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Brexit stock-piling during a 'perfect storm' in the warehousing and logistics sector

13 November 2020 #Real Estate #Brexit


With just 7 weeks to go until the end of the Brexit Transition period and no definite signs of a trade deal in sight, the warehousing and logistics sector is preparing for a period of disruption.

According to the National Audit Office, (as reported in The Independent last week) Britain is set to face “significant disruption” when the Brexit transition period ends, whether or not a trade deal is agreed. Such disruption is anticipated due to increased border and customs checks and a shortage of customs agents to carry out the checks on goods moving from Great Britain.

The likelihood of 'no-deal' disruption has been on the cards for some time, and as a result many businesses have already begun to stock-pile goods, to ensure they remain able to meet customer demands.

The Financial Times reports that luxury car-brand Bentley is among the companies in the automotive industry to start preparations in the event of Brexit disruption. Bentley usually rely upon just-in-time delivery of supplies from Europe but have reportedly increased warehouse capacity to carry up to 10 days of supplies of parts, up from the usual two days supply. 

Some of the larger supermarket brands (including Marks & Spencer, Tesco, Asda and Sainsbury’s) have also been stockpiling packet and tinned foods for some time now, but stockpiling is more difficult for suppliers of fresh food due to its short shelf-life.

The increase in Brexit-contingency stockpiling has unsurprisingly had an impact on the logistics property market, with many commentators reporting significant increases in the number of Brexit-related enquiries for warehousing space.

When you put Brexit stockpiling together with the impact of Covid-19 and our ever-increasing preference for online shopping, it is not surprising to hear that there has also been a change in the way property investors now view the logistics sector. According to Andrew Parsons of Nedgroup Investments Global Property Fund (quoted in The New Straits Times earlier this year)  twenty years ago, the logistics sector was seen as the ugly-duckling, but now warehouses are seen as “prime pieces of real estate with massive amounts of capital being put to work”.

But are there enough warehouses in supply to meet the increasing demand?

Putting Amazon to one side (who have allegedly acquired 2.3million square feet of “Mega Box” warehouse along the River Thames!), the answer is often no. Many suppliers are struggling to find available and affordable storage space, particularly in the short term. Industry commentators have reported that the cost of renting warehouse space is increasing at twice the rate of office space.

According to Peter Ward of the UK Warehousing Association, the logistics sector is facing a “perfect storm” which has been brought about by an increased demand for stock-piling space at a time when most property developers have been focusing on homebuilding rather than industrial units.  

With a shortage of available warehouse space, many businesses will need to find other solutions for their storage needs. For businesses owning freehold premises, this might involve the construction of a temporary structure to accommodate additional goods, or the re-purposing of existing accommodation as warehouse space.

For those occupying their business premises under a lease, creating additional space is not so straightforward as there will be other things to consider. For example:

  1. Does your lease permit the erection of additional buildings, even of a temporary nature?
  2. What does the lease allow you to use the premises for? Most commercial leases are quite restrictive and may not allow non-warehouse space to be used for another purpose, without a legal variation.
  3. Does your lease contain any excess weight or loading restrictions, and if so, would these be breached by the holding of excess stock?
  4. Will increased stock levels be covered by existing insurance terms? Consider whether your policy might require amendment to increase the level of cover.
  5. If increased stock-levels will result in extra deliveries, will these cause a problem for neighbouring occupiers? And are there any planning conditions affecting your premises that limit delivery times? It is not uncommon to find planning conditions restricting the hours during which deliveries can be made to a property, particularly in residential areas.

Earlier this year, the government published a Code of Practice for commercial property relationships during the pandemic. The Code encourages landlords and tenants to 'work together collaboratively' as many will want to find 'temporary, and where possible sustainable, arrangements outside of the existing letter of their leases in order to create a shared recovery plan'. It will be interesting to see whether the same spirit of collaboration will be adopted towards Brexit-related issues in the coming months.

If you would like to discuss your property requirements or lease obligations in relation to any of the issues mentioned in this article, please do contact our Real Estate Team.

Clarkslegal, specialist Real Estate lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Real Estate matter please contact Clarkslegal's real estate team by email at realestate@clarkslegal.com by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.
Disclaimer
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.

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Shona Dunning

Shona Dunning
Partner

E: sdunning@clarkslegal.com
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