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Reuters/Neil Hall
House of wares.
FULFILLED

The battle between Amazon and Alibaba will be fought over warehouse space

By John Detrixhe

When Britons voted last year to leave the EU, a major concern was whether the resulting upheaval would dent the demand for real estate. At least as far as warehouses are concerned, so far it has been the opposite: Savills, a property services company, says Amazon helped make 2016 the best ever for that part of the UK market.

For Amazon, it was business as usual despite Brexit, according to Kevin Mofid, head of industrial research at Savills. The Seattle-based online retail giant accounted for about 23% of warehouse take-up in 2016, and in recent years it has swallowed up more space than the combined demand from major grocery chains like Sainsbury’s and Tesco’s ever did. 

Now, Chinese rival Alibaba is looking for space, too. It bought UK warehouse real estate last year, and Mofid believes the company is scouting for more, as it expands outside of its home market. The demand from Amazon alone is unprecedented, so another deep-pocketed company looking for large amounts of space at the same time is daunting.

The turf war in the UK could be a sign of things to come, as the world’s biggest online retailers go head-to-head in new markets. Alibaba—which has almost 500 million active annual consumers on its Chinese retail marketplaces and delivers an average of around 55 million packages a day—is looking abroad for long-term growth. For its part, Amazon already leased 97 million square-feet of space for warehouse fulfillment and data centers in North America and another 59 million square-feet of space internationally last year.

The pinch in the UK, if there is one, could take place in London. That’s because online retailers are likely to seek out urban property to get closer to customers, Mofid says, which could put them in opposition with politicians trying to grapple with the city’s shortfall in housing. In terms of new homes, London is already falling well short of building what’s needed just to keep up with population growth.

One solution to a potential crunch, as it happens, comes from the very retail companies that Alibaba and Amazon are crushing. Underperforming big-box stores and moribund malls offer plenty of opportunity (paywall) for warehouse conversions.

John Detrixhe
Future of Finance Reporter
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