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COVID-19 Impacts on Manufacturing & Supply Chain

Lisa Graham • 18/08/2021

As businesses put in practice the post-Brexit Treaty or Trade and Cooperation Agreement (TCA), they must also contend with shifts in output caused by the pandemic (albeit some temporary) and heed to an economy that is quickly transitioning to green. Early indications are that the TCA is asymmetric in effect, driving up costs and creating supply chain bottlenecks for UK businesses.

As we predicted in the run up to Brexit, UK companies would turn to stockpiling as one way to safeguard their supply chains. In fact, after the Brexit referendum was passed in 2016, the Port of Rotterdam determined that the port needed to prepare for a 2-4% rise in TEU volumes due to stockpiling. While this estimate pertains more specifically to warehouse needs on the Continent, the Brexit impact on UK inventories could be even bigger.
 
Conformity to Rules of Origin as defined in the TCA suggests that UK manufacturers will need to consolidate production lines within the UK to be able to declare the goods as ‘made-in-the-UK’. While sourcing all parts of production within the UK is more costly for UK manufacturers, we expect that demand for warehouse space to store raw materials and production parts will rise in tandem. 

Supply chain adjustments to Brexit and a surge in e-commerce sales during the pandemic contributed to the UK’s historically high level of take-up during Q2 this year -- 19.2 million square metres which was up by 48% from Q1. Take-up during the first half of 2021 is already over 32 million square metres, pointing to 2021 as a record year. Hence, despite forecasted short-term and long-term economic losses created by COVID-19 and the TCA respectively, it is clear that an increasing amount of warehouse space will continue to be a critical part of the solution for many UK businesses.

 

04 April

Rarely has the importance of manufacturing and the supply chain been more recognised for its critical role within the global economy. 

Whilst some sectors such as automotive, aviation/aerospace and bricks and mortar retail have undoubtedly suffered, there has been a surge in the criticality and short-term demand from the grocery, e-commerce and pharma sectors. 

At this stage of the crisis, reliable data is a scarcity, but shared experience is accumulating and invaluable. The main story this week has encompassed rental payments.

Landlords have mobilised their assessment of rental risk within their portfolios, and the range of rent received in the sector ranges widely between 50 - 75%.

Many tenants are approaching their landlords for rental deferment, typically at this stage for 3 months. Most landlords are dealing with the requests on a merited case by case basis.

There have been ranges of acceptance of rental deferment typically, but not exclusively of extending the leases by the equivalent period or the amortising of the deferred sum over a period of say 12-24 months.

In the meantime, occupational clients have been focused on retaining the operational integrity of their businesses and how their real estate and FM can fully support this.  

Whilst a significant number of transactions have inevitably been put on hold and budgeted occupational capex has been deferred until 2021, we have seen a few sub sectors thriving.

As may be expected grocery, online retail and pharma have been trading very well and, in some cases have sought short term expansion space.

We have also witnessed evidence of companies’ extra capacity for storing goods and containers as they arrive from ocean going freight journeys from Asia.

With reduced through put on retail or manufacturing there is the need to stockpile product as open storage or in secure warehousing in the short to medium term.

Building construction has in the main halted. Additionally, we have seen collaboration between non-competing companies in terms of supporting each other on deliveries, trucks and shared resource. 

There are also challenges with workforce absenteeism as a result of COVID-19. This has adversely impacted on supply chain and in some cases has caused challenges regarding adequate social distancing within the warehouse.   

Looking forward there are several areas we would anticipate unfolding.

  • There is a possibility that supply chains may in some cases retract from finely tuned just in time deliveries to allow more robustness to the supply chain and a consequential uptick on the warehouse space required.

  • There may be an acceleration of reshoring in manufacturing where possible and a consequential shortening of supply chains.

  • Additionally, the sector may look at the workplace environment within their office functions, both integrated within the warehouse and at a regional HQ level. Design moving forward may look at how the workplace is configured and how hygiene factors and air conditioning systems can be effectively maintained and filtered. 

Logistics and industrial has proved itself to be critical in the current crisis. Our clients and their employees have been at the forefront of manufacturing critical medical components, delivering and selling the household produce required to support our daily life, health and welfare.

The real estate component supporting this has been fundamental, and the adaptability of the logistics and industrial occupiers and landlords, has provided the platform.  

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