The warning signs were there. Last year, Amazon – the most active occupier in the industrial and logistics (I&L) sector for several years – said it would be scaling back its take-up of space.
The fear was that it would actually reduce its footprint and that fear appeared to be well founded when earlier this month, it announced it was to close three UK warehouses. But at the same time, it also announced it would be opening two new sites. So what is Amazon’s strategy for its UK operations exactly – and what impact will it have on an industrial and logistics market that is finally starting to slow down after years of unprecedented growth?
The three fulfilment centres Amazon is closing are located at Boundary Way in Hemel Hempstead (around 470,000 sq ft), Balby Carr Bank in Doncaster South (415,000 sq ft) and Cloch Road in Inverclyde (295,000 sq ft), together adding up to 1.18m sq ft. The company said that 1,200 jobs would be affected.
However, it added that these would be more than offset by the 2,500 new jobs it would be creating over the next three years through the opening of two new sites, in Peddimore in the West Midlands and Stockton-on-Tees in the North East.
So, on balance, the announcement represents a net win on employment for the country, although clearly that is little comfort to those facing redundancy or transfer to another site miles from where they live. The Inverclyde site in particular is located many miles from an alternative centre.
Amazon says it is just “evaluating our network to make sure it fits our business needs and to improve the experience for our employees and customers”. An Amazon spokesman added in a statement: “As part of that effort, we may close older sites, enhance existing facilities or open new sites, and we’ve launched a consultation on the proposed closure of three fulfilment centres in 2023.”
Citing the opening of two new fulfilment centres, he added: “All employees affected by site closure consultations will be offered the opportunity to transfer to other facilities and we remain committed to our customers, employees and communities across the UK.”
Kevin Mofid, head of logistics and industrial research at Savills, says that the statement should be read at face value. “As Amazon moves into the next stage of its maturity, there will be real estate that is no longer fit for purpose; no longer suitable operationally as their operations evolve,” he says.
“I think it’s fairly normal for a business to recycle property, particularly in supply chains where building design is becoming much more important.”
Ben Wiley, head of industrial and logistics agency at BNP Paribas Real Estate adds that Amazon pressed pause in the US some time before it did so in the UK and that a slowdown in activity was inevitable. “Amazon very much put a lot on hold and stopped doing things,” he says. “They’re beginning to take some other space now and there are a few more requirements, but I guess there is some consolidation.”
Wiley also expects to see space from other occupiers come back to the market as businesses adjust to life post-pandemic. However, he says that won’t necessarily be in the form of whole buildings. “Potentially, companies took more than they needed [in the pandemic],” he says. “What we’re seeing is space coming back to the market via subletting – what’s called grey space. We’re watching to see what happens.”
In terms of the buildings Amazon has chosen the offload, they do seem to fit with Mofid’s theory. The centre in Doncaster was built in the 1990s and the company recently opened a new facility not far away. The same is true in Hemel Hempstead. “They’ve moved into some very modern buildings along that M1 corridor and it doesn’t surprise me that they’re looking to consolidate,” he says.
Mofid does not believe landlords and agents will have much trouble reletting the buildings Amazon is offloading. When it comes to the Hemel Hempstead centre, the vacancy rate in the South East currently stands at just 3.9%. “And there are no warehouses on the market in the South East above 300,000 sq ft,” says Mofid.
“So actually, a building of that size coming to the market is going to be well received because actually there is nothing else. [Having said that], there’s no guarantee that the landlord will return it to the market. They may choose to refurbish it or they may choose to knock it down and start again.”
It is a similar situation in South Yorkshire. The vacancy rate in the wider region is very low – 2.5% in Yorkshire and the North East for large units – and last year saw take up in the sector hitting 7.4m sq ft, which represented the second highest level on record. “Again, there is nothing on the market in Yorkshire above 398,000 sq ft, so a building of that size coming back to the market where there isn’t anything is not necessarily a bad thing.”
Scotland is the same. The supply of warehouse space in the country for units of more than 100,000 sq ft now stands at 884,094 sq ft across six units, which equates to a vacancy rate of 3.34%. Using the three- year average annual take-up, there is just 0.94 years’ worth of supply in Scotland. Of the six units available, only two are within the 200,000 to 300,000 sq ft size band. There is just one unit over 100,000 sq ft under construction, at Belgrave Logistics Park.
So, it does appear that Amazon is consolidating its property footprint – and others could follow in an attempt to offload surplus space taken on during the pandemic. But given the paucity of supply and ongoing strength of demand, most experts are confident that any space that does hit the market will soon be snapped up. It might not command the price it did a year or two ago, though.
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