Over the last few years the real estate market has witnessed a phenomenal growth in the logistics sector. But what impact will Brexit have on the future success of this sector?
Logistics sector has faired well for sometime
The advent of e-commerce and online shopping brought with it an increased need for logistics. Going forward, as more vendors take their products onto the web, this need will continue to grow. The upward trend of speculative development seems to be, at least in part, a manifestation of this, a sign of the market keeping up with demand and having confidence in its future success.
The cloud on the horizon seems to be Brexit. Whatever the eventual outcome, Brexit has and will continue in the short (and possibly medium) term to create uncertainty as it is unclear how supply chains will be affected. The natural reaction to this, particularly for suppliers, is stockpiling, to provide a buffer against any interruptions. The resulting spike in demand for logistics space has been noted by a number of commentators. In turn, we have seen an increased demand for short-term lets within the sector, together with a demand from investor and developer clients to acquire logistics sites.
As such, Brexit may not be such bad news for landlords with logistics space to let. However, some thought should be given as to how long this space will be needed. Some landlords may prefer to take a more cautious approach and, rather than profit from the Brexit spike, look instead to longer term lettings that can provide a secure income stream.
This is particularly so given that, as the drive to reduce costs and improve productivity increases, logistic space has become increasingly high-tech. Automation, smart warehousing and the use of artificial intelligence have resulted in a number of highly specialised warehouses. To realise the investment that has gone into such spaces generally requires a longer term commitment by both landlords and tenants.
Forecast still bright despite Brexit
The future, however, still looks bright for the logistics sector. With or without Brexit, e-commerce and changing consumer habits are going to continue to fuel demand. While this demand outstrips supply, there will continue to be opportunities for long-term investment.