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Saturday, January 25, 2020

Opinion > Shawbrook Bank

How the industrial sector is coping among uncertainty

Rob Lankey, commercial investment director at Shawbrook Bank | 12:00 Friday 27th December 2019

Our ‘UK commercial property market report’ compiled by the Centre for Economics and Business Research (Cebr) said that industrial property (such as factories and warehouses) showed resilience over the years and became the best performing asset class of the those analysed in the paper.

This can be attributed to strong stockpiling activity and demand for warehouses from online retailers, which have helped the sector withstand other economic headwinds.

A distinctive feature of industrial property is that it can often be repurposed. For example, a building that used to be a warehouse might be re-fitted and turned into a car dealership. This allows landlords of industrial units to cater to different markets and customers. The report found that one of the fastest growing segments in recent years was the logistics sector. The popularity of online business models means that consumers can order virtually anything off the internet, and have it delivered to their doorsteps. This means that all those goods waiting to be delivered need to be stored somewhere. Warehouses and distribution centres have, therefore, seen a noticeable uptick in demand in recent times.

Additionally, the industrial sector is one of the beneficiaries of firms’ efforts to prepare for Brexit-related disruption. Demand for warehouses and logistics centres has formed over the past two years as businesses are securing space to increase their stocks. Brexit stockpiling has become a widespread phenomenon among firms that fear supply chains will be disrupted after Brexit, fuelling demand for large warehouses. Recently, we saw a renewed rush from British manufacturers to stockpile ahead of the now-postponed October 31st Brexit deadline last month. 

However, as outlined in our report, the unwinding of the stockpiling effect poses a risk, as does a no-deal Brexit, which could severely harm many of the manufacturers that are the current tenants of industrial properties.

With a further Brexit extension confirmed until January 31st, it looks as if the spectre of uncertainty will continue to cast its shadow over the sector for the remainder of 2019.

However, there is still opportunity to grow, as our recent Broker Barometer results showed, with many brokers reporting an increase in business volumes.

Uncertainty will always provide risk and opportunity, although, going forward, these may be less discernible than at present, which may result in many regrets for those not taking action. Doing your homework on potential investments is more important than ever. There are good and bad opportunities within all sectors.

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