New warehousing and logistics projects drive growth

One part of the industrial sector which is likely to offer some promising prospects in coming years is construction work on new warehousing and logistics projects.

With a clearer political outlook following the general election and interest rates set to fall over coming months, developers and other businesses are set to move ahead with building projects to create more modern distribution space.

Glenigan’s latest mid-year Construction Industry Forecast 2024-2026 predicts that as part of an overall revival in industrial starts over the next two years, warehousing and logistics project starts are set to increase by 9% pa in both 2025 and 2026.

As consumer spending recovers, demand for logistics space – particularly from online retailers and third-party carriers – is expected to increase. Although it has slowed in recent years, the take-up of warehouse space by online retailers has grown spectacularly over the past decade; the sector’s warehouse footprint has grown from 8m sq ft in 2015 to 69m sq ft today, according to a recent report from Savills and the UK Warehousing Association.

With online operators set to account for almost a third of retail sales by 2028, their share of the market is set to continue to grow.

The report paints a positive picture of the outlook for the sector as demand for warehouse space grows and it is adapted to meet changing social and supply chain trends. These range from the growth of online shopping to ‘near-shoring’, which involves businesses storing goods closer to home for longer periods.

Warehouses as central supply chain hubs

The report says: “The role of the warehouse has never been more important, and the amount of warehouse space needed continues to rise.” Warehouses have become central hubs of supply chain activity, taking over roles which in the past were filled by manufacturers and 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,” it adds.

Today, warehouses are getting bigger. Although units under 500,000 sq ft make up two thirds of all the sector, warehouses over 1m sq ft now account for 10% of the country’s stock, up from just 3% in 2015.

Meanwhile, the average size of a ‘build-to-suit’ warehouse unit increased from 297,000 sq ft in 2015 to 333,000 sq ft by 2023. This trend, says Savills, is likely to continue and will mean that warehouse development sites will be built-out at a faster rate than in the past.

The Savills report also sees more new warehouse units being taken up by manufacturers, both to widen their supply chains and for use for production processes. Meanwhile, electric delivery fleets and more automation will increase demand for energy in new warehouses making on-site power generation and rooftop solar more common.

ESG to drive investment

ESG certification is also set to drive more investment in new warehouse construction. By April 2030, all warehouse units will need an energy performance certificate (EPC) of B or above for a new lease to be signed; currently, two-thirds of the country’s warehouse stock has an EPC of C or lower.

Glenigan data shows numerous examples of new warehousing/logistics projects of varying sizes which are in the pipeline across the country.

Detailed plans have been granted and work is due to start later this year on a £22 million development at Solihull Parkway in Birmingham, Project Diamond, involving two warehousing units to be built on a design and build basis. The scheme, for client Canmoor Developments, is at the pre-tender stage and will be funded by BlackRock Investment Management (UK) (Project ID: 14188513).

Meanwhile, at Crewe in the North West, Muse Developments has recently been granted outline plans for a £126 million scheme of 10 industrial units at Weston M6 Business Park (pictured). Work on the scheme, which is also at the pre-tender stage, is due to start next summer and run for six months (Project ID: 22306286).