The vast, cavernous warehouses that dot the outskirts of most U.K. cities and towns do not often make front page news. But in the last few months, evermore frequent reports in the U.K. media have told of how these buildings are facilitating the stockpiling of food, goods and medicines to minimize any disruption to supply chains that may come from a no-deal Brexit.
Such reports have spiked in recent weeks as the deal agreed between Prime Minister Theresa May's government and the EU has struggled to win support in the U.K. Parliament, making the prospect of a no-deal exit more real. A U.K. departure without a deal on the country's future political, economic and trading relationship with the EU is widely expected to cause major disruption to supply chains as customs checks on goods passing between the two jurisdictions, which are not currently required, would come into force.
Given the stockpiling buzz in the media, a further boost to the already booming U.K. industrial and logistics property sector might seem like a safe bet. However, industry watchers and participants tell a different story.
"My sense is that [any stockpiling as a result of Brexit] is not that significant at the moment," Jon Sleeman, lead director logistics and industrial research for Europe, Middle East and Africa at real estate services firm JLL, said in an interview. "It's not moving any needles. In all the articles I've read about stockpiling, I haven't seen any companies named that are taking a new warehouse because of [Brexit]. That's a thing that would have a marked impact."
The U.K. government has told supermarket chains to fill warehouses around the country with as much stock as possible in case of a no-deal Brexit, according to a Dec. 7 Bloomberg report citing government and industry officials. Among the businesses stockpiling are aeronautics firms such as Airbus SE, car manufacturer Aston Martin Lagonda Global Holdings PLC and food group Nestlé SA.
"People are talking about all this stockpiling and that there's going to be a massive uptake of warehouse space. I'm just not seeing that; I'm not hearing that, really," said Len Rosso, head of industrial and logistics at real estate services firm Colliers International.
There are a number of possible explanations for the disparity between widespread talk of mass stockpiling and the reality on the ground, said Sleeman. Government departments and companies that are stockpiling could be taking space in smaller buildings that fall under the radar of most analysts, who tend to focus on activity involving large assets, he said. However, Sleeman said he had seen no evidence of this in that particular market.
Another possibility is that stockpilers are simply using their existing space more efficiently. Some media reports also point to stockpilers using online services that connect businesses in need of extra space with suppliers who can provide it. Third-party logistics firms, such as DHL Exel Supply Chain (Norway) AS, which rent millions of square feet of space in the U.K., might also be helping meet stockpilers' demands, Sleeman said. DHL declined to comment.
Andrew Bird, managing director, of U.K.-based Warehouse REIT PLC, said he had heard from a number of industry peers about logistics storage contractors looking for a two-year lease on a 100,000-square-foot building in the northwest of England in which they planned to store pharmaceuticals on behalf of the government. Such stories were not common, and Warehouse REIT has not received any stockpiling inquiries itself, Bird added. "There are deals, but I don't think it's of any substantial scale that's going to have a material impact on the occupational market," he said.
Those looking for extra space for stockpiling are doing so at a particularly unfavorable time for tenants. The U.K. industrial and logistics property market has boomed in recent years as the country's love affair with e-commerce has blossomed, feeding demand for space from companies such as Amazon.com Inc. Rents have rocketed by as much as 60% to 70% in some areas over the last five years, said Colliers' Rosso. The kind of short-term flexibility that those wishing to stockpile will be looking for is difficult to find, as landlords are in a strong position to dictate terms, he added.
"Occupiers have always wanted flexibility, but it's just generally not out there because, on the other side of the coin, landlords want to get the most out of their assets," said Rosso. "By securing the longest lease possible, they will [increase] their asset value."
Any surge in demand from stockpilers as the March 29 EU exit date approaches could therefore benefit secondary assets that are more open to flexible and shorter lease terms, said Warehouse REIT's Bird, whose company operates in the secondary market where it charges a premium to tenants looking for shorter leases. "These [companies] who are looking for a two-year lease term, they won't be going for prime assets," he said.
The U.K. industrial and logistics market should be able to accommodate any such increase in demand from stockpilers in the lead-up to the country's exit from the EU, said Sleeman. A recent splurge of speculative development has pushed the vacancy rate up to 8% from 5%, with tenants vacating secondary assets to relocate to newer buildings, he said. "At the moment, there's enough warehousing to go round in that scenario."