Defining industrial land

Defining exactly what we mean by industrial land is complex. Over time the users of industrial space have changed dramatically. In the most up to date SPG covering land for industry and transport, the GLA states that structural change in the London economy over recent decades has led to a shift in employment away from traditional manufacturing industries and into the service sector. 

The term ‘industrial’ encapsulates light and general industry, waste management, utilities, wholesale markets, maintenance engineers, film studios, data centres, creatives and other users of warehouse space. But in reality and in the modern economy, what we generally mean by industrial is actually logistics and distribution.

The London economy is supported by a diverse range of business sectors which all share a common requirement: they all rely on a highly efficient and effective supply chain to serve their customers, according to a SEGRO report in 2017. Urban logistics, the movement of goods around a city, enables the supply chain to function for a multitude of sectors and is therefore integral to London’s productivity.

As demand for urban logistics has grown, locating warehouse facilities close enough to their final delivery points while avoiding as much traffic congestion as possible has become essential. It is therefore important for these service providers to operate in facilities that are accessible, fit for purpose and without hours of use restrictions.

Not just online retail driving growth

As London’s population has grown and the shift towards online retail has increased, the demand for well located and well designed warehouse space has increased dramatically. With online retail set to reach 35% of all retail by 2025 and the population of London set to increase to 9.7 million by mid-2024, the need for good quality warehouse space is set to increase even further.

Research from the British Property Federation suggests that each additional new home needs 69 sq ft of warehouse space to support it. Although the level of new home completions in London is falling, the London Plan recommends that 52,000 new homes should be built per year over the next ten years. Meeting this target would require 36m sq ft of new warehouse space just to support the new residents.

However this doesn’t take into account the natural growth needed to support higher levels of online retail or the need for new ultra-modern units that have the infrastructure needed to support EV charging and have higher EPC ratings now required to meet occupiers ESG credentials.

Examining the warehouse estate of the largest online retailers and parcel companies show that they occupy double the amount of warehouse space per capita in London compared with other more sparsely populated areas of the UK. Within London, the parcel delivery and e-commerce sectors occupy 9 warehouse units per 1 million people compared with just 3 units per million in Wales. Currently in London just 44% of units under 100,000 sq ft have an EPC rating of C or above, meaning huge investment will be required to get industrial stock fit for purpose and compliant with environmental regulation by 2030.

All of this pressure is creating huge demand for well-located warehouse space, in turn this is generating significant development appetite from warehouse developers keen to build into a growing market and capture value.

Since 2017, the average land price per acre for industrial land has increased by 175% to £8.3 million per acre. Interestingly, the markets that have experienced the most significant growth in land values are in East London where populations and jobs are set to also increase by the highest margins.

This rise in industrial land values is in the most part being driven by strong investor demand and the anticipated increases in rent being paid by occupiers of warehouse space. Rents for warehouse space in London are forecast to increase by an average of 34% over the next five years, again the highest growth coming from East London, according to data from Realfor.

Diminishing supply of industrial land

Ultimately supply and demand govern the pricing levels for industrial land. The pressure of land supply in London coupled with rising demand levels suggest that the problem is not going to alleviate any time soon.

Since 2011, London has lost 5.7m sq ft of warehouse space to other uses and whilst we have seen a small rise in the total stock levels since 2019, the market is still undersupplied compared to a decade ago. This is partly because the type of industrial space re-provided in mixed use schemes is overly focused on creative users and not the requirements of essential service providers.

In terms of recent growth in stock, the majority of locations have lost floorspace since 2011, with the greatest loss in in Harrow at -35% and the greatest gain in Havering at (+20%). The largest floorspace loss in real terms has been in Tower Hamlets, with a decrease of 1.4m sq. ft. since 2011.

A key London wide challenge will be to ensure London’s growing resident and business populations are served by an efficient network of warehouse facilities. This challenge will only further intensify given the current rate of stock losses in the industrial and logistics sector.