The UK is grappling with an unprecedented shortage of warehouse space, posing significant challenges for businesses, supply chains, and the overall economy.
According to CBRE, the vacancy rate for logistics properties in the UK has remained below 2% for the past five years, with only about two months’ worth of ready-to-occupy space available. This shortage is expected to persist indefinitely.
The warehouse crisis is fueled by a combination of factors, including regulatory pressures, insufficient supply of suitable available stock, shifting markets, and the unforeseen impact of a global health crisis.
Regulations are exacerbating the supply shortage. Knight Frank estimates that a staggering 128 million ft² of warehouse space is at risk of being taken off the market by 2027, and this figure could rise to 404 million ft² by 2030 due to non-compliance with Energy Performance Certificate (EPC) standards. EPC ratings assess the energy efficiency of buildings, ranging from G (inefficient) to A (very efficient). Starting in 2025, properties with ratings below E will face significant fines and may become unavailable. By 2030, the threshold will be raised to a B rating.
Given that 82% of the UK’s warehouse stock was built before 2000, many properties require extensive renovations to meet minimum EPC standards. However, only a small fraction of facilities have undergone upgrades in the past five years, and investment in industrial and logistics real estate has lagged behind other sectors and the national average.
The shortage of warehouse space in the UK has reached unprecedented levels, posing significant challenges for businesses, supply chains, and the broader economy.
According to CBRE, the vacancy rate for logistics properties in the UK has remained below 2% for the past five years, with only about two months’ worth of available space ready for occupancy. This scarcity is expected to persist indefinitely.
Multiple factors contribute to this warehouse crisis, including regulatory pressures, inadequate supply of suitable available stock, evolving market dynamics, and the unexpected disruptions caused by a global health crisis.
Regulatory requirements are exacerbating the supply shortage. Knight Frank estimates that up to 128 million ft² of warehouse space could be withdrawn from the market by 2027, and this figure could escalate to 404 million ft² by 2030 due to non-compliance with Energy Performance Certificate (EPC) standards. EPC ratings, which evaluate the energy efficiency of buildings, are graded from G (inefficient) to A (very efficient). Beginning in 2025, properties with ratings below E will face significant fines and may become unavailable. By 2030, the threshold will rise to a B rating.
Given that 82% of the UK’s warehouse stock predates 2000, extensive renovations are necessary for many properties to meet minimum EPC standards. However, only a small fraction of facilities have undergone upgrades in the past five years, and investment in industrial and logistics real estate has fallen behind other sectors and the national average.
E-commerce Acceleration:
The surge in e-commerce, particularly spurred by recent global events, stands as a significant driver of the current space shortage. In 2022, online transactions accounted for 26.5% of total retail sales, more than doubling the figures from the previous decade. UK internet retail sales skyrocketed by 47% in 2020 alone.
To meet the swift delivery expectations set by industry giants like Amazon, e-retailers have ramped up their inventory, sparking an unquenchable demand for storage space. While this demand has slightly eased with the subsiding of the pandemic, Brexit-related uncertainties have further fueled the need for businesses to stockpile goods, putting additional strain on available capacity. Many companies have shifted away from “just-in-time” inventory management towards more resilient strategies, necessitating increased warehouse space.
Adding to the challenge, warehouse rental costs have surged, with prime rents in London for properties exceeding 50,000 ft² rising by 25% in 2021. Smaller units under 20,000 ft² witnessed an even steeper increase of 56%. Although rent costs are projected to stabilize in the coming years, they will do so at significantly higher levels.
Moreover, the warehousing labor market is experiencing intense pressure, with warehouse operative salaries rising by 6.8% year-on-year in 2022 compared to a 6.4% decline across all job sectors. Warehouse work has emerged as the top trending job among UK jobseekers, followed by lorry drivers, crucial players in supply chains. Job vacancies for warehouse workers are particularly high in the Midlands, with significant shortages also observed in the South East, East, and South West.
The economic repercussions of these shortages are palpable, impeding businesses’ capacity to expand and innovate, thereby hindering overall economic growth. The competition for available facilities exacerbates cost escalation, disproportionately affecting smaller businesses and retailers already grappling with narrow profit margins.
Challenges for Third-Party Logistics Providers (3PLs): Third-party logistics providers (3PLs) have also felt the impact. The surge in demand for delivery expertise during the pandemic fueled a 67% market growth in 2021. However, this growth comes amidst tight supply, escalating rents, and demands for long-term contracts. In a volatile market, where forecasting beyond three to five years is unreliable, property owners insist on 10- to 15-year lease terms, posing significant risks for organizations operating on thin margins.
The Lifeline: Warehousing-as-a-Service (WaaS): Warehousing-as-a-Service (WaaS) emerges as a potential solution. This innovative logistics model offers on-demand warehousing and storage solutions to manufacturers, retailers, and logistics providers, allowing them to outsource their warehousing needs without committing to long-term contracts and investments associated with traditional warehousing.
WaaS eliminates the need for upfront investment and offers flexible, short-term contracts. Capacity is scalable, and customers can adjust inventories across multiple locations without incurring long-term charges. Labor costs are integrated into contract pricing, and facilities come equipped with advanced warehouse management systems, fire and water damage protection, and top-notch security.
The WaaS market is projected to grow by over 22% annually, reaching $4 billion by 2032. The demand is driven by the e-commerce surge and the imperative for logistics providers to adapt to seasonal demand fluctuations and onboard new online retail clients.
Iron Mountain Warehousing & Logistics stands as a prime example, offering flexible, state-of-the-art facilities strategically positioned throughout the UK. With a capacity exceeding 400,000 pallets across various aisle configurations, Iron Mountain provides 3PLs and others with a rapid, convenient solution sans long-term contracts or capacity commitments. Fully fitted and ready-to-use space, coupled with advanced warehouse management and chain of custody services, ensures tailored solutions that align with customers’ evolving needs.
In essence, the UK’s warehouse space shortage presents a multifaceted challenge with widespread implications. WaaS emerges as a potential ally for 3PLs navigating these uncertain times. To learn more about Iron Mountain, visit
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E-commerce Accelerator
The exponential growth of e-commerce, catalyzed by recent global events, stands as a pivotal factor contributing to the current warehouse space crisis. In 2022, online transactions accounted for 26.5% of total retail sales, representing more than double the figures from the preceding decade. Notably, UK internet retail sales surged by 47% in 2020 alone.
Driven by the need to meet the swift delivery standards set by industry giants like Amazon, e-retailers have significantly bolstered their inventory, resulting in an unquenchable demand for storage space. Although this demand has slightly eased with the pandemic’s receding impact, it remains substantial.
Furthermore, uncertainties stemming from Brexit have compelled businesses to amass reserves of goods, further exacerbating the strain on available capacity. Many companies have pivoted from “just-in-time” inventory management to more resilient strategies, necessitating additional warehouse space.
In tandem with these challenges, warehouse rental costs have soared. Prime rents for properties exceeding 50,000 ft² in London surged by 25% in 2021, while smaller units under 20,000 ft² experienced an astounding 56% jump. Although rent escalation is expected to moderate in the coming years, it will be from a significantly higher base.
The warehousing labor market is also under immense strain, with the average warehouse operative salary witnessing a 6.8% year-on-year increase in 2022. Warehouse work emerged as the top trending job among UK jobseekers in August, underscoring the critical role these workers play in supply chains. Consequently, job vacancies for warehouse workers have reached exceptionally high levels, particularly in the Midlands, South East, East, and South West regions.
The economic ramifications of these shortages are palpable, hindering businesses’ capacity to expand and innovate, thereby impeding overall economic growth. The heightened competition for available facilities exacerbates the cost spiral, with smaller businesses and retailers facing the brunt of these challenges due to narrow profit margins.
3PLs Under Pressure
Third-party logistics providers (3PLs) have not been spared from the fallout. While retailers sought their expertise during the pandemic, driving a 67% market growth in 2021, 3PLs seeking warehouse space encounter tight supply, rising rents, and demands for long-term contracts.
Despite this growth, 3PLs face significant hurdles in securing warehouse space, including rising rents and demands for long-term leases. In a volatile market where forecasts are challenging and tenders seldom exceed three-year cycles, property owners often demand lease terms spanning 10 to 15 years. This presents substantial risks for organizations operating on narrow profit margins.
Warehousing-as-a-Service (WaaS) Offers Relief
Relief may come in the form of Warehousing-as-a-Service (WaaS), a novel logistics business model offering on-demand warehousing and storage solutions. WaaS enables manufacturers, retailers, and logistics providers to outsource their warehousing needs without the long-term commitments and investments associated with traditional warehousing.
WaaS requires no upfront investment and offers flexible, short-term contracts. Capacity is scalable, and customers can seamlessly shift inventories between multiple locations without incurring long-term charges. Labor costs are incorporated into contract pricing, and facilities are equipped with advanced warehouse management systems, fire and water damage protection, and cutting-edge security measures. This provides tailored solutions aligned with customers’ evolving needs.
The WaaS market is poised for rapid growth, expected to expand over 22% annually from approximately US$670 million in 2023 to $4 billion in 2032. Driven by the e-commerce boom and the imperative for logistics providers to adapt to seasonal demand fluctuations and onboard new online retail clients, this growth underscores the relevance and potential of the WaaS model in addressing the current warehouse space crunch.
Iron Mountain Warehousing & Logistics: A Solution
Iron Mountain Warehousing & Logistics offers flexible, state-of-the-art facilities strategically located throughout the UK. With a capacity exceeding 400,000 pallets across various aisle configurations and a strong presence in the Golden Triangle, Iron Mountain provides 3PLs and others with a swift, convenient solution devoid of long-term contracts or capacity guarantees. Equipped with advanced warehouse management systems and chain of custody services, Iron Mountain’s facilities are ready for immediate use, ensuring seamless operations for its clients.