The UK supply chain is in a difficult situation as a shortage of warehousing space poses a threat to operations. The rise in online shopping has forced retailers to open larger distribution centers, resulting in a scarcity of available logistics space. At the end of September, there was only 7.1 million square feet of warehouse space available, which marks the lowest vacancy rate on record at 1.53%. In comparison, about 5% of total warehouse space was available for lease at the same time last year.
Major UK retailers like M&S, Next, Sports Direct, and JD Sports Fashion have responded to the surge in online demand by significantly expanding their warehousing capacities. This trend is expected to continue and intensify as the Christmas season approaches. A report shows that 39% of the most recent quarter’s leased warehouse space was taken by online retail companies, clearly indicating the shift in shopping habits.
The scarcity of warehousing space has led to fierce competition among companies, with some even agreeing to pay up to 20% above the asking price to secure the necessary space. Jonathan Compton, senior director for UK logistics at CBRE, has emphasized the critical nature of supply levels, especially in the northern belt that stretches along the M62 motorway.
Lockdowns have accelerated the shift to online shopping, resulting in higher demand for warehouses. Parcel groups and food delivery companies are also contributing to the need for additional logistics space. However, the number of leasing deals being completed is decreasing as agents struggle to find available stock to market. In the third quarter of this year, there were 36 deals completed for 10.9 million square feet of logistics space, compared to 45 deals for 13.6 million square feet in the same quarter last year.
The severe shortage has caused rental prices for top-quality warehouses around the M25 to increase. CBRE estimates that these warehouses would now rent for about £18 per square foot, up from £16.50 per square foot a year ago. Fortunately, there is some relief on the horizon as more warehouse space is currently being constructed. CBRE estimates that 13.75 million square feet of logistics space is being built during the third quarter.
However, accessing the new warehouse space may be challenging for smaller firms, as larger retailers have more bargaining power and financial resources to secure leases at elevated prices. This discrepancy in negotiating power could put smaller businesses at a disadvantage.
In conclusion, the shortage of e-tail warehouse space in the UK has led to rising prices and challenges for retailers in fulfilling online orders. The demand for logistics space has skyrocketed due to the surge in online shopping and the need for additional storage for parcel and food delivery services. While there is some relief expected with the construction of more warehouse space, the shortage presents difficulties for smaller firms in accessing the necessary space. As the supply chain continues to evolve, finding innovative solutions to the shortage of warehousing space will be crucial for retailers to meet the growing demands of consumers.
Useful links:
1. BBC News – UK Warehousing Space Shortage
2. Financial Times – UK Warehousing Crisis
