The recent proposed changes to the UK’s planning system are set to significantly reshape the real estate sector. The National Planning Policy Framework (NPPF) draft document, released for public consultation on 30 July 2024, emphasises economic growth, infrastructure development, and housing expansion.
For the industrial and logistics sector, the proposals signal an important shift in focus and commitment.
Despite its essential role in driving sustainable economic growth, the industrial and logistics sector has hitherto received limited policy support. Now, however, as our longer read sets out, the government is recognising the importance of the sector.
Proposals include requiring local planning authorities (LPAs) to identify appropriate commercial sites for the needs of the modern economy, and identify strategic sites for local and inward investment to meet anticipated needs over the plan period. This includes a range of specific modern economic uses including laboratories, gigafactories, data centres, digital infrastructure, freight, and logistics.
However, this is not a definitive list. The draft NPPF goes further with a new requirement to make provision for the “expansion or modernisation of other industries of local, regional or national importance to support economic growth and resilience”. In other words, Local Plans should proactively encourage sustainable economic growth across the board.
In order to achieve this, a significant shortcoming in the current planning system will have to be addressed – namely assessing future land needs based on past take-up rates that have not kept pace with rapid change as a result of housing growth and the rise of online retailing, for example. A standardised method for calculating industrial needs reflecting the evolving, structural drivers of demand within the industrial and logistics sector is therefore required.
The proposed introduction of the grey belt , requiring local authorities to review green belt boundaries if they cannot meet their housing and commercial development needs, could potentially help by unlocking more, appropriate land for industrial and logistics purposes.
Moreover, the draft NPPF and associated documents suggest that the government is prepared to be more hands on in the planning process, introducing the potential to expand the range of developments that fall under the Nationally Significant Infrastructure Planning (NSIP) system particularly for renewable and digital infrastructure projects including data centres. It will be important there is optionality around the NSIP route, given the conventional route is likely to take less time on sites where the principle of development is less contentious, and the relative flexibility of the TCPA for allowing amendments post the grant of planning permission.
The new government has placed a strong emphasis on expanding the UK’s tech sector, particularly through the development of digital infrastructure.
The latest data centre research from Savills suggests that across Europe almost 100 new data centres are planned to be delivered within the next three years. However, given the growth in bandwidth usage by cloud computing and AI applications, demand will continue to outstrip supply and we expect existing clusters, many of which are in the UK, to continue to grow.
The demand for industrial and logistics space is also growing due to the semiconductor industry. According to research from Savills, the EU will require nearly 11 million square metres of new industrial and logistics space by 2028 to meet rising demand. Additionally, the UK is projected to need up to 21 million square feet of space for gigafactories producing batteries by 2040, with an additional 2-3 million square feet required for warehouse space to support supply chains.
Policies encouraging faster planning approval combined with the flexibility offered by grey belt land, will be key to bridging this gap.
The continued growth of e-commerce is another critical factor driving demand for logistics space. Forecasts suggest that online shopping will grow from 22.2% of total retail in 2022 to 28.4% by 2027, potentially increasing revenues by over €62.4 billion.
Research indicates that for every additional billion euros spent online, an extra 775,000 square feet of warehouse space is required. Consequently, the UK may need up to 58 million square feet of additional warehouse space by 2027.
This surge in e-commerce is also intensifying the need for efficient last-mile delivery systems. The draft NPPF encourages local authorities to earmark land for logistics hubs, ensuring that the necessary infrastructure is in place to support e-commerce expansion. Additionally, the strengthening of effective cross boundary planning, which recognises the locational requirements of the sector, will support the efficient and reliable handling of goods, whilst the introduction of the grey belt further facilitates the release of land near urban centres, where demand for last-mile logistics is highest.
Housing delivery is directly linked to increased demand for logistics space, as each new home requires an additional 69 square feet of warehouse space to support its distribution needs. If the government meets its housing targets, an additional 25.64 million square feet of warehouse space will be required each year. The draft NPPF’s emphasis on unlocking land for development, particularly in areas near housing developments, will be key.
The revisions are promising. Notably however, there is no reference within the draft NPPF to the government’s national industrial strategy or to require plans to maintain a rolling supply of immediately deliverable land for economic growth which some had suggested. Furthermore, two major hurdles for the industrial and logistics sector are the speed of planning decisions and the capacity of the National Grid. Labour’s commitment to recruiting more planners and upgrading the national transmission infrastructure is targeted to respond to these challenges, although the scale of the task facing local authorities remains considerable.
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