In particular, a rise in National Insurance (NI) is likely to have considerable repercussions, especially when it comes to what a company might need from its future warehouse space. 

What does this mean for industrial & logistics occupiers?

Some occupiers will no doubt hold their breath as they wait to see what effect these changes could have on property strategy and business growth, both short and longer term. Quite often cost increases will be passed on to the end user, which could potentially see knock- on effects on overall profit margins and wider consumer confidence. 

Those that remain in situ within their existing buildings with a view to regearing their lease could create value that offsets extra costs, but may then compromise other objectives, namely ESG. 

Alternatively, businesses which already have a set strategy and are under pressure to acquire space due to lease events may move towards automation to offset labour shortages and increases in costs. This in turn, could mean changes in approach in building design, utility requirements and fit-outs.

Automation will be key

To manage these potential increased costs, automation does provide a viable solution for many. However, this isn’t a catch-all and raises questions about how versatile and future proof buildings are, especially given the challenges of retrofitting to modern, but invariably bespoke, technology. The availability of power, building height, and the right skillset to run such an operation will be required.

This is also occupier specific; for example a food business cannot use automation designed for clothing and vice versa. Therefore, the bespoke nature of these fit-outs is likely to need a degree of capital expenditure, something not everyone is keen on in times of greater economic uncertainty.

For those looking to invest, it will likely see occupiers seeking more versatile and higher buildings to make the most of automation efficiencies. Although potentially smaller in footprint, meaning possible savings on square footage, in turn they’re likely to need more power to function.

Challenges remain

Another question is can existing building stock satisfy this demand? Location will remain a primary consideration for occupiers, and for those exploring automation it’s doubtful that a second hand, dated building will be able to handle modern requirements. Yet for those constrained by geography, it’ll mean making compromises; what these are will no doubt depend on the function utilising the space.

The biggest challenge, however, will be the build-to-suit (BTS) sector and ensuring that these are viable both in terms of delivery and certainty. This will largely remain dependent on the funding market, but also poses questions around planning and power, as well as sourcing less expensive, but still highly skilled, labour.

Solutions

What, then, can occupiers do to reduce outgoings in the face of rising costs? One possible solution is freeports. These sites offer tax and customs benefits to businesses, including 0% employer NI contributions on salaries up to £25,000 for up to three years. Although questions remain over location, we could see more investment in major distribution centres at freeports, complemented by smaller, lower cost, including that of labour, last mile sites closer to the customer.

In short, this will require future proofing power supplies, planning policy allowing for this type of development and support for an increase in infrastructure to make freeports more viable.

Overall, though, occupiers will need to think more carefully about their real estate strategies and continue to navigate the best way to service their customers in the most cost effective way.

Further information

Contact Tom Shaw or Emily Hardwick 

National occupier market overview