Optimism in an uncertain world

By Liza Helps Property Editor Logistics Matters

First the good news, occupiers in general are more optimistic about the future than they were coming into 2023 after the debacle of the short-lived Truss premiership and subsequent financial hiatus with 38% saying that they looked to increase warehouse space over the next 12 months.

Savills head of industrial and logistics research Kevin Mofid pointed out that there had been a slight uptick in take-up in the last quarter of 2023 at 10.2 million ft2 – the first quarter since 2022 where take-up was more than 10 million ft2.

Better than expected economic indicators and anticipated bank rate reductions combined to create a more positive sentiment but occupiers are still concerned about rising energy costs, economic uncertainty, rising fuel and material costs and delivery demands.

Those taking or looking to take new space are driven to do so through business growth and consolidation predominantly with changes to the supply chain, ESG and lease events also considered as a factor to increase  or move to new space.

Mofid noted that Savills was tracking 26.5 million ft2 of warehousing mostly first generation modern space built during the 1990s where lease events were expected in 2024.

WHILE AUTOMATION, the transition to less CO2 intensive supply chains and increasing supply chain analytics for greater efficiency, was also on the minds of logistics occupiers so too was impetus to shorten supply chains and increase stock held as geopolitical uncertainty gathered apace with drought in the Panama Canal and unrest in the Middle East affecting critical transport routes.

For those looking to secure new space the top considerations were lease terms, staff wellbeing, being close to a local labour force, a good secure power supply and green features were on the wish list.

With greater supply chain visibility, decarbonising pressure, and automation a priority in the next five years, 70% of occupiers required more energy into the warehouse going forward. Worryingly, Mofid noted that 68% of the UK’s substations do not have the capacity to provide for the energy requirements of a 750,000 ft2 + warehouse in their vicinity. It has been increasingly noted that developers such as Tritax are providing supplementary power sources on site to anticipate that need with investors seeing power or lack thereof as a defining issue for the sector in the next decade.

Future Space panellists DHL’s Saul Resnick and AO’s David Ash believed that carbon neutral warehousing was important but that from their point of view the focus of decarbonisation was more on transport and alternatives to diesel. Ash said that currently there was not an electric HGV with sufficient load capacity over long distances and that therefore they would be looking at efficiencies and alternative fuels. If the technological solution were to be electric good vehicles that would make the power issues even more important in the future.

Both looked to AI to leverage efficiencies in the supply chain in the light of tough economic conditions, helping to utilise space within a warehouse more efficiently and optimising manual tasks and using robotics in assisted picking for example.

The issue of staff wellbeing was paramount, with AI seen as making the jobs less onerous but equally there was a recognition that the overall working environment and provision of well landscaped outside space, good surroundings etc was important. Ash noted that you could have all of this but if the company’s working culture was not good none of that would mean anything.

ITV political editor Robert Peston gave the keynote speech at the launch, there was a lot of uncertainty economically and geopolitically, making 2024 challenging.

“There are so many potentially high impact events with the risk of being knocked off course not least because there are 60 countries going to the elections this year involving approximately 40% of the world population.”

There is real concern about the results of the election in the US and how a possible Trump Presidency could affect the geopolitical balance in Europe with talk of allowing Putin to keep illegal gains in Ukraine which could encourage Russia to look at retaking other Baltic states and the inevitable escalation that may ensue to a Europe and UK that is currently unprepared militarily – especially if Trump removes the US from the NATO Alliance as he has threatened to do in the past.

On top of that, there is the Middle East unrest and subsequent supply chain issues that will have a real effect on inflationary pressure as logistics companies look to reroute goods away from the conflict.

Finally, there is the UK elections and concern regarding general voter apathy and a desire for change. For Peston it is likely that there will be a change in government though probably not a landslide as some predict.

Through all this the logistics sector must navigate as it always does, so the fact that there is optimism despite the uncertainty has to say something about the resilience of logistics in the UK.