The warehouse market in the UK has been transformed over the last 20 years. A tide of capital has flowed into logistics, largely due to the transformative impact of eCommerce on the sector.
The latest data shows that 18 percent, or one in every five pounds of all UK retail sales are now spent online, making the UK eCommerce penetration rate second to only that of China (Forrester/ONS). This is predicted to grow to 50 percent within ten years (Womble Bond Dickenson).
With £1bn of online spend equating to around one million square foot of big-box warehouse development, this supports the vision that the market will remain buoyant for the foreseeable future.
In parallel with this volume growth, both the average size (a typical warehouse has nearly tripled in size since 2016) and complexity of these warehouses have increased.
Growth in online retail is not the only driver, as an increasing number of mid-sized manufacturing companies are ‘on-shoring’ in order to shorten their supply chains in the wake of the disruption caused by the pandemic.
As well as improving operational resilience, the main benefits of on-shoring in the current climate are the ability to operate to shorter lead times, with reduced inventory, and to flex production to reflect fluctuating demand.
Brexit is also looming large, with still no clarity on the terms of the UK’s exit from the EU on 31 December 2020. The outcome could have a significant effect on the supply chain and logistics sector across the whole of Europe. New customs charges and duties imposed on shipments could make the UK less competitive and concerns are mounting that there will be significant backlogs at UK ports.
Brexit aside, the three principle challenges the logistics industry faces in the UK are:
Occupiers are becoming significantly more demanding. They want quality, modern space with sophisticated digital infrastructure to suit their needs, not the second-hand industrial units of the past.
Their fit-out investment costs up to ten times that of the warehouse itself. Such complex and expensive fit-outs places further challenges on the supply chain, which in turn narrows the pool of available suppliers.
Its central geographical position has made the Midlands the engine room of the UK’s logistics market. The so-called ‘Golden Triangle’ is an area that extends between Northampton, Birmingham and Leicester, and includes prime logistics parks placed along the M1 and M6.
Its growth has been fuelled primarily by retail logistics, which now accounts for around 50 percent of take-up, with online retail contributing around one third (CBRE).
Because over 90 percent of the UK population can be reached by road within four hours of the Golden Triangle, retailers are willing to pay prime rents to locate their operations here.
However, the saturation point for Midlands warehousing is close to being reached, meaning development is now pushing out onto the greenbelt, causing controversy. There is growing impetus to develop alternative industrial clusters elsewhere.
The M62 corridor in the North West of England has been drawing increased investment in recent years. It is estimated that around five million square feet of new logistics space is currently needed.
With improved connectivity a major focus of the Northern Powerhouse initiative and the new High Speed Two rail link on its way, the North-West logistics market is primed for growth.
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