On Tuesday 18 April 2023, Commercial Real Estate Senior Associates Daniel Steele and Paul Grayson attended the BISNOW seminar on The UK's Industrial and Logistics Transformation at the Royal College of General Practitioners.
The seminar focused on two key themes:
- Investing In Industrial: Is The Bubble Going To Burst? and
- The Future Of Industrial: Sustainability And Technology,
as well as a general discussion regarding the green industrial revolution. The speakers came from a variety of backgrounds, including international investment managers, UK big-box developers, London-focused developers, real estate consultants and a representative of the UK Warehousing Association.
Daniel and Paul share some key insights and thoughts from the various discussions as follows:
When each asked one thing that the panellists wished would happen in the next 12 months, pleas for changes to the planning system, for market participants to adjust their expectations and for a move towards adopting multistorey industrial options were all mooted.
It was widely acknowledged by panellists across the afternoon that the current planning system does not appear to be working and changes need to occur in order to make this more transparent and consistent across the UK.
Some market participants still appear to be clinging to memories of before the Liz Truss mini budget in September 2022 and are not adjusting their expectations. While prices are slowly adjusting to realistic levels, the panellists believed that there has been a structural change in pricing that should be accepted and built upon, rather than relying on prayers and hopes of what has happened historically.
Multi-storey developments are common in Europe but UK occupiers appear to be slow to adopt this. Given the demand for space multi-storey options should be considered by tenants as viable options to their needs and should be encouraged by agents to increase uptake. That said, the panel did acknowledge that occupiers will not fully commit to multi-storey developments until it can be widely demonstrated that the ramps/lifts between floors can adequately sustain the demands of industrial use.
While there is a push towards adopting green energy and adapting operations and assets to avoid the use of fossil fuels, there is concern as to whether the grid has the capacity to tolerate increased energy consumption. To mitigate future energy concerns, many developers and landlords are opting to put solar PV panels on their buildings but there are still questions regarding how (and if) excess capacity can be returned to the grid and at what return? Is there enough incentive to developers or landlords to install solar PV panels if the tenant does not have any need for excess power and the energy cannot be sold back to the grid at a reasonable rate?
Many tenants are investing in robotics and are leaving room in their plans to accommodate expanded robotics schemes in the future. The UK market, however, faces issues in attempting to expand robotics, such as:
- as mentioned above, does the UK have the energy capacity to cope with this? and
- are there enough engineers in the UK to service them?
A panellist described an example of an entire automated facility shutting down and having to wait for an engineer from Europe to fly over and fix the situation. Should the industry be offering apprenticeships so that the UK can train their own engineers to facilitate the expanding growth of robotics in industry?
Mixing it up
The rise of dark kitchens, vertical farms and film studios occupying warehouse space all offer opportunities for access to new tenants and therefore new growth and demand, particularly for urban and last-mile logistics sites (assuming the sites have the energy capacity to cope with tenant's requirements – film studios are energy hungry!).
ESG and benchmarking
Whilst the market is rightfully driving the ESG agenda, there is still no commonality as to what "net zero" means. Each market participant is undertaking their own ESG initiatives, however the lack of commonality makes it difficult to benchmark one's performance against others in the market. The market needs to be more transparent as a whole, perhaps an alien concept to investors and developers who closely guard key information such as yields.
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