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Logistics real estate trends in the context of brewing pressures

By Henry Stratton – 20 Feb 2024

There’s not much more British than a cup of builders’ tea, so when a major tea brand says it’s watching stock – it’s headline-making news (even though they expect to be able to meet normal demand).

With ships diverting around Red Sea disruption, these kinds of news stories may bring back not-too-distant memories of covid-induced loo roll shortages. Some of the trends we’re seeing in the logistics real estate market might allay concerns, however – as occupiers have been focused on making their supply chains (to adapt the famous loo roll slogan) robust, resilient, and short(er).

Some interesting data points:

  • ONS data show that wholesalers and manufacturers increased inventory levels through the pandemic and have held them broadly flat since. Retailers, interestingly, have reduced stock levels since Q3 2022.
  • This is supported by our own European and UK industry surveys (conducted in partnership with Savills), which show that 20-25% of occupiers (across type) still expect to hold more stock over the next three years.
  • That said, the Global Supply Chain Pressure Index (GSCPI) created by the New York Fed to track pressure in the supply chain – which went through the roof with the pandemic and later unwound in 2023 – is showing a significant uptick (although it’s nowhere near covid levels).

Three key takeaways:

(1)   Retailers may have partly unwound stock but like many companies are building resilience. They’re doing so through a variety of means such as diversifying supply, sourcing from multiple locations (often closer to end markets), or nearshoring production. Warehouses are an important part of this, and networks continue to evolve. Despite 2023’s challenging macroeconomic backdrop, we saw leading retailers (multi-channel and online only) commit to new space (taking around 4.5m sq ft, much of it modern high-quality buildings).


(2)   Supply chain challenges created by Red Sea disruption are not currently as significant as during covid, when there were huge issues around ports closed, containers stuck in the wrong places and truck driver shortages. Nor are the demand pressures as acute. That’s not to say the situation couldn’t escalate. However, leading third-party logistics (3PLs) and transportation companies have invested heavily in their networks in recent years, which provides scope to flex routing. Some are using airfreight, for example, to expedite certain products delayed on containers. With more providing integrated ‘end-to-end’ supply chain services that include warehousing and distribution, leading operators are better placed than ever to help keep supply chains moving.


(3)  The uptick in the GSCPI reflects the uncertain world that we live in today, and the many different (geopolitical and other) events that can cause supply chain challenges. Improving supply chain resilience, whether through network evolution or holding more stock closer to end users, is being considered alongside productivity and efficiency. Given the complexities and cost, this is more a multi-year evolution than an overnight fix. We’ve seen that in our markets – with manufacturing, for example, particularly active in evolving their networks (accounting for 25-30% of demand in 2022 and 2023).

Now, time for that cup of tea …

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