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| 2 minutes read

Amazon plans to shed warehouse space

Amazon announced plans last week to shut three warehouses in the UK, a decision which will affect around 1,200 jobs and bring 1.3 million square feet of warehousing space back to the market. The online retailer also stated its intention to open two new major warehouses, which it claims will create 2,500 new jobs in the next three years.

A spokesman commented: “We are always evaluating our network to make sure it fits our business needs… As part of that effort, we may close older sites, enhance existing facilities or open new sites…”

This development is interesting to consider in light of Savills’ latest Big Shed Briefing blog (BSB) and it could be viewed as symptomatic of a number of recent trends within the I&L sector. Whilst the headline from the BSB is that 2022 was the third strongest ever year for take-up of industrial and logistics space, the sector was not immune to the wider geopolitical and UK specific factors causing uncertainty in the economy. This is most clearly illustrated by the sharp decline in take-up in the second half of the year (19.01m sq ft) following record numbers in the first six months (28.98m sq ft), albeit the lesser figure is still well above the long-term half-yearly average. Savills also note that online retailers took just 6.6m sq ft of new space, the lowest level since 2017. Amazon’s announcement does not seem out of place in this context.

Another interesting takeaway from the BSB is the escalating demand for brand new units, likely driven by a combination of increasing investor focus on ESG, rising energy prices and the ever widening reach of environmental regulation, not least the impact of the minimum energy efficiency standard (MEES) regulations and the government’s plans to increase the minimum standard to an EPC rating of B by 2030. Savills’ data reveals that take-up for second hand sites made up only 22% of the market in 2022 - a record low - whereas build-to-suit transactions equated to 50% of the market, of which speculative take up amounted to over half - the highest level ever recorded. Perhaps the most startling statistic of all is that the average void for speculatively constructed units in 2022 was just one month.

Whilst Amazon’s decision to close three warehouses can be viewed as a continuation of the market downturn seen in the second half of 2022, its plans to open two brand new warehouses are also indicative of the move away from second hand units and the ever increasing demand for high-quality new space. It will be interesting to see if other major space users follow Amazon’s lead in trading in old space for new.

In our own practice we continue to see significant demand for I&L deals. In the last few months alone we have advised on a forward commitment to purchase a newly-built big shed let to a large surgical manufacturing company and are also advising an institutional fund client on the letting of a significant new warehouse and light industrial unit, so we are not seeing any signs of demand for high quality new I&L space abating.

Tags

industrial & logistics, real estate, sustainability and esg