Online retail fuels demand for warehousing and logistics

Industrial construction has been one of the fastest growing construction markets in recent years. 

In contrast, the flow of projects starting on site has faltered during 2016 as investors have delayed committing to planned projects in order to reassess the schemes’ financial rational in the light changing political and economic landscape.

Looking ahead, uncertainty over the UK’s future access to the Single European Market is expected to remain a brake on investment in manufacturing facilities, despite exporters currently receiving an earnings windfall from the weaker pound.

However, whilst the construction manufacturing facilities are an important element within the sector, it has been warehousing and logistics space that has been the main engine for the sectors’ recent rapid growth. Whilst the flow of warehousing projects starting on site has also faltered in 2016, the current drop in start is expected to be short-lived.

The demand for logistics space has been driven in large part by structural change in the retail sector, with the relentless growth of on-line retailing, “click & collect” and home deliveries, fuelling demand for warehousing and distribution premises. 

The latest ONS data shows that internet sales totalled over £1 billion a week during October and accounted for 15% of all retail sales; this compares to 12.7% of sales during the same month last year. 

Although the prospect of weaker household earnings growth and higher inflation points to a weakening in overall retail sales growth over the next two years, the structural changes in the retail sector will continue as retailers adapt to consumers changing spending patterns and shopping habits.

With online taking an ever larger share of retail sales, we expect this to be a long term driver for warehousing & logistics projects.