Online shopping boom drives demand for warehouse space

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Thousands of new warehouses will be needed across the UK and Europe because of the online shopping boom since the pandemic, according to real estate group CBRE.

Coronavirus has led to a surge in ecommerce and CBRE estimates that an additional 300m sq ft of warehouse space will be needed in Europe by 2025.

The UK, already one of the most developed ecommerce markets in the world, will require an extra 60m sq ft of space — equivalent to 14 per cent of existing warehouse space.

Property investors have thronged into the logistics sector during the pandemic, betting that the change in habits will last.

“We think the pandemic may have caused a three to five year acceleration in that shift in how people consume goods [in Europe],” said James Seppala, head of real estate in Europe for Blackstone, which has invested billions in the sector through its Mileway platform.

Europa Worldwide Group’s warehouse in Dartford, Kent: online spending as a proportion of total UK retail sales hit a record of 36.3 per cent in January © Europa Worldwide Group/Reuters

“Goods purchased online require around three times the logistics space [as physical stores]. If you believe in the continued growth of ecommerce it makes sense to believe in the need for logistics space,” he added.

But figures published by the UK’s Office for National Statistics on Friday indicate that, once shops are open again, online retail might shrink.

Online spending as a proportion of total UK retail sales hit a record high of 36.3 per cent in January this year, almost double pre-pandemic levels. But with shops reopened, online spending accounted for 27.3 per cent of the total by May.

Tasos Vezyridis of CBRE estimates that ecommerce will plateau at just above 40 per cent in the UK in the longer term but there is still plenty of demand for warehouse space.

“Supply is struggling to cope with demand,” he said. “This will drive rents up.”

Logistics companies say that their customers are asking them for faster delivery, which requires more facilities in or near town and city centres.

Mark Manduca, chief investment officer of GXO Logistics, which has about 200m sq ft of warehouse space, said “the supply of prime sites is something our customers worry about”, adding that restricted availability would likely benefit larger logistics contractors.

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