In a year dominated by a global pandemic, it was no surprise to discover that the results of last year’s census were wildly different from previous years.
Panel of experts
- Mike Coupe – former chief executive of Sainsbury’s
- Tom Leeming – development director at Tritax Symmetry
- Bonnie Minshull – director at Savills
- Kevin Mofid – head of research for industrial and logistics at Savills
- Mark O’Bornick – director at Analytiqa
Covid-19 was the number one concern among occupiers in 2020, an issue which did not rank at all in 2019, but there were other major differences too. Brexit uncertainty went from being the biggest concern of occupiers in 2019 to only their fourth highest in 2020.
With a Brexit deal now over the line, Mark O’Bornick, director at Analytiqa, quipped that the census was “looking at Brexit hopefully for the last time now”. Despite all the events of 2020, he observed that people’s views on Brexit had not changed much.
“Once again, just over half of respondents told us that Brexit will have an impact on their warehouse footprints in the UK, either by requiring more or less space,” he said.
By far the biggest shift in concerns was over rising costs, which fell from second place in 2019 to ninth in 2020, just above the lowest-ranked concern, about consumer price issues, at 10th.
With Savills calculating that the industry recorded take-up of 50.1m sq ft in 2020 – the highest figure on record – the census also gave some insight into what level of take-up the industry expects to see in 2021.
Whichever way we slice the data that we record on take-up, it has been a record year
“In terms of demand for warehouse space, it’s very pleasing from a property industry perspective to see nine out of 10 respondents expect to acquire more or the same levels of space within the next two years,” said O’Bornick. “Once again, that was largely led by the logistics operators with two-thirds of those companies expecting to acquire more space over the next two years. It’s good to see that only 5% of retailers say they expect to need less space over the next two years.”
After O’Bornick’s census analysis came a session from Kevin Mofid, head of research for industrial and logistics at Savills, who spoke about the findings from the agency’s latest Big Shed Briefing. “Whichever way we slice the data that we record on take-up, it has been a record year,” he said. “[In total] 50.1m sq ft transacted across 165 separate transactions takes us to an increase of 127% in 10 years.
“Another stat just bubbling under the surface that you may not have seen is that 10.8m sq ft of speculative space was taken last year, the highest amount of speculative space ever taken in one year.”
Another statistic that Mofid said “was going under the radar” was that in 2020 third-party logistics operators took the highest volume of warehouse space they have ever taken in one year – close to 10m sq ft.
Yet another record-breaking statistic was that 2020 saw the most deals of more than 500,000 sq ft – more than 2018 and 2019 combined, in fact. “Clearly, that is a key trend of 2020 and one which we think is going to continue,” said Mofid.
As a caveat to this bullish news about the market, Mofid pointed out that Amazon alone accounted for 25% of 2020 take-up while short-term take-up – deals for less than five years, such as those for NHS PPE storage and distribution – accounted for 12% of take-up. However, he stressed that even taking those figures into account, 2020 would still have been a record-breaking year by many measures.
It’s good to see that only 5% of retailers say they expect to need less space over the next two years
Mofid also questioned how long the booming UK logistics sector could run counter to wider economic trends – such as the huge spike in unemployment and the sharp dip in consumer spending caused by the Covid-fuelled recession.
“The unemployment rate is not going to get back to where it was pre-Covid for the next decade, and consumer spending is going to take a dive before it really rebounds later in the decade,” he pointed out.
“My question here, therefore, is: does the supply chain reorganisation – having more business being done online, having more delivery nodes in the network, stockpiling for Brexit, keeping more inventory in the UK for nearshoring – does all this combined mean we should in some ways disregard the economic indicators that we’ve been reliant on in the past? Something for discussion.”
The final speaker of the event was Mike Coupe, former chief executive of Sainsbury’s, who was naturally confident of supermarkets’ ability to ride the wave of change in consumer shopping habits.
“The reality is that the stuff that people buy within grocery does not change that much,” he said. “The top 10 products that seem to really sell today are pretty much the same as they were five years ago, and pretty much the same as 10 years ago.
“What people buy doesn’t change that much. Of course, what is changing very rapidly is the way they buy it. And we’ve seen a doubling of the online grocery business in the UK in the last year.”
Amazon’s grocery grab
Coupe also used his talk as an opportunity to question whether Amazon would be able to break into the online grocery market.
“Amazon has also tried the grocery business in the UK – and indeed globally – and it’s fair to say that the jury’s still out on its ability to deliver groceries in an economic way. And if you look at the current market data, there’s very little evidence to say that Amazon made any significant inroads into the UK online grocery business. So, the jury’s still out.
“It’s an unbelievably successful business. It will keep trying until it gets it right. But it is competing with the most mature markets and six of the best operators in the world.”
On Amazon’s growth, Coupe said the amount of warehouse space the online retailer takes is “frightening” and added that “one way or another that’s going to lead to further consolidation in the general merchandise and clothing businesses”.
Amazon is competing with the most mature markets and six of the best operators in the world
Coupe also spoke about both the automation and the electrification of the supply chain in the future. “You’re going to have to have much bigger power plants, because those autonomous vehicles are certainly going to be electrified over the next 10 to 15 years,” he said.
“So, making sure that there’s enough power to charge the vehicles leaving the warehouse and distribution networks, I suspect, will become a bigger and bigger deal over time.”
During the Q&A session with Tom Leeming, development director at Tritax Symmetry, and Bonnie Minshull, director at Savills, Coupe answered questions about the profitability of home delivery and the possibility of ‘dark’ supermarkets, which are used primarily for home delivery.
On the former, while Couple acknowledged that customers buying from a shop would always be more profitable for a supermarket than home delivery, he nevertheless stressed that supermarkets would have to find a way to make it work.
“Listening to my successor talking, Sainsbury’s has got more profitable and there will be very significant economic drivers to increase pick efficiency, drop density and so on. Sainsbury’s does 44% online. When I took over, it was 5%. So, you can see how that business will have to adapt to changing customers’ requirements and needs.”
As for ‘dark’ supermarkets, Coupe said though there had been “many examples of online grocery businesses that have made no return on capital”, he recognised that Ocado did a “brilliant job of selling the dream”.