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Is Brexit stockpiling driving warehouse demand? Part one

by | Mar 13, 2019

In this blog (the first of two) we look at claims that the UK logistics sector is running out of warehouse space as companies stockpile goods in case of a ‘no deal Brexit’.

Mark Carney, governor of the Bank of England, recently told the Treasury select committee that UK businesses cannot prepare for a chaotic ‘no deal Brexit’ because there is not enough warehouse space in the UK to stockpile goods. During the World Economic Forum in Davos last January, he had already warned about the “limited amount that many business can do to prepare if there are going to be substantial delays on the logistical side”.

Logistics developers in the UK have only started to increase practical availability with new speculative units as a response to recent increases in take-up levels, whilst demand continues to soar with a record high in 2018 (see our latest UK Logistics Property Perspective report). But is that surge in warehousing demand directly related to Brexit stockpiling requests?

The UK Warehousing Association say three quarters of its members report that their space is full to capacity and 85% had received Brexit-related enquiries. They also report that storage costs have risen by up to 25% in the last three months of 2018 as a result of those Brexit enquiries. Likewise, the UK Manufacturing Purchasing Manager’s Index indicated that Brexit was behind the sharpest upsurge in the 27-year history of inventory build-up, both for inputs and for finished goods.

Despite this apparent surge in demand, no major logistics deal directly associated with Brexit preparations has been reported so far. In fact, the main demand driver during 2018 was e-commerce and its XXL warehouse requirements, continuing a structural trend started some years ago. We need to analyse the nature of Brexit-related requirements to understand why they have probably not significantly influenced logistics take-up. Most firms undertaking stockpiling decisions are still guided by the uncertainty surrounding Brexit, and they are not ready to commit to any long-term solution. This means they are looking for temporary and flexible solutions that don’t show up in the take-up statistics.

Our regional Industrial and Logistics agents do report an increase in tenant requirements for short term lettings, although big box landlords are not necessarily attracted to those short term contracts, especially owners of new speculative developments. So Brexit requirements have been covered by 3PLs and within the space that firms already control. The very existence of temporary requirements could also be interpreted as a positive sign, meaning the companies believe any disruption from Brexit will be resolved in the medium term. Or they are waiting for more clarity before they commit to extra space for a longer period.

In any case, the amount of warehousing space requirements that 3PLs can absorb without taking more space themselves is limited, regardless of the nature of those requirements. Therefore, we could soon start to see either 3PLs increasing take-up levels to cover their internal demand or stockpiling companies switching to non-temporary strategies. If Brexit stockpiling continues to rise it will, at some point, be reflected in logistics take-up statistics.

(Please have a look at the second part of this blog)

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Is Brexit stockpiling driving warehouse demand? Part two