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COVID-19 impacts on the warehousing and storage industry

The popularity of big sheds has been growing for a number of years and the effects of the Coronavirus pandemic have only increased demand.

The Warehousing and Storage industry is expected to boom over the five years through 2020-21, with industry revenue projected to grow at a compound annual rate of 1.8% to £19.6 billion.

Rising demand has been underpinned by increasing online sales, with total online expenditure estimated to grow at a double-digit rate in almost every year of the period, promoting the rise of the Fast-Moving Consumer Goods (FMCG). Rising levels of automation and investment in technology have improved efficiency and helped raise profit. Over the latter half of the period the industry has benefitted from growing levels of stockpiling by manufacturers and pharmaceutical companies, due to uncertainty surrounding the UK’s exit from the European Union.

The industry has been facing changes due to consumer online shopping habits since the start of the decade, but since the start of 2020, online sales have increased by 21%, undoubtedly due to lockdowns and shopping restrictions.

“The pandemic acted as a catalyst for the underlying strong demand that was there anyway. It has accelerated the structural changes driving occupational demand such as the shift from high street to online shopping.” Andrew Pilsworth, Director of Finance at SEGRO.

With this, logistics real estate is benefitting, with research from CBRE reporting that take-up is 111% higher than in 2019. The total space acquired in the first three quarters of 2020 is 32.57 million sq ft.

CBRE UK Industrial & Logistics Senior Director Jonathan Compton said: “To put the numbers into context, the past six months take-up exceeds the annual total for eight of the past ten years. Concerns around Covid-19 and Brexit have not suppressed demand.”

A record number of 17 deals in the 500,000 sq ft + size band were transacted, and over 60 units between 100,000 and 200,000 sq ft were taken up.

36% of the take-up has been by Amazon and a further 11% has been for deals with a lease of less than 12 months due to Covid-19, but many are asking if the demand for big sheds is going to become the norm?

Estate agents Knight Frank analysis shows that the growth of e-commerce could drive demand for 92 million sq ft of warehouse space across the UK by 2024, “three times the amount of warehouse space required compared with high street retailing due to the fact that online warehousing has to factor in holding stock which would normally be in shops and having to deal with returns.”

The grocery sector is expected to drive this growth due to online sales more than doubling between July 2019 and July 2020. Even after the Covid-19 pandemic Knight Frank expects this change in consumer behaviour to continue and forecasts that 7.1 million sq ft of warehouse space could be in demand to 2024.

A lot of attention was focused on the transport industries and the increased logistical challenges they faced, however the warehouse sector has also been massively impacted by the change in behaviour from its consumers. Many non-essential product lines have seen a collapse in demand, causing usually popular items to create a stock pile up in warehouses and other items have seen an unanticipated increase in demand.

In many cases, this has led to a huge surplus of inventory being held in warehouses, awaiting an upturn in consumer and business demand. There is no doubt that once lockdowns are lifted renewed economic activity will lead to some of these backlogs being drawn down, resulting in a surge in transport demand as goods are moved to end markets. This will be followed by short term over-capacity in warehouses, due to a hiatus in replenishment due to many orders having already been cancelled with Asian suppliers.

Sources;

theconstructionindex.co.uk/britain-is-going-through-a-big-shed-boom
savills.co.uk/research_articles/229130/301986-0
logisticsmanager.com/logistics-manager-analysis-big-sheds-a-new-normal/
shdlogistics.com/covid-19/12-ways-coronavirus-will-change-warehousing
ibisworld.com/

 

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