Leading Title Insurance
A PRE-BREXIT LOGISTICAL NIGHTMARE: THE STATE OF WAREHOUSING TODAY The expression ‘logistical nightmare’ has taken on fresh meaning with the increasing likelihood of a no deal Brexit - which some claim has resulted in an unprecedented shortage of warehousing space across the UK.
Developers in the commercial space are already responding to the problem by building more industrial warehousing. But are the sustained reports of a warehouse shortage as critical as the media say? Even before the word ‘Brexit’ was coined, warehouse space in the UK was in demand and the logistics sector was a healthy industry. At the same time, the rush to build houses to meet the Government’s aim of 300,000 homes a year by 2020 (and even that won’t be enough, according to Government) has led to a depletion of suitable land available for warehousing and logistics sites.
So what’s the issue? There’s no doubt that businesses are stockpiling ahead of Brexit, ranking up a couple of gears in December 2018 against the increasing prospect of a no deal scenario – and shifting up yet again in January 2019 when it became clear that a deal was still not within sight. This stockpiling means businesses’ storage requirements have risen steeply. According to the UK Warehousing Association (UKWA)1, 75% of its members’ warehouses in the UK report that their warehouses are full to capacity, particularly near
1256comm-0219
major cities. Furthermore, it says storage costs have risen by up to 25% since September 2018 because of a steep rise (85%) in inquiries prompted by Brexit. So why the stockpiling? Businesses from across all industries are increasingly concerned about potential port delays, a rise in trade tariffs and a slow up in the free flow of goods. As a result, they are ordering ahead - but at the time when they need short term storage space more than ever before – they are being turned away by the warehouse businesses. Delivery delays are a potentially disastrous problem for some sectors, particularly frozen and chilled foods given their short shelf life. Even the Government is building £1 million worth of extra ‘refrigeration capacity’ in case a no-deal Brexit leaves the UK short of certain drugs. Moreover, it’s not only UK businesses who are stockpiling: there are reports that companies in Europe are storing within the UK. They are concerned about potential interruptions to the supply chain and want plenty of stock in the market before Brexit happens, ahead of the uncertainty of the implications for their major supply routes.
Kevin Mofid, head of industrial research at Savills, comments: “We are not really seeing the type of impact on the actual property market that you would expect after reading some of the press. We have not yet seen any deals for new warehousing that would link directly to Brexit or stockpiling. The problem is that anyone looking for warehousing for Brexit stockpiling has very short time requirements of around three to six months. The typical landlords and developers of this space are going to want to let it out for five to ten years.”
‘Developers will be in it for the longer term, not to ease pre-Brexit panic.’
Land shortages and industrial development So while the availability of warehouse space in the UK is fast diminishing as far as businesses with immediate and short term needs are concerned - the wider problem for the logistics and warehousing sector may be a general shortage of land for development. UKWA chief executive, Peter Ward, has said few developers had been building warehouse space without confirmed tenants because urban land was being prioritised for homebuilding. He has been “warning for two years [that] fit-for-purpose, appropriately located warehousing is in desperately short supply in the UK”. Notably, back in 2015, the UKWA published a report (in association with Savills) that highlighted a critical lack of real estate supply and appropriate development in the logistics sector. Today, Savills reports that there is 31.4m sq ft of vacant warehouse space on the market. It also says it is not currently seeing Brexit will have a significant impact on occupier demand, though this may change as more clarity emerges over pending trade agreements.
Arguably the bigger issue is that businesses wanting flexible terms for a short period will find it harder. As Mofid says: “It’s not in a landlord’s interest to lease a unit for three to six months; they would rather leave it vacant until someone took a 20-year lease.” Developers will be in it for the longer term, not to ease pre-Brexit panic. How are businesses and warehouses responding to this unprecedented demand and lack of supply? Not every commercial warehouse operator is willing to rent out storage space on a short-term basis – say, up to six months – it is just not cost effective. However, some warehouse owners are reportedly resorting to adding new racks to increase their storage capacity. There are also businesses taking proactive action and neither relying on developers to erect new warehouses, nor waiting on storage space coming available. Wild Water, for instance, is building a large facility at Aberbargoed, in Wales because it has run out of space. The company stores frozen, chilled and ambient raw ingredients and finished food. Nigel Payne at Wild Water says: “With Brexit looming, there has been an increased
trend in the market of companies stockpiling their food products, which invariably creates a business advantage and consequently further justifies this financial investment.” As businesses seek additional warehousing space, developers should be stepping in - though time is not on their side to reap any immediate rewards of the current stockpiling. To build warehouses of significant capacity takes millions in investment and can take a long time to erect. The potential problems that can arise which could jeopardise these transactions range from planning issues and rights of way to missing title documents and lack of clarity as to the legal ownership of the land. Where speed is of the essence, developers can confidently rely on title insurance to help enable a timely completion. Unfortunately for businesses hunting down storage space – and despite some warehouses lying vacant Savills says the UK is an ‘under-warehoused country’ with just 7.61 per cent of warehouse accommodation per head compared with almost 39 per cent in the US. It says: “More stock is needed, and fast.”
The evidence is that developers are grasping the nettle. In January 2019, for example, a leading property developer in the commercial space, Barberry Developments, won planning permission for a £6 million 65,575 sq ft development for an industrial / warehouse unit in Wolverhampton in response to demand. In fact, the Midlands is a particularly attractive region for warehouse construction and is arguably the UK’s logistics and warehousing capital, given its location: the major motorways and rail connections intersect the Midlands, with two airports nearby (Birmingham International and East Midlands Airport). Up north, plans for a new 4.35 million sq ft warehousing development in Corby have been submitted; and Savills says 40 units are under construction totalling 8.4m sq ft. It’s a critical time both for industry and for the country. It’s also a time for developers and investors to spot an opportunity here. That the UKWA says 75% of warehouse owners have taken on business from new customers illustrates just how big the demand for warehousing is. UK Warehousing Association
1
At the end of 2018, Savills reported that developers are responding with a 134 per cent increase on the fiveyear average of new speculative warehouses under construction. Also, with the high level in demand for warehousing space, landlords and developers may well be able to charge higher rates.
As the preferred provider of Legal Indemnities Insurance
To find out more about our products and services email info@firsttitle.eu or call +44 (0)207 160 8100
www.firsttitle.eu First Title Insurance plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. First Title Insurance plc is registered in England under company number 01112603. Registered office: First Title Insurance plc, ECA Court, 24-26 South Park, Sevenoaks, Kent TN13 1DU.