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online retail drives demand for new warehouse space.

As the coronavirus changes the shopping habits of the nation, online retailers are snapping up warehouse space to meet demand.

In the last three months, warehouse rental space has climbed to record levels, with the majority going to the big online players, real estate experts CBRE have said. Compared to the same period last year, Q3 this year has seen take up at 13.3 million sq ft, which is more than double the amount. That broke the previous record of 12.8 million sq ft, which was hit in Q2 this year. Deals done in Q3 were more than double the same period in 2019, with 45 deals completed as opposed to 21 in the same period last year.

Changing landscape

Online only made up 33% of all activity but food providers, general retailers and third party logistics providers also experienced a huge increase in activity during the same time.

According to CBRE UK Industrial and Logistics Senior Director, Jonathan Compton, the take up in the last six months has exceeded the annual total for eight of the past 10 years. Rather than suppressing demand, concerns around Covid-19 and Brexit have driven demand while shoppers have fundamentally changed their retail habits.

Tasos Vezyridis, Senior Research Director for CBRE, said the rapid rise in e-commerce during lockdown will have a lasting effect. In effect, five year's growth in online sales had been concentrated into just six months.

In turn, growth has altered retailer's plans for logistics expansion, accelerating their needs and pushing them to take up readily available warehousing space. Vezyridis said he expected the industrial and logistics sector to continue to outperform other property sectors owing to the abrupt increase in demand.

Increasing demand

New analysis suggests that around 100 million sq ft in additional warehouse space will be required by 2024 to keep up with the pace in online retail, with grocery alone accounting for 7.1 million square feet in just four years.

Real estate advisor Knight Frank analysed five year data for online sales and warehouse take-up and concluded that 1.36 million sq ft was needed for every £1bn. 

According to eMarketer forecasts, online could account for 32% of all UK retail sales by 2024. That would represent a 5.4% rise on the current 26.6% requiring an additional 92 million sq ft of warehouse space.

That growth could put pressure on the current limited supply of warehousing space. That situation was made worse by the delays to construction during the height of the lockdown. 

The rise of e-commerce has been a fundamental driver behind the demand for warehouse space over the past five years, according to Charles Binks, Knight Frank department head logistics and industrial. He pointed out that the new analysis showed a trend that would continue to accelerate as consumer behaviour continues to shift towards online purchasing.
It's clear the projected rise in online sales will continue to create a huge demand for warehouse space over the next four years. Warehousing technology and future social distancing requirements will also have an impact. The critical question is whether supply can continue to keep pace with demand.

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