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Will COVID-19 Fuel A Warehousing Boom

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COVID-19 has only added to the demise of the UK high street and coupled with a home delivery surge is a potential game-changer for commercial property landlords.

Over the last decade the growth of online shopping has been relentless, putting pressure on the high street to maintain footfall. Some experts have claimed the Covid-19 pandemic has expedited this decline by up to 5 years.

In the same vein commercial office space across the country is being hit with a sudden drop in demand due to the pandemic. Work forces across the country are utilising technology in order to efficiently work from home. This again was a growing trend pre-pandemic but has now become a fast-changing norm across the country.

Large commercial office blocks along with public transport links are deserted with many workers having no set date to return to the office environment. Experts are predicting it could be some time before we see workers slowly return to offices and in many cases they will never return.

Leading UK commercial property investment trusts have had their funds ‘gated’. With their leading commercial property funds suspended, naturally, people feared the worst and rushed for the exit. Funds normally keep cash set aside in order to service redemption demands but due to the scale of the requests, fund managers had to freeze investors’ cash.

One sector that is bucking the trend and taking advantage of the huge shift in human activity is the warehouse market. In particular, the 45,000 sq ft “mega box” or as some call it the “big shed” is seeing huge demand as the need for warehousing connected to online demand grows.

As mentioned previously again this is no surprise and has been the case over the last 5 years. But the pandemic has rocketed this trend as both logistics and e-commerce firms scramble to meet the demand. The demand looks like it will continue into 2021 and beyond as firms look to shore up their supply chains in order to keep smooth and consistent sales execution.

One of the fastest growing companies is Wayfair.com who are increasing their warehouse capacity at an exponential level according to the Savills report. In addition to Wayfair, Next, Ocado, John Lewis and Marks & Spencer have all announced plans to spend hundreds of millions of pounds on building out their supply chains over the next few years. This is also not taking into account the continual growth of big players such as Amazon, Tesco & Asda.

Savills also added that they are not witnessing any effects on occupier demand, either positive or negative from Brexit. This has the potential to change over the coming months as more clarity emerges regarding the post-transition-period trading environment.

At the turn of the year, online traffic accounted for just under 20% of all retail sales, but by March this number had jumped to over 30%. This jump in growth could not have been predicted and left retailers and logistic networks stretched even before the pre festive rush. To put this growth into perspective- previous research estimated that online traffic would deliver 25% of online sales by the end of 2022 

Industry experts believe this trend will continue but at a slightly more modest level after the run up to the festive period. Home delivery and returns eat into retailers’ profit margins however retailers fear being left behind if they do not transition their offering to include an online service. To secure the profitability of an online delivery model retailers must take advantage of economies of scale efficiencies driven by new warehouses/logistics automation technology.  

Experts believe that a hybrid model will become the norm where some retail drift back to the high street while still offering their online services. The same will take place in the city as employers try to integrate what they have learned during the pandemic and apply hybrid model to their office space demands.  

As with most sectors what goes around will come around, there will be some shifts in demand due to both the pandemic and Brexit but there will always be opportunities for investors and developers to spot long term trends and take advantage of the new dynamic landscape.