UK warehouses could still be hot property for investors after a vaccine is found

Demand for UK warehouses could still be high once the coronavirus crisis is over, writes Joanna Bourke

Amazon has a number of warehouse sites in the UK

17 November 2020

A London property agent recalls his first job out of university in 2008 was trying to sell warehouses in Edmonton and Park Royal. He remembers some sites being cold, damp and unloved and he eventually moved on to work in other parts of the property sector. That was before investors and tenants warmed to sheds on a much larger scale.

Industrial properties have been in high demand this year, with it emerging this week that FTSE 100 landlord Segro has snapped up more sites, and recent data revealing a huge number of leasing deals. It has of course been a highly unusual year, but love for this sector could still continue even when more normal times return.

Investors are right to question whether such high demand for space, which jumped this year as retailers sought more logistics space to cope with a wave of new online shoppers won during the coronavirus crisis, will continue post-Covid. There will be plenty of people desperate to get back to the High Street who are fed up of being stuck indoors and behind a computer screen.

However, there are people who tried online shopping for the first time this year, including my nan (Mary loves Sainsbury’s and Amazon orders at the moment), because they had to. Newbies discovered online was convenient and easy enough. Many of these shoppers will stick with digital post-Covid.

Meanwhile retailers know they need to increasingly have transport and storage hubs close to cities. As Russ Mould, investment director at AJ Bell puts it, demand for sites is likely to remain strong over time “thanks to the rise (and rise) of online shopping and deliveries, especially as greater numbers of retailers promise same-day or next-day delivery”.

The lockdown also fuelled space demand from different types of occupiers. Research today from BNP Paribas Real Estate shows that meal kit providers that deliver recipes and ingredients to consumers’ homes, signed for close to 735,000 square feet in the first nine months of the year, up significantly on 2019. So it isn’t just traditional High Street retailers and online fashion and homeware retailers wanting more logistics space.

There could also be more companies looking to stockpile goods in the coming months. A number of firms have concerns about delays at borders impacting getting products in and out of Britain in a no-deal Brexit scenario.

Overall industrial property supply continues to be under pressure in the UK, according to property agent Colliers International. The firm says that given the contraction of supply and better than initially envisaged occupier demand, it is forecasting annual rental growth for distribution warehouses of around 1.2% this year, with London and the rest of South East’s rental growth expected to outperform at 1.7% and 1.8%, respectively.

Investors will welcome long term rental income from warehouses. This could be a potentially sensible bet for property buyers that are unsure whether retail and office properties will get more love once the virus crisis is over.

The agent who ditched logistics property may want to show some attention to this sector again .

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