Commercial Insights - Industrial warehousing: preparing for the future.
Darren Mansfield highlights the rising short-term tenant demand for space and offers a view on COVID-19’s longer-term implications on how logistics space is used in practice.
3 minutes to read
What we know
Short term space requirements rising. Knight Frank has registered over 6m sq ft of short term requirements since lockdown, although only a small proportion have led to deals on vacant space. The majority have been absorbed into existing 3PL networks, but there is now very little “grey space” left unaccounted for. This has meant that 3PLs have re-entered the market with new requirements.
Aviation adversely affected. Jobs losses at Rolls Royce is further evidence of the damage COVID-19 is having on both aviation carriers and suppliers. It is reported the many of the expected cuts will be at the assembly and test site in Derby. To contextualise, Heathrow recorded cargo volumes of just over 50,000 tonnes in April 2020, the lowest monthly total since 2005. Passenger numbers were the lowest since 1997.
What we expect
Social distancing – Here to Stay. The first signs of social distancing on large scale fulfilment operations and wider occupier planning beyond the pandemic are beginning be factored. Businesses are of the view that measures are likely to remain in force for the medium term – years not months – or until a vaccine is developed. As a result, additional space is being sought for immediate use, but longer-term warehouse design and a possible move to campus type operations (adjacent units, capable of being run by a single management team) could be the result.
Vacancy to rise, but no oversupply. Whilst tenant distress will inevitably turn to failure for some organisations, a market overweight with warehouse supply is not predicted. It is too early to say how much space may be returned because of downsizing or default, but any increase will be mitigated by development delay. Contractors have now mostly been able to return to sites, although social distancing measures and supply chain disruption will hamper progress for some time to come.
What we question
A shift to online to add further pressure to the supply chain? Whilst supply chains across industries will clearly be an area of scrutiny post-pandemic, the acceleration of online retailing could add further pressure. As retailers reopen and adjust to a new marketplace, competition will intensify to achieve speed to customer. Will this encourage a shortening of supply chains as production is brought closer to home markets?
A glimmer of optimism for UK Car Manufacturers? As the UK begins to relax COVID-19 restrictions, car manufacturers are tentatively restarting operations. Even so, with the economic outlook looking increasingly poor, predictions regarding car sales are understandably gloomy. Indications from China, which came out of lockdown ahead of most countries, might offer some positivity however. A sharp rise in individual car use has been recorded as commuters avoid public transport. Could a shift in consumer attitudes to cars protect car makers from the worst of the economic fallout?
Will COVID-19 accelerate automation in warehousing? Risk mitigation is clearly going to be a lasting legacy of the COVID-19 crisis for businesses. This may mean that processes that are labour intensive are assessed as an area of potential vulnerability. As such, an acceleration toward greater reliance on robotics and automation may be the consequence, a shift which will have a marked impact on the design and specification of warehousing. Will the rate of building obsolescence increase as a result? Would any increase in fit out expenditure mean that tenants become more ‘sticky’?