UK e-tail warehouse space in short supply, prices rise

By

Nigel TAYLOR

Published
Oct 15, 2021

Problems with the UK supply chain continue to mount. Move over delivery driver shortages and backlogs at UK shipping ports, this time it’s a shortage of warehousing space as the boom in online shopping forces retailers to open bigger distribution centres.

There was 7.1 million sq ft of logistics space available at the end of September, equal to a vacancy rate of 1.53%, the lowest on record, according to what property consultancy CBRE told The Times newspaper.

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By contrast, this time last year about 5% of the UK’s total warehouse space was available to let.

In the last 18 months, major UK retailers including M&S, Next, Sports Direct and JD Sports Fashion have dramatically increased their warehousing capacities to feed online demand. That's expected to ramp up ahead of the expected Christmas season rush.

Reflecting the change in shopping habits, of all the warehouse space taken in the most recent quarter, 39% was leased by online retail companies, the report also said.

And amid that desperate battle for space, several companies have agreed recently to pay 20% above the asking price. 

“Supply levels are now critical, particularly in the northern belt that straddles the M62 motorway,” Jonathan Compton, senior director for UK logistics at CBRE, told the newspaper.

Demand for warehouses has boomed with lockdowns having accelerated the shift to online shopping. Parcel groups and food delivery companies are also adding to the demand for extra logistics space.

Yet the number of leasing deals being agreed is falling, with agents having little stock left to market. Between July and September, 36 deals were completed for 10.9 million sq ft of logistics space, compared with 45 deals for 13.6 million sq ft in the same quarter a year ago.

Because of the acute shortage, CBRE estimates that a top-quality warehouse around the M25 will rent at about £18 per sq ft, compared with £16.50 this time last year.
However, more warehouse space is under construction with the CBRE estimating that 13.75 million sq ft of logistics space was being built during the third quarter.

But it’s possible that smaller firms could be at a disadvantage if they want to access the news pace as the big names have more clout when it comes to negotiating leases, well as the deep pockets to pay elevated prices.