We’re all aware of the insidious rise of labour rates and energy, increasing costs and leading to inflation. There is another major cost area for logistics operators that has seen a sharp upturn, but without the fanfare – property costs.
The market for warehouse space is as hot as it has ever been. Demand for large warehouses is more than 50% above the long-term average leading to increasing rental rates and land costs, and construction costs are increasing in response to the demand and to the supply chain issues causing poor supply and delays. We have all seen the incessant building of new warehouses along our major road network, but even this is not beginning to abate the demand – the UK vacancy rate is as low as 3.5%.
This is leading to rental rates accelerating especially in the South East. In the Heathrow area, there are anecdotal tales of rents now exceeding £20/sq ft and the cost of land at over £5M/acre. Certainly, around the North of London, rent is in a band of £15/sq ft to £25/sq ft and land values range from £3M/acre to £5m/acre. Overlay on top of this issues with labour availability and costs, and then the usual issues of congestion affecting road transport, and it seems inevitable that more companies will have to review the cost model around being located in the South East.
- What should you do?
- Would re-designing your warehouse layout enable increased stockholding?
- What is the impact on your overall supply chain costs if you decide to relocate you warehouse operations to another part of the country?
- Where should you relocate to?
- Is this the right time to consider outsourcing?
- Should you buy or rent your own warehouse?
This issue is not going to go away. It is part of a long-term trend that has escalated in the past year. As your leases come to term, you should consider your options.
It’s no longer as simple as undertaking a centre of gravity exercise, and locating to the model’s answer. Labour availability and land rent/rate prices are an increasingly influential factor in where your business should be located.
Davies & Robson is uniquely placed to model the trade offs between property costs, labour costs and transport costs in order to help you determine the optimum solution. If you would like to discuss how we could help your organisation, please call 01327 349090
