Savills estimates additional storage space in 2032
Analysts warn that over the next seven years, the UK will need to build hundreds of new warehouses to cope with a surge in demand from the defence sector.
Real estate consulting firm Savills estimates that 3 million square meters of warehouse space (equivalent to 400 football fields) will be needed as the government’s commitment to defence spending has contributed to manufacturers.
The warning comes as a “age of radical uncertainty” that will increase the UK’s annual defense budget by £40 billion by 2035, under the promise of Sir Keir Starmer this summer.
Much of this new expenditure is expected to flow to the UK’s largest defence contractors, including BAE Systems and Rolls-Royce, who will require additional production and storage capacity to fulfill orders at home and European allies.
If Savills’ prediction proves correct, the UK will need to build about 429,000 square meters of new storage capacity per year until 2032. This will be the top of 650,000 m2 delivered annually by developers over the past decade, excluding the outstanding output for two post-pandemic years.
Demand in the defense industry surges to a time when warehouse rents are already under pressure. Since 2019, the main rents for logistics hubs near the M25 have almost doubled, climbing from £215 per square meter to £398 per square meter today.
“If there is a lesson to learn from the pandemic, a fully functional, diverse and strong national logistics ecosystem is crucial to a functional manufacturing industry, and defense capabilities are no exception,” said Andrew Blennerhassett, deputy director of the industrial and logistics research team at Savills. “If there is a lesson to learn from the pandemic, a fully functional, diverse and strong national logistics ecosystem is crucial to a functional manufacturing industry, and defense capabilities are no exception. Political makers will need to keep the land restricted.”
The pandemic and subsequent supply chain disruptions have prompted many companies to re-production and expand domestic storage capacity, increasing pressure on the UK logistics market. However, new developments have been hampered by the rise in construction and financing costs.
Warehouse developers and landlords are already positioning themselves to benefit from the defense spending drive. Sirius Real Estate, which has over £2 billion in warehouse assets in the UK and Germany, has appointed a former British Army Major General as a strategic adviser to capture new opportunities.
“Defense has the potential to become a major growth sector and driver of demand in warehouses and manufacturing, ultimately the government’s rent,” said Andrew Coombs, CEO of Sirius and a former Grenade Operations Guard.
Analysts warn that if land availability and planning approvals fail to keep up, the combination of e-commerce demand, re-engineering strategies and defense spending could increase logistics rents even higher, increasing costs across multiple industries.
