Brexit seems to have caused a certain amount of confusion not only for MPs, Liza Helps looks at its affect on the supply and delivery of warehouse space for occupiers going forward.
“Without the element of uncertainty, the bringing off of even the greatest business triumph, would be dull, routine, and eminently unsatisfying,” according to American business legend John Paul Getty – however it is unclear how many businesses in the UK would appreciate that sentiment at present.
For it is the uncertainty surrounding Brexit, that is causing the most headaches and indeed stifling progress. On the logistics and supply chain front this is critical and has launched a myriad of alarming headlines regarding the availability of warehouse space to cater for the many and varied Brexit outcomes – whether its a No Deal, a deal or no Brexit.
“It is this uncertainty that is causing issues,” says Logicor’s Mike Best, “if you know what is going on then you can plan around it.”
Ivan Scott of Glenny agrees: “It is not the decision [to Remain or Leave]it’s the uncertainty. Everyone needs to know what type of Brexit we are getting. If we can get a workable solution that everyone can understand then the market will just get on with it – it’s the not knowing that is causing the hiatus.”
This is the same sentiment that Charles Binks of Knight Frank espouses: “We can handle whatever is thrown at us; it may not be what we want, but if we know what it is – we can deal with it.”
In terms of logistics and the supply chain, Jonathan Holland of LGIM Real Assets says: “Many operators had indicated that Brexit would lead to an increase in demand for distribution warehousing, as more goods would need to be stored in the UK to avoid potential import delays.”
However, Sleeman notes: “If the supply chain is more uncertain then people want to hold more stock to compensate – this is the rationale behind stockpiling. There certainly seems to be some evidence of this but it has not triggered any new requirements specifically as yet.”
Simon Pringle of LondonMetric says: “Brexit has definitely had an impact on short term demand but it is difficult to quantify.”
Simon Lloyd of Cushman & Wakefield explains: “There is stockpiling but not as much as one would expect but those that are stockpiling seem to be doing it under the radar, not wanting to cause a panic for clearly obvious reasons especially as most think the stock piling is for the short term.”
There are some industries where stockpiling is clearly seen as more necessary. Andrew Barlow of Barwood Capital says: “We are aware of a surge in demand for stockpiling and temperature controlled facilities for food manufacturers and distributors on a short term basis.”
In her latest blog about Brexit, Lisa Graham of Cushman & Wakefield says: “Evidence that many companies are considering stockpiling as a temporary solution (short to medium term) are in the inquiries recorded on Stowga’s online marketplace where businesses looking to store pallets of products can connect to occupiers holding unused warehouse space.”
“In recent months, the platform has recorded online inquiries from a number of industrial/engineering companies including a Japanese car manufacturer and an airline utility company for space to stockpile parts. In the two weeks following Tesco’s announcement on stockpiling, they, and other UK grocers, contracted out all of the chilled space available on Stowga’s website.”
Indeed STOWGA says: “We’ve had huge amounts of demand, especially from large corporates who are looking at contingency planning in the event of a no-deal Brexit. In particular, we’ve had enquiries from companies in the food & drink, manufacturing and consumer goods sectors. Much of the enquiry is for securing space in Q1 2019.
“Most of the demand is around the “golden-triangle” as firms want to stockpile in areas that are the most accessible and have the best transport links. We’ve closed deals with a number of importers last month [November 2018] and are working with a large number of corporates to find them the optimal warehousing solution. We anticipate the sustained demand will continue to drive up pricing for short-term storage.”
Short term demand is not just linked to the Golden Triangle, in the North, Simon Dove of Dove Haigh Phillips says: “We have seen an increase in the demand for short-term racked storage space, ambient and chilled throughout the region. This has ranged from 50,000 sq ft upwards generally. We understand a number of operators are holding three plus months supply of stock to protect the risk that Brexit may bring to their business.”
Binks has been advising clients of second hand warehousing not to remove racking as would be the norm: “We are saying [to them]if there is racking etc they have a better chance of letting the property quickly on the short term and once the occupiers are in it is highly likely that they will stay anyway.”
For the suppliers of warehousing space, be they developers or funds, Brexit is having an effect but not one that is considered anything but short term, which has to be good news for occupiers as well.
On the short-term front the uncertainty about Brexit is causing issues surrounding decision making. From an agent’s perspective, Scott says: “There has been a slow down, we have done a lot of feasibility studies but viewings are down. The enquiries are there but the decision making is not.” Likewise, Mike Hughes of developer investor Verdion says: “I am sure there are some occupiers that are holding back certain decisions until they know the shape of what may be politically agreed [regarding Brexit].”
For Dove this is not unexpected: “As we experienced from the downturn a decade ago, it is often the path of least resistance to delay major property related decisions until we are in a period of economic stability – but we see this as a short term issue.”
From an investment and developer perspective, especially regarding any decisions to forward speculative development or indeed to fund it, there are mixed views. Christian Matthews of db symmetry says: “Any decision involving a decision to invest in land and properties or speculatively developing facilities has to be right and based on sound principals.”
It has been noted that some are holding back from pressing the button to speculatively develop, certainly in the first quarter of the year.
Where developers and funds have decided to progress specific fundamentals are applied. For Barberry Developments the decision to progress with its More+ scheme in Central Park Bristol is put forward by Jonathan Robinson: “Recognising the shortage of quality, well located warehousing in the wider Bristol industrial market, coupled with the apparent pent-up occupier demand in the region, Barberry Developments in joint venture with Richardson have committed to speculatively developing 550,000 sq ft of brand new mid box grade A accommodation at Central Park in Bristol. With the first five units due to practically complete in March, we are already witnessing strong levels of demand from across a broad spectrum of occupier sectors. Hence, against the backdrop of Brexit uncertainty, we are instead viewing the same as a definite opportunity to capitalise on the unabated demand for warehousing, particularly from the essential goods, logistics/supply chain and fulfilment sectors.”
LondonMetric is taking a similar view with its £70 million Bedford Link Logistics Park, where it is speculatively building three warehouses of 106,000 sq ft, 50,000 sq ft and 32,000 sq ft.
Pringle says: “On the supply side there are very few 30 – 100,000 sq ft warehouses in the local region and we have confidence in pent up demand, however we won’t be speculatively developing the larger units not because of Brexit but rather there are more opportunities [of a similar size]in the wider region.”
Chris Yates of Cushman & Wakefield notes: “Market dynamics, namely the acute supply shortage of good quality distribution, warehousing and manufacturing accommodation in the South West industrial market, is the primary driver behind our clients’ (Richardson and Curtis Hall) decision to speculatively develop at Western 105, Western Approach, Avonmouth.”
While there may be a pause on the development side, especially for speculative schemes, with some funds and developers; with others it seems to be business as usual. Indeed, Phillip O’Callaghan of Mountpark notes: “The first week back has been the busiest week in January that I have ever experienced with three proposals going out in 10 days.”
Andrew Dickman of db symmetry explains: “Brexit looks big and important in the UK but on a global scale it is less from an investment perspective.”
“The supply/demand dynamics for logistics continues to offer strong rental growth prospects in this sector, with little impact from Brexit,” says Barlow, “demographics, the growth in on-line retail sales and supply dynamics have driven strong performance, enhanced by Sterling devaluation and the positive impact on exports. These structural and technological factors are having a greater impact on the sector than Brexit and occupiers are still taking 10 to 20 year leases, indicating that long term business plans look far beyond any Brexit uncertainties over the next few years.”
Hughes agrees: “Urbanisation and the ever unstopping trend in the nature of consumption in all areas makes Brexit a footnote against a much bigger economic picture.”
Gregory Cooper of Hines, which has just secured its first UK warehouse investment for its Hines European Value Fund with the acquisition of 423,000 sq ft Cribbs Causeway Distribution Centre in Bristol, says the decision to invest in the facility was based on the structural shift occurring in the logistics market primarily as well as the opportunity to create uplift in the investment through active management.
The 423,000 sq ft of logistics space is let to a single tenant whose lease expires in 2020.“The pending lease expiry presents us with a substantial opportunity to manage their exit while implementing a major programme of refurbishment and re-letting to execute a rental reversion,” says Greg Cooper. “But without the strong market fundamentals this would not make sense at this time.”
Where Brexit may have an impact that could cause concerns for investors is where it affects consumer confidence – but most agree it would have to be a substantial knock back before the logistics sectors is affected.
Holland says: “There have been structural changes in how we as consumers shop, which ultimately has led to declining high street sales and increased e-commerce trade and to-date this has been to the warehousing sectors’ benefit. “Over the past few years we have seen increased take-up on large distribution units, but also increased demand for smaller urban logistics units, closer to urban centres and capable of catering for the “last mile” delivery i.e. direct to a consumer’s front door- such as the schemes we are currently developing in Birmingham and Basingstoke. I have no doubt that these will still be significant positive influences for the sector over the forthcoming years.
“However, bearing in mind that around 70 per cent of all UK take-up of warehouses is retail related, it would be naïve to think that declining high-street sales will not impact warehousing demand.”
This article first appeared in Logistics Manager, February 2019