The industrial and logistics sector has been in the news a lot lately, specifically as it relates to land. The extent of loss of land was recently laid bare by the Industrial Land Commission, and the impacts of this are increasingly being felt by rising rents, sharpening yields, and industrial land values now outstripping residential in an increasing range of locations.  This trend has been accelerating for some time but it feels like we’re now at a tipping point where a rebalancing of land values may compromise housing delivery.

This is not necessarily a bad thing.  It’s positive that London is finally retaining its industrial land as it protects employment diversity and jobs in general, and the current value equation is a simple reflection of demand and supply imbalance.  The market is doing its best to reflect the important economic function that industrial and logistics land fulfils.  This does, however, present an issue for London’s equally pressing housing crisis because so much of our forecast supply is on land currently in industrial use.

According to the evidence base supporting the London Plan, fully 40% of housing to be delivered in 2019-2028 is on industrial land, equivalent to 161,000 homes.  In latter stages of the plan period a further 31,000 homes are anticipated on land currently designated as strategic or local industrial use, to say nothing of other undesignated industrial land.  If current trends continue, this could mean there is a c 200,000 unit of greater black hole in London’s housing pipeline.  On the conservative assumption of c2.5 people per dwelling, that roughly equates to a home for 1 in 20 Londoners.

Areas where industrial values now exceed residential include Enfield and Waltham Cross in north London (notably also where a lot of housing pipeline is projected), Park Royal and North Action in west London, and areas as central as south Bermondsey.

The impact is not just where industrial land values exceed residential either.  It’s enough just for values to be close.  Faced with the choice of redeveloping for residential, or refurbishing or developing new industrial space, landowners may well choose industrial as the lower risk option.  Residential development entails a far more complex and expensive planning process, longer and more inflationary build, and trickier exit.  Purchasers are often willing to offer on an unconditional basis for industrial use but subject to planning for residential.  Even if offering a higher price the delay and risk involved can easily make disposal for industrial the more attractive option.

So how can London have the best of both worlds – retain its important industrial and logistics space whilst still delivering much-needed housing?  It is incumbent on policy-makers to rely less on industrial allocations that the market won’t deliver, and focus more on increased density in other locations – town centres, transport hubs, estate regeneration and brownfield areas such as derelict sites, railway sidings etc.  The public sector has a role to play through release of its land, but also direct intervention to assemble land, act as strategic lead to drive change and potentially channel grant funding.

Policy should also embrace ultra-urban logistics solutions in town centres and incidental employment space such as railway arches, taking some of the pressure for last-mile delivery away from more strategic industrial land.

The market itself is beginning to offer solutions, encouraged by policy for some time, through models of co-location of residential and industrial uses, and dense multi-storey logistics typologies.  However, these remain relatively untested and they are perhaps unlikely to be feasible for many locations.

Preserving London’s housing pipeline will require strategic reassessment and leadership from the public sector, with long-overdue acknowledgement that housing delivery can’t continue to rely heavily on industrial release.  London’s housing stock and supply is a key factor in its overall competitiveness and affordability – themes we will be expanding upon in the coming months.