First, the amount of floorspace included in warehousing will grow. Simon reckons 5% has been the norm, Aver opt for 8%, but when Harworth launched a new 50,800 sq ft speculative warehouse at Logistics North, Bolton, they opted for 11% of CAT A floorspace at first floor.
Some caution is required here: 11% is only a shade over 6,000 sq ft, and the eagle-eyed will recall that in the larger Aver unit, their 8% of a 65,000 sq ft unit came out at roughly the same amount (although not proportion) of offices. It may be that warehouse offices tend to hover around 6,000 sq ft. There are, however, exceptions: Mountpark is building 359,500 sq ft of warehousing in Bristol and has included 18,250 sq ft of offices over two storeys, plus another 4,000 sq ft for direct warehouse supervision. That amounts to a little over 6%.
Second, there’s a likelihood that, despite the surge in e-commerce demand for new warehousing, traditional high street retail will need less warehouse floorspace. An example arrived in late October when US fashion retailer, Gap, announced it would abandon its UK and European stand-alone store portfolio, and as a result would not need its 1.3 million sq ft warehouse in Rugby. If this floorspace returns to the market it may need additional office floorspace because it dates from an earlier less office-friendly era. The Gap warehouse, for instance, was built 20 years ago.
Third, demand for warehouse is not going to slow. The problem is that developers can’t (or won’t) build them fast enough. The safe conclusion would be that Knight Frank’s estimate about the volume of new warehousing required (see Sidepanel) – and hence volume of warehouse offices – is likely to be an under- rather than an over-estimate.
The shed/office market is still in its infancy. The idea of top grade CAT A floorspace is still relatively new. And if office floorspace volumes rise, then developers may have to re-think their (currently rather generous) offers to tenants.
How much shed/office floorspace will get built?
As much as nine million sq ft of new office floorspace could be created in warehouses in the next 36 months.
New research by Gerald Eve shows that construction began on 7.4 million sq ft of new speculative floorspace. In all, there were 25 separate new buildings under construction. Warehouse developers launched a frenzy of new build activity during the autumn quarter, with a five-fold increase in the volume of new floorspace under construction. By the end of Q3 2020, there was 19.7 million sq ft of space under construction across the country, within 90 individual buildings. A little short of half – 9.6 million sq ft – is speculatively developed.
Now do a quick calculation: warehouse developers typically offer between 5% and 12% of their total floorspace for offices (as we stated earlier, a figure that is now settling at the higher end of the spectrum). Make the conservative assumption that a modest 8% of warehouse floorspace is in fact offices, and that means 1.6 million sq ft of new office floorspace was under construction as part of warehouse schemes at the end of September 2020.
Fast-forward and the numbers get much larger. Earlier this autumn, Knight Frank released predictions that e-commerce will stimulate demand for up to 92 million sq ft of new UK warehouse space in the next three years. They base their calculation on analysis which shows that every billion pounds of online spend requires 1.36 million sq ft of new logistics floorspace. Assuming a conservative 8% of warehouse floorspace is in fact devoted to offices, that implies 7.4 million sq ft.
Add the 2020 figures to the Knight Frank longer-range projection and you have some nine million sq ft in prospect.