By Steve Purvis, Managing Director at Bis Henderson Space
Demand for warehousing is at an unprecedented high, but many owners of storage space are failing to maximise their returns.
It’s an acknowledged truth that the United Kingdom is ‘under-warehoused’. Demand is soaring while new capacity fails to keep pace. And yet, from megasheds to the smallest facilities, a lot of space is underutilised, or even lying temporarily vacant. There are real opportunities for owners and operators to maximise their revenues by offering short term (and premium rate) storage and higher added value services – if they can be nimble enough.
According to agents Colliers, in the 100,000 sq. ft plus market, at the end of 2021 the vacancy rate was just 3.3%. A record 50.1 million sq. ft of space was taken up during the year and although more than 11 million sq. ft of new space reached the market, over 75% of this was let off plan or immediately upon completion.
Key drivers of demand…
The key driver, accelerated by the pandemic, has been demand from online pure play companies, accounting for 43% of take-up (Amazon alone took 28.3%, but other big brands have also been active). But many smaller companies, both pure plays and traditionally bricks ’n ’mortar are moving into eCommerce. Bear in mind that every £1 billion in eCommerce sales requires between 750,000 and 1 million sq. ft of space, and that for retailers moving into eCommerce, stockholding requirements are largely additional to, not a replacement for, traditional inventory.
Nor is retail eCommerce the only source of increased demand. As supply chain threats multiply and combine – Covid, Brexit, the war in Ukraine, consequent disruption of shipping and at ports, shortages of drives and other labour – businesses of every size and in every sector, from agriculture and construction through manufacture to service industries – are stockpiling potentially vulnerable inputs when they can get them, whilst having to store finished goods as distribution is disrupted. And manufacturers and retailers are not the only space buyers. There is active competition for ‘shed space’ from data centres, film studios, ‘dark kitchen’ operations, and others, further tightening supply.
These influences are inherently unpredictable in timing, duration and severity. Industries are forced to seek out short term and often small scale solutions to particular problems. At the same time they are desperate to control costs in a newly inflationary environment, so opportunities to reduce double handling and extra transport movements, and to add value where the goods are lying, are
With the big sheds fully occupied, businesses are looking to smaller scale providers. With rising space rates, and smaller firms’ ability to be agile and flexible with their service offer without excessive overhead burdens, there are real opportunities for smaller warehouse and logistics operators, but only if they can identify or create saleable capacity, and locate and contract with suitable clients in very short time.
Many companies, in manufacturing, retail and elsewhere, find themselves renting or leasing space in excess of their normal needs – often, for example, they will contract for the space they think they will need for a seasonal peak, which is then underused for the rest of the year. That is an expensive way for them to source space. It also means that you have less scope to offer lucrative added value services. Seasonality isn’t the only factor – retailers who have migrated to a largely eCommerce model may not need all the space, or the same type of space, that was replenishing their physical estate.
Manufacturers may have reduced their activities to focus on core product lines, or may have outsourced aspects of the production process, or may have pivoted to a ‘make to order’ rather than ‘make to stock’ model, meaning that space formerly needed for raw materials, intermediate or finished goods is now underused. In some cases, products have simply become smaller and take less space. But businesses may not realise how their space and service requirements have changed.
Such companies are paying you a lot of rent, which is nice, but it isn’t maximising your profit opportunities. If you could work with existing customers to rationalise their space requirements (increase their density of usage) and/or increase the activities that are carried out on goods while they are with you – for example picking and packing eCommerce orders on site rather than shipping pallets to a separate location for picking – you can create new revenue streams: free space that can be sold to a new client, or new chargeable activities with your existing clients, or both.
Often, the immediate opportunity is in response to short term, even emergency, need – but approached properly, some of these could become the long-term high value clients of the future.
Ask yourself these questions:
- Are your existing customers fully utilising the space they are paying for?
- Do they see regular or seasonal peaks and troughs that leave space empty or underused?
- Are their changing product ranges or business models likely to require less space in future?
- Do your customers fully use your space and capabilities to maximise added value and minimise costs?
- Could you work with your clients to implement mutually beneficial change?
Now, how about these:
- Would you like to benefit from new clients and new revenue streams at minimal additional cost?
- Would you and your clients welcome additional users to spread the fixed and on-costs of warehousing?
- Would better utilisation and a wider client base enable you to create additional chargeable services, benefitting you and your tenants?
- Would higher usage, throughput and income, help you justify the warehouse automation you know would improve operations?
- Would increased activity enable you to offer warehouse staff a more fulfilling and secure working experience?
We suspect that most warehouse operators would respond positively to these questions.
But there are three more:
- How confident are you that you can identify the opportunities to create additional saleable space and the market for it?
- How confident are you that you can locate and contract with suitable new clients or tenants, within the timescales required to capitalise on relatively short term opportunities?
- Can you do this without incurring excessive cost?
If you are not sure about these questions, we strongly suggest that you talk to an independent broker, such as Bis Henderson Space.
How we can help...
We have, for a long time, worked with a variety of companies across many sectors to match up their space surpluses with other business’ requirements, over shorter or longer time periods, and then to manage the relationship. We can spot opportunities and assess requirements, which aren’t always what the customer thinks they are, and we have become expert at matching the cultures, practices and attitudes of space and logistics providers and customers.
Through our extensive contacts across all sectors, Bis Henderson Space uncovers these opportunities and helps space owners earn new revenue streams, essentially for free, while solving warehousing headaches for other hard-pressed companies.
As we lead into the traditional stock-build time ready for the winter peak, if you have spare warehousing space, of any size or over any period, starting a discussion with Bis Henderson Space could help your empty or under-utilised warehouse space contribute to a healthy balance sheet.