rose by 2m sq ft in the fourth quarter of 2018.
“The problem is that anyone looking for warehousing for Brexit stockpiling has very short time requirements of around three to six months. The typical landlords and developers of this space are going to want to let it out for five to ten years.”
Stock transfer
Moreover, some companies are actually considering moving stock out of UK warehouses to the continent.
Perriman says he is in talks with two global retail brands about moving product overseas. As well as the UK, Horizon International Cargo also has warehouses in the Netherlands and Spain.
“People are looking to increase their stockholding in Europe,” he says. “Many companies are at risk of incurring massive penalties if they don’t keep production lines flowing. They may have to hold three or four days’ worth of stock or more.
“I spoke with two well-known global brands this week that are both looking very hard at contingencies, which could mean holding more stock in Europe than they do in the UK.”
He adds bluntly: “Why would you hold stock in a country which has a wall around it?”
The outcome of Brexit remains uncertain, with prime minister Theresa May due to come back to parliament with her Plan B after her first Brexit deal was categorically rejected.
But as things stand, with no obvious parliamentary majority for any Brexit solution, it could well be that the country is poised to leave the European Union with no deal on 29 March.
For smaller warehouse providers the current confusion is good news for business, but if they run out of space will others come forward and offer more flexible terms?
Mofid doesn’t think so: “It’s not in a landlord’s interest to lease a unit for three to six months; they would rather leave it vacant until someone took a 20-year lease.”
To send feedback, e-mail anna.ward@egi.co.uk or tweet @annaroxelana or @estatesgazette
