Increase in UK manufacturing to cause ripple effect on warehouse demand
Every £1 billion of UK manufacturing investment, will require an additional 175,000 sq ft of warehouse space according to a new report from Savills. Demand for storage and distribution capacity is set to soar if firms look to on-shore facilities as a result of the ongoing Covid-19 pandemic.
The UK has attracted up to £148 billion of private manufacturing investment in the past five years creating demand for as much as 26 million sq ft of warehouse space. Looking ahead, Savills research has analysed Gross Fixed Capital Formation (GFCF) as a lead indicator of future investment levels, predicting a ripple effect that could lead to additional requirements for up to 15.4 million sq ft by the end of 2022.
Based on this forecast, Savills suggests that should demand rise by a further 20% due to a surge in manufacturers wanting to produce closer to their intended markets, then the amount of warehouse space needed is likely to be closer to 18.5 million sq ft. Given that vacancy rates are currently historically low at 6.5%, which is anticipated to drop further still, there is potential for demand to outstrip supply unless speculative development returns to pre-pandemic levels.
What’s more, this is not unique to the UK. Data from the Institute for Supply Management’s (ISM) July survey has shown that 20% of firms across Europe are planning, or have already begun, to reshore or nearshore some of their operations.
Savills notes that businesses are likely to shift their supply chains from a ‘just in time’ to a ‘just in case’ model as a result of mass disruption caused by global lockdowns. This will also become increasingly important as the country continues to navigate Brexit.
Kevin Mofid, head of industrial research at Savills, comments: “A lot has been said about the rise of e-commerce and the impact it has had on industrial & logistics take-up here in the UK, but manufacturing is set to play a significant role moving forward especially in light of recent global macro events. As we know the average manufacturer relies on several associated trading partners, all of which are involved in the supply chain, therefore manufacturers receiving an increase in private funding will undoubtedly require additional storage and distribution space. Taking into consideration current vacancy levels, this shortage of available space is likely to intensify as retailers continue to stockpile and online retailers expand placing upward pressure on rents.”
Richard Sullivan, national head of industrial & logistics at Savills, adds: “Historically the UK was an important centre for industrial and manufacturing and for certain sectors and markets continues to be so. However, the last six months has demonstrated shortcomings in supply chains which need to be addressed and coupled with the prospect of Brexit at the end of the year, we anticipate increased demand for industrial and manufacturing related demand.”