The growing ecommerce boom has driven record demand for warehouse space across the UK, as the pandemic forces more retailers to shutter stores and operate online.
According to figures from real estate firm JLL, deals for 22.1 million sq ft of industrial and logistics space were agreed in the first nine months of the year, up 36pc year on year.
Blackstone, one of the world’s biggest asset managers, has been among the most-active investors, pouring hundreds of millions of pounds into the sector.
In October, the US private equity firm splashed £473m on a portfolio of warehouses throughout the UK. In March, it agreed a £120m deal with Clearbell Capital for 22 warehouses.
It comes at a time when British retail behemoths, such as Debenhams and Arcadia, have collapsed. Since February, in-store retail sales have falledonline clothing sales have grown 17 percent in Britain, while in-store sales have slumped 22 percent.
Alongside ecommerce, storage for NHS equipment and the continued rise of so-called “dark kitchens”, are among the industry’s top drivers.
“The pandemic has had two largely positive effects on demand,” says Oliver Jones, a senior research analyst at JLL.
“It has generated demands for warehousing service to service the NHS with the likes of PPE storage and it has generated demand for warehousing linked to ecommerce, which has seen a surge in sales.”
Internet sales as a proportion of total retail reached a high of 32.8pc in May, up from 18.8pc in the same month last year, according to the Office for National Statistics.
Jeff Bezos’ marketplace behemoth Amazon was chief among the benefactors. Revenue at its UK operation jumped more than a quarter this year to £13.7bn. The tech giant alone accounted for 18pc of all top tier warehouse space taken up nationwide in the first nine months of 2020, according to JLL.
“The boom of online retail throughout the lockdown period highlighted the on-going need for logistics floorspace to fulfil these online orders,” says JLL’s Jones.
“Investor demand is very strong and investment yields are trending strong across the UK markets segment and geographies.”
Jones also says that a third of all top-tier space taken up this year has been used for online order fulfillment.
Among the companies to strike a deal with Amazon was Tritax Big Box, a UK-based real estate investor. In June, Tritax agreed a 20-year pre-let deal for a 2.3 million square foot centre at Littlebrook in Dartford. When built, Tritax claims it will be Europe’s largest “state of the art sustainable logistics facility”.
Robert Orr, the chairman of Tritax’s European operations said that there was an “acute shortage of available space” as well as a lack of suitable development sites.
“Looking further ahead, occupier demand is set to remain strong, while the supply of new logistics space will be constrained for some time to come, which is positive for market rental growth,” he said.
Debenhams: death of a giant
That shortage of stock is clear to see. At the end of September there was 22.6 million sq ft of floor space available national, down 17pc from 2019. The volume of empty units is down too. The vacancy rate, including buildings under construction, now stands at 7pc nationally, down from 9pc last year.
Ecommerce demand is unlikely to slow going forward. Last week John Collison, the co-founder of payments giant Stripe, said the penetration of online shopping in the UK was “not that high” despite an acceleration caused by the pandemic.
During a briefing last week, Collison said that the market in the UK was still quite “under penetrated” and said that he anticipated a rise in so-called “showrooming”. This is where retailers will have a small number of physical stores but will control much of its sales online, which are then shipped from warehouses.
The tech underpinning the warehouses, now the lifeblood of modern retail, is also booming. Automation, augmented reality, and robots, have all been deployed to help improve safety and efficiency as volumes soar.
“Compared to more mature supply chain sectors such as last-mile delivery services and digital freight brokerage, warehousing tech is a relatively underinvested sector,” says Asad Hussain, a mobility analyst at Pitchbook.
Pitchbook data points to investment in warehouse tech start-ups topped $416m (£306m) in the third quartet of the year, up more than 300pc year on year.
Japanese investment giant Softbank was among the big name backers. Masayoshi Son’s firm led a $68m round in ecommerce fulfillment start-up ShipBob.
The continued surge in warehousing is nothing new. Ecommerce has been, for some time, eating away at traditional retail. However, investors are banking on the newfound acceleration of growth in ecommerce to become a lot more permanent.
The casualties of such growth have been clear to see. Brick and mortar retailers have struggled for some time and adapting and conforming rather than resisting and denying will most likely prove the more successful survival tactic.
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