Last month UKWA hosted a Round Table of senior industry leaders, sponsored and led by Savills, to discuss trends in industrial and logistics property, and to consider the challenges ahead.
While the latest data from Savills painted a positive picture, reporting increased take up this year over last, a rise in Grade A availability and strong demand – particularly for manufacturing, which we heard was enjoying a resurgence over recent years, the view from those operating ‘on the ground’ was rather different.
Warehouse operators were feeling the pain. Too much space and not enough work to fill it, as one commentator observed, adding that the market reality is an excess of so-called ‘grey space’. To win contracts, it seems operators are taking longer leases and then finding themselves stuck, having to fall back on shared user work by way of damage limitation, to back fill empty space.
There was a strong sense that rather than take up new build, seen by some as being cost-prohibitive and ‘space in the wrong place’ away from people and power, often the better option was to refurbish and upgrade or extend existing premises.
This led to further discussion about the vexed question of planned rating requirements for warehouses, with minimum EPC rating requirement raised to C for new leases of commercial properties as early as 2025 and by 2030 a proposed minimum rating requirement of B.
We heard too from a landlord operating in the ‘small to mid box’ market, who estimated that in the sub 100sq ft market, some 80% of stock would be below EPC C or B rating.
Savills’ Simon Collett acknowledged that stranded assets were a definite risk in this regard, and predicted a ‘huge trend’ ahead towards upgrading buildings. He said that Savills were already seeing owner clients asking advice on how to improve their EPC rating to avoid the risk and that conversations were actually already starting around landlords and occupiers sharing the cost of improving buildings.
According to Savills, EPC rating is something of a blunt instrument. It is not a matter of fabric of the building only, but rather a combination of good buildings and good operators. Criteria have changed too, so the strong advice was to check the current rating of your building and possibly arrange a new assessment first, before considering ways to make operational and physical improvements to reduce energy use.
Some of those taking part in the discussion affirmed that they had taken the route of investing in upgrading existing assets, although they warned of high costs and an obstructive approach by some local authorities. Nevertheless, the consensus was that particularly for owner occupiers whose buildings were well served for power, close to labour populations and appropriately located for customers, investment in developing existing assets is a smarter move than taking a ‘shiny’ new warehouse in the wrong location at great cost.
Clare Bottle
UKWA, CEO
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