These are not just crinkle tin sheds… these are the employment and community hubs of the future

DESPITE RUSSIA’S invasion of the Crimea and Israel carrying out a lightning strike on Hamas for the kidnap and murder of three Israeli teens, most were keen to ‘Let it go’ - bar Scotland which decided to stay with the 300 year old Union - and cloud computing really started to take off helping change the way we shop, do business, and interact globally.

Logistics Matters property Editor Liza Helps spoke with Savills industrial and logistics research guru Kevin Mofid and colleagues Tom Shaw and Will Cooper to get to grips with how much has changed - and how much has stayed the same - in the past decade for the Big Shed market.

Ever quick with an statistic Kevin Mofid set the scene. The total stock of UK warehouse space in units over 100,000 ft2 had reached 424 million ft2, averaging 218,000 ft2 in size with rental growth, over the prior 10 years, of minus 0.3%; to all intents and purposes it was an occupiers’ market - and had been ever since the Global Financial Crisis of 2007/08. Developers were only just dipping their toes back in the speculative development market with the first buildings at IM Properties’ Birch Coppice scheme in the Midlands reaching practical completion early in 2014.

Online spend in the UK made up just 11.3% of total retail sales.

Fast forward to 2024, the average size of a UK big shed has increased by 50,000 ft2, total stock has leapt to some 700 million ft2 and rental growth since 2024 is 56%. “Every metric you could possibly hope to analyse has grown, the market has almost doubled in size, buildings are bigger and taller, and online penetration is 26.4%,” says Mofid.

There has been a massive increase in investment volumes as the humble shed became the ‘go to’ asset to anchor investment portfolios - in 2014 the three year average investment volume was £6bn a year, now its £16bn. Even the royals know a good investment when they see one with the Duchies Lancaster and Cornwall being long time warehouse investors.

The fact that the market has grown so considerably in the last decade shows the depth of change that has rocked the logistics sector - who knew that the technological revolution that has seen the way society communicates, shops, and does business, and the supply chain were so inextricably linked. Nowhere was that more evident that than during the Global Pandemic of 2020/21 which saw the supercharging of online shopping effectively growing the market in five months that which had been predicted to take five to 10 years to achieve otherwise. The subsequent jump in warehouse take-up from 34.1 million ft2 in 2018 to 55.1 million ft2 in 2021 was tantamount to that.

In March 2019 accountancy firm PWC was predicting that the online share of total retail would rise, with spending share going from 5% in 2018 to 8% in 2030 for food, with furnishings rising from 10% to 22% and clothing from 18% to 32%.

The Pandemic changed all that and figures now show that in 2024 alone online food sales hit 9%, furnishings 25.8% and clothing 27.8% with predictions set to see these increase exponentially. It is no wonder that Mofid observes: “In the next decade the online retail piece will remain a huge part of the market.”

The pandemic as well as boosting online sales also exposed the weaknesses of the supply chain with the result that, says Mofid: “There is an onus on supply chain resilience in a way we have not seen before.”

There has been a move away from just-in-time to just-in-case and subsequent increase in demand for more space to accommodate this, in addition to the move by manufacturers bringing back production through reshoring and near shoring to the UK, which will also add grist to the mill in terms of corporate decision making. This has been acerbated by geo political events such as Russia’s illegal invasion of Ukraine proper in 2022, the unrest in the Middle east with Israel taking on Hamas in Gaza and extending that to the Lebanon following the horrific attack on its populace in October last year leading to attacks on shipping through the Suez canal.

The point being that global supply chains are vulnerable and with increasing conflict, weather related events and the fact that moving containers across the world is carbon expensive moving supply chains closer the end user will drive property market growth.

“Essentially,” says Will Cooper, a director in Savills’ Building and Project Consultancy who heads up the Development Project Management team, “warehousing is still just four walls, a roof, and a yard, it’s what goes on inside that gets really interesting.” Tom Shaw, a director in the industrial team  advising occupiers agrees adding: “Fundamental requirements such as location will always remain key in occupier decision making particularly when you look at the distribution sector.” 

But both agree with Mofid, that while everything has got bigger requirements have definitely evolved. “Not least because  warehouses have become central hubs of supply chain activity,” explains Mofid. “absorbing tasks traditionally undertaken upstream by manufacturers and downstream by retailers. Goods are not just stored in warehouses, but are reworked, assembled, personalised, packaged, and dispatched. Warehouses manage returns, repairs, and recycling, and have become a vital part of the circular economy.”

This requires a far wider set of skills and job functions to be located within the distribution centre than ever before including office operations from the provision of help desks, and secretarial, to Human resources and management even seamstresses and dry cleaners  for fashion returns operations. Not forgetting technicians, engineers and computer programmers as the supply chains adopt automation and robotics and starts to utilise AI, as well as the more traditional roles for pickers, packers, and drivers.

With so many roles to  be incorporated it is no wonder that warehouse lettings often turn out to be a town’s largest office deal as well. 

It is unsurprising that many operators have started to incorporate warehouse and HQ functions in a single building and with warehouse rents cheaper than office ones by quite some margin a business can save a huge amount of money having both under one roof. Typically, prime office rents across the UK are pushing £40 per ft2 while rents of warehouses are averaging around £12.50 per ft2.

Shaw says: “Occupiers are looking at a building as not just a distribution hub anymore, these are not just crinkle tin sheds, the expectation is that these facilities are going to be head offices – they are expected to be modern and sustainable something that will attract and retain staff and actively promote a business ethos to the outside world. This is a mature multi use way of looking at a building.”

In addition, with the climate change crisis and the global move to decarbonise Environment Social and Governance (ESG) concerns are now at the forefront for occupiers, investors, and developers. Mofid says: “ESG and everything that hangs off it is going to be the defining point for the next 10 years.”

Speculative buildings now incorporate a host of environmental specifications such as LED lighting, combined heat power, low flush loos etc but some of the biggest changes are around floor loading with 50kn/m2 considered standard with buildings of 18m looking at 80kn/m2 to allow for mezzanines. Almost all buildings will have EV charging and similarly almost all are 100% PV ready.

“That was not the case 10 years ago,” says Cooper. “However, developers have been quick to ‘cotton on’; I can’t think of a scheme that I have been involved in the last four to six years where we have not put a PV array on the roof for example.”

Regulatory moves by Government to push  landlords and occupiers to invest in energy efficient buildings to decarbonise by 2050 as well as the increasing number of international regulations for global investors to prove their ESG credentials across all portfolios are also turning the dial, to the extent that property assets that do not meet certain criteria risk being isolated and unlettable.

Subject to financial viability landlords and investors will go to great lengths to refurbish a building. “It is not uncommon,” says Cooper, “to see buildings that are being refurbished being taken right back to the frame  to make them look, feel and perform like a brand new ones once the refurb is completed.”

“A decade ago, the viability of doing this would not have considered the impact of embodied carbon,” continues Cooper, “now retaining the steel work and slab is an enormous embodied carbon saving that does not have to be off set.” 

The most stand out change in the past ten years has to be in evolution of staff welfare and the increasing move towards incorporating the ‘S’ of ESG especially into larger scale schemes. An area all agree will continue to evolve, fundamentally changing the look of a warehouse as well as how it is perceived publicly.

Occupiers and operators are acutely aware they need to retain staff and while pay is a great motivator it has been found that making buildings attractive to work in with good staff amenities is a far more cost effective. “Developers of logistics parks have taken a leaf from the office sector putting in central cafes, gyms and creating landscaped open areas for people to enjoy on their lunchbreaks,” says Cooper.

By happy circumstance, focussing on landscaping and enhancing amenity areas which helps boost the wellbeing of staff, also ticks regulatory boxes for increases in Biodiversity Net Gain demanded by planning authorities. Irregular areas left over once development is complete and those sites with features such as canals, rivers, and ponds - considered challenging a decade ago - are now seen in a much more positive light. Shaw notes: “In many cases these amenities are now seen as a selling point.”

In order to secure planning, developers are opening up their schemes’ amenity areas to the public. It is common to see larger schemes incorporating  public parks, footpaths, and cycle ways and to engage with community groups for the sharing of facilities such as multi use games areas.

The new 1.3 million ft2 Nike UK distribution centre at GLP’s Magna Park Corby scheme typifies the type of multi use hub of the future that will not only be used as a head office and distribution centre but also as a place for staff and their families and wider community to work, shop, eat and play. It was no accident that Nike selected the site with its 6km plus of wooded walkways, cycle routes and landscaped open spaces. Nike UK’s 43 acre new campus will incorporate staff cafeteria, a football pitch, tennis courts, outdoor terraces, running tracks, open-air gyms, every aspect of the facility will be crafted with the goal of promoting a healthy work-life balance and it will be built to target the highest ESG credentials looking to secure BREEAM ‘Outstanding’ rating and achieve Net Zero Carbon in Construction.

At the ground breaking ceremony Nike’s European operations and Logistics vice president Eb Mukhtar MBE told the local press: "We’re not building a warehouse. This is going to be different. This will not be a steel box. The team here are going to create something that’s uniquely Nike, uniquely UK, uniquely Corby.”