Simply not enough space

October 03, 2018

According to a recent survey by Savills, the global real estate services provider, UK warehousing vacancy rates look like this;

London &The South East – 4.6%

East Midlands – 4.6%

West Midlands – 6.7%

North West – 7.9%

Yorkshire & The Humber – 4.8%

South West – 7.2%

East of England – 4.5%

Scotland – 4.5%

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With the exception of the West midlands and the South West these figures are all falling rather than increasing on a year on year comparison H1 2017 to H1 2018. The UK as a whole has seen national of warehousing decreasing rapidly since speculative investment in the sector dried up in the wake of the 2008 financial crisis. Without speculative building nothing is constructed without an “anchor” customer; a client who can guarantee usage as soon as construction is complete. The downside of this style of investment is that there are very customers with the buying power to encourage investment and those companies large enough to be anchor customers often use up a large amount of the space as soon as it is available so even though something new has been built, available space remains low.

Temperature controlled storage suffers from this problem even more extensively because of the significantly higher cost of building such a facility. Between the additional layers of insulation, the safety requirements, the cooling plant and associated equipment the cost of a coldstore is around three times higher than a typical ambient warehouse simply in the construction of the buildings.

According to investment management firm JLL, “cold storage construction cost averages $150-170 per square foot, compared to $50-65 per square foot for dry [ambient] warehousing space.”

So where does that leave us in terms of Brexit?

Put simply, there won’t be enough space for everyone. A recent survey by industry magazine, The Grocer, suggested food manufacturers were stockpiling additional stock of both ingredient and finished products. Depending on their vulnerability to delays and restricted access to goods some companies were planning to stockpile 10 days of additional stock, while most were planning for 3-5 days.

Doing the maths, that won’t work out. The Grocer’s report indicates that manufacturers may seek between 5% and 20%, with the median amount of 10% extra storage. Even with a conservative estimate of an 8% spike in demand there isn’t a single area of the UK that could accommodate that according to Savills report, particularly for cold storage.

What to do if you’re a food manufacturer?

Firstly, analyse on your vulnerability. Even if you operate solely within the UK and only work with UK based suppliers you may still have an unforeseen vulnerability. Where do your suppliers get their products? Secondly, decide on the level of security you need based on what you believe the impact of Brexit will be. Do you need a 5% increase of holding or a 15% increase? Lastly, book the space before everyone else beats you to it. There is a finite and limited supply so waiting until February 2019 won’t work out, there simply isn’t enough space.

 

Sources;

https://www.bbc.co.uk/news/business-45627152

https://www.savills.co.uk/insight-and-opinion/research.aspx?rc=United%20Kingdom&p=Industrial%20and%20Logistics&t=&f=date&q=&page=1

https://www.savills.co.uk/research_articles/229130/248273-0

https://pdf.euro.savills.co.uk/uk/commercial---other/big-shed-briefing-july-2018.pdf

http://www.anccold.com/blog/cold-storage-construction-cost

https://www.thegrocer.co.uk/finance/brexit/food-suppliers-start-stockpiling-amid-fears-of-no-deal-brexit/571634.article