Increasing pressure on the residential pipeline

It is well known that London needs more homes. But in order to service these homes and with increasing consumer expectations for same-day or next-day delivery, London also needs more industrial and logistics space. Rising demand for both residential housing and industrial space has created an inherent tension between residential and industrial land.

The residential land market in London faces policy inflation, compounding build cost pressures and expectations of lower affordable housing values. On the other hand, sheds are easier, cheaper and more straightforward to develop.

Industrial developers are actively seeking sites for both major industrial facilities and last mile distribution services. Typically sites in the highest demand from industrial occupiers are well connected to strategic road networks and are located close to large scale residential catchments.

As the market currently stands, sites with residential consent adjoining or already on industrial employment land are at risk of being lost to industrial. The land can be more valuable remaining in existing use rather than building out as residential. This puts even greater pressure on constrained residential land supply in London. There also exists a paradox whereby once the land is delivered as residential, it is extremely unlikely to revert back to any other alternative use.

9% of the residential pipeline coming forward in London is comprised of these types of sites that would be highly attractive to industrial occupiers, and therefore could be at risk of not coming forward as residential. This is equivalent to c.130,000 residential units. 

The policy position

The new London Plan adopted in 2021 acknowledges the competing pressures for land. Alongside emphasising the acute need for housing in the capital, the Plan also proposes to scale back the release of industrial land. Areas designated as Strategic Industrial Locations (SIL) are assigned a strategic protection, in order to retain these areas as London’s largest concentration of industrial and logistics capacity.

The London Plan explores new approaches towards development. As part of its ‘beds and sheds’ policy, the GLA encourages the intensification of existing industrial land and the co-location of uses to release additional capacity for housing. Housing development on SIL land is permitted providing that various conditions are met. Where industrial land is considered appropriate for residential use, a minimum requirement of 50% affordable housing is to be delivered on proposed schemes.

Through industrial intensification and co-location of uses, the GLA seeks to identify opportunities to maximise the capacity of brownfield land, creating higher density, mixed use developments with a broader range of services and amenities.

Co-location, a good idea in practice?

There are many challenges associated with the successful implementation of industrial intensification and co-location of uses in line with GLA guidance.

Firstly, there is a lack evidence of co-location with limited case studies to showcase best practice as co-locating industrial alongside residential is still very much in its infancy. Not all types of industrial uses are compatible with residential housing and co-location only works in certain locations.

Both co-location and intensification seek to enhance capacity on existing industrial spaces. Another development option is through multi-storey development. But these developments are expensive to build and are only viable in locations where industrial rents outweigh construction costs. Whilst multi-storey warehouse development has been proven to work in other global locations, there remains a reticence from both developers and occupiers to these new styles of development.

Providing residential development alongside other uses, in particular the requirement to deliver 50% affordable housing, can significantly challenge the viability of mixed use schemes. In some cases, the value of mixed use sites falls below the value of existing occupied industrial spaces.

Demonstrating proof of concept

With demand continuing to rise for both residential and industrial land, policy needs to balance these competing demands for land whilst maximising capacity for mixed use development on existing brownfield sites.

Since adopting the London Plan in 2021, the GLA have been focused on bringing forward good quality industrial spaces to showcase proof of concept. Successful case studies can demonstrate that industrial intensification can be viable and deliverable in areas with high demand for industrial land. Also, that these industrial intensification schemes can be at the forefront of design, innovation and sustainability. Taking on development risk and unlocking difficult sites with fragmented land ownership is another means by which the GLA can provide the market with greater confidence.

Industrial intensification allows for more efficient use of industrial land and releases additional capacity for housing development.

But this only forms of part of the solution…