08.01.2021, 15:13
The Alternative Market for Warehouse Space
Companies with underutilised warehouse space are ignoring a potentially significant, and effort-free, revenue stream says Clare Snaith, Head of Business Development at Bis Henderson Space.
It’s an acknowledged truth that the United Kingdom is ‘under-warehoused’. And the supply pipeline of new units is significantly constricted.
According to the latest figures from estate agents, Savills, in the 100,000+ SF range (which is not very large by today’s standards) there is just 6.9 million square feet of warehouses currently under construction – barely half of last year’s figure. A market with less than two years of supply on offer is considered undersupplied, yet currently the ‘void time’ for space, the time a unit stands empty before being let or re-let, is two months into negative territory as customers lease space off-plan.
But whilst supply stalls, demand booms, with the outcome that lettings in 2021 are forecast to top 50 million square feet – a new record. The inexorable shift to online retail is a major driver, accounting for 37 per cent of lettings, however, while Amazon alone accounts for 29.6 per cent, Savills observe that 2020 would still have been a record year even without that particular company’s supply chain and warehousing requirements.
For, ECommerce isn’t the only factor behind demand as COVID-19 has increased the need for storage of PPE and other medical supplies, with the new vaccination campaign also creating demand and not just in the cold chain as vaccine deliveries have to be repacked, and packaging materials have to go somewhere.
In other news, manufacturers, wholesalers and retailers are stockpiling, not only against Brexit, but in response to out-of-kilter global trade flows creating logjams at ports. Tesco, for example, is actively stockpiling non-perishable foods.
Retailers have naturally been building stocks for Christmas but there is a real risk that seasonal supplies may not clear Felixstowe or other ports until the New Year, extending the space demand peak, and adding to stocks lying unsold because businesses have not been allowed to open their outlets. Major retail failures mean that some stock will not be leaving the warehouse any time soon. In fact, supplies still on the high seas may join it.
However, manufacturers and retailers are not the only space buyers. There is active competition for ‘shed space’ from data centres, film studios, ‘dark kitchen’ operations, and others. The supply situation in the conventional market is extremely tight.
And yet, we are discovering a surprising amount of modern, well-appointed and well serviced space, often in prime locations, that could be made available in an ‘alternative market’.
Many companies, in manufacturing and in retail, find themselves in possession of owned or leased space in excess of their current needs. Retailers who have migrated to a largely eCommerce model find that, temporarily or permanently, they don’t need the facilities that were replenishing their physical estate. Manufacturers may have reduced their activities to focus on core product lines, or may have outsourced aspects of the production process, or may have pivoted to a ‘make to order’ rather than ‘make to stock’ model, meaning that space formerly needed for raw materials, intermediate or finished goods is now underused.
In some cases, products have simply become smaller and take less space. And sadly, administrators and receivers of failed businesses will, once the stock in hand has been sold off on the grey market, be in possession of empty sheds.
Even companies that are urgently looking for new space may simultaneously have underutilised warehouse assets – because they are of the wrong type, or in the wrong location, for the new business conditions.
All this space is on the balance sheet and being paid for. It could instead be earning revenue, if the owners could offer it to other users without being burdened with management issues that are probably outside their core competences. This is where an experienced space broker can support you.
Ask yourself these questions:
- Is your warehouse space and throughput capability usually underutilised?
- Do your operations see regular or seasonal peaks and troughs?
- Are changing product specifications or business models likely to require less space in future?
- Are you using costly internal teams (or external agents) to try to market this surplus capacity, and with what success?
Now, how about these:
- Would you like to benefit from a new revenue stream at no cost?
- Would you welcome another user to spread the fixed and on-costs of warehousing?
- Would better utilisation enable you to create additional services, benefitting you and your new tenants?
- Would higher usage, and income, help you justify the warehouse automation you know would improve operations?
- Would increased activity enable you to offer warehouse staff a more fulfilling and secure working experience?
And, finally:
- Would you like to realise these benefits with zero or minimal investment, with no increase in your operational costs, with no requirement for distracting management attention on your part – a new revenue stream, fully managed, without effort, cost or risk?
If you answer affirmatively to any of these questions, we strongly suggest that you talk to an independent broker.
At Bis Henderson Space, we have for a long time worked with a variety of companies across many sectors to match up their space surpluses with other business’ requirements, over shorter or longer time periods, and then to manage the relationship.
For example, we have been working with a leading IT and technology supplier, who own a dedicated, substantially automated warehouse. This is currently about two thirds underused, in part because of changing business models but also because IT has shrunk – the warehouse was originally scoped in the days when PCs were desk-sized towers and monitors had cathode ray tubes. Mobile devices just don’t take that much space. We have been able to offer a six-month deal on 120,000 SF of space in a prime Midlands location, raising income for the shed owner.
There is a similar situation with a well-known office supplies company, also in the Midlands. Again, the nature of the goods, and the way they are supplied, has changed and although the company has diversified its activities they still have significant warehouse space lying idle.
These sites have helped satisfy the need of one of our clients in the power tools sector. This company knows it needs its own dedicated UK warehouse, but in the current turmoil isn’t in a position to commit. In the meantime, ‘borrowing’ other companies’ spare space is an effective interim solution.
A third opportunity we are presently handling is that of a fashion brand, formerly focused on the High Street, but which has slimmed down and restructured after administration to be mostly on-line, leaving its highly capable distribution centre half-empty and potentially available.
So, it isn’t quite true that there is no suitable space available in the UK. There is, but the ‘suppliers’ of this space aren’t the traditional warehouse-keepers and 3PLs – they are companies that haven’t yet realised the revenue potential of idle assets.
Author
