The Rising Demand of Warehouse Space

On last week’s June quarter day commercial landlords were paid just 18.2% of what they were owed. That’s even lower than the 24.3% collected on March quarter day and reflects the hardship that non-essential retailers have felt with months of lost income since they were forced to close on 23rd March.

It is, then, perhaps no surprise that one of Britain’s largest shopping centre owners, Intu, has called in administrators after failing to reach an agreement in financial restructuring talks with its lenders. Intu, like many other commercial property landlords, has been unable to collect rent from its tenants.

And while commercial property investors have long been aware of the decline of the high street, the office market was booming until Coronavirus came along and threatened its future too – although I believe that, with time, the office market will recover markedly better than retail will – even if many companies do decide to downsize their offices and retain flexible working policies.

But with the immediate future of these two asset classes looking bleak, it is industrial property that many investors have turned to consider. Warehouses, logistics, packing plants and manufacturing have thrived in recent months as more and more people have relied on home deliveries and online shopping.

In fact, at the end of May 2020, e-commerce sales in the UK achieved record growth with sales amounting to £2.1 billion – up from £1.3 billion in May 2019 – as organisations got their supply chains under control to meet consumer demand during lockdown. And in terms of market share, in 2019 only 19% of retail spending was made on online whereas in May 2020 the online share of retail spending jumped to 33.4% – the highest on record.

Volume of Retail Sales – a sharp uplift for non-store retailers

According to Prologis, the world’s largest owner of warehouse and distribution centres, e-commerce businesses require three times the logistics space of traditional storefronts because 100% of their inventory is in a warehouse rather than spread out between a warehouse and stores. So, with e-commerce expected to keep growing, so too is demand for warehouse space.

We will see just how high the level of demand for warehouse space is when bids for Prologis’ ‘Platform Portfolio’ start coming in. Prologis announced the sale of 22 of its UK warehouses last week and with an initial guide price of £435 million it is expected to attract bidders from around the world and achieve a record sale price. Watch this space…

If you’re looking for your next property investment and would like to discuss your options contact me and my team at ambT Property Partners via email at Michael.d.oliver@ambtpropertypartners.com or call me on 07833 297 981.

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