The effects of the pandemic have been, and will continue to be, well-documented since we faced the first national lockdown 19 months ago.
Throughout the pandemic, the industrial and logistics sector has seen significant changes, including in relation to working practices and demand for floorspace, and will likely continue to face a number of major hurdles in going forward. That said, many of the changes were already impacting the sector long before the pandemic, creating an almost perfect storm in the Scottish industrial sector.
Increased demand for industrial floorspace has seen a surge in the take up of accommodation on a scale not seen in a generation. Industrial estates are at full occupancy in many instances, with significant demand on those where there is future developer interest. At the ’small box’ end of the market there have been signs of more speculative development, with J Smart, Chancerygate and Knight Real Estate among others leading the way.
More of a concern to supply, however, is the impact at the larger end of the sector in regional distribution hubs.
In addition to supply, another factor affecting the market is that of ageing stock. It is understood that over 85% of all industrial accommodation across Scotland is now over 50-years old, which is likely to result in a not too distant obsolescence crisis. Legislation is increasingly moving towards improving environmental credentials, but only in the most modern buildings are owners and tenants able to meet these stringent requirements.
Advances in technology are increasing the use of automation in the sector, with requirements for stock to be able to accommodate the required fit outs. Moving forward, the physical design of new industrial buildings will need to accommodate space for these technological changes from the outset.
Furthermore there is an increasing demand from the sector on power and it is evident that a number of industrial estates and locations simply do not have the connectivity or ability to increase power capacity. It is now becoming critical that new industrial estates be created in order to address these problems, which are simply not being tackled presently.
By way of an example, an occupier seeking a 100,000 - 200,000 sq ft facility in Scotland at the present time will encounter various issues, including in relation to servicing their requirements. Firstly, the simple lack of stock in Scotland is a primary concern, with less than a handful of buildings potentially available across the country. Secondly, occupiers will find themselves in a competitive market, with agents currently reporting up to 30 live requirements in this size bracket. Thirdly, occupiers will be forced to consider design-and-build or build-to-suit solutions, but even then, the number of opportunities for new industrial development in Scotland remains slim. Whilst there are sites with good connectivity, scale and those that address many of the fundamentals required by industrial tenants, many developments are not sufficiently advanced in planning terms and are constrained by infrastructure issues in terms of both cost and lead in periods.
We believe that there needs to be public sector intervention to deliver more opportunity. Intervention has occurred previously, through infrastructure grants or the creation of Enterprise Zones. However, these have not always been in the appropriate locations in relation to demand from occupiers.
In resolving the housing crisis and issues across other development sectors, a political pressure has typically been the most effective way to incite meaningful change and introduce support for struggling sectors. We believe that it is now the right time for a similar approach to be considered across the industrial and logistics sector.
At a national level Scottish Planning Policy (‘SPP’) places a requirement on the planning system to promote business and industrial development that will increase the country’s economic output. Local Authorities (LA) are expected to allocate new sites within their respective Local Development Plans (LDP) that meet the diverse needs of different sizes of businesses, in a way that is flexible enough to accommodate changing market circumstances. There is also a requirement for LA to monitor and in many instances, safeguard existing industrial land supply.
Land designations and safeguards in LDPs are a positive way for LA to support further industrial development and to assist in increasing the supply of modern industrial units across the country. However, it is essential that land designations are in strategic locations where there is demand from industrial occupiers to locate. Furthermore, where these strategic sites are allocated, but have deliverability or servicing issues, there is a real need for LA to assist in unlocking the constraints and thus, the development potential of sites, which out with planning policy, may require financial investment and a partnership approach between developers and LA.
In recent years, many LA have been looking at strategies which have seen some employment sites being allocated or redeveloped for other uses, including for housing, in favour of limiting employment land to certain areas or delivering employment land in strategic locations. This in itself has further limited the amount of industrial land in some areas further affecting supply.
It can be difficult for a plan-led system, such as that in Scotland, to respond quickly to market changes such as those we have seen in the industrial and logistics sector and the ability of the planning system to respond to market changes may be limited further as the country moves towards 10 year LDPs following the enactment of the Planning (Scotland) Act 2019.
To date SPP has required that proposals for industrial development should take into account surrounding sensitive land uses, including local amenity, which has often meant that in the past, industrial and business estates have been located at a distance from residential areas. However, as per the Position Statement published by the Scottish Government for the emerging National Planning Framework 4, it is recognised that as the economy evolves, there may be scope for the greater integration of work and living as inter-related land uses, which must include those related to the industrial and logistics sector.
Beyond local planning policy, there is clearly a need to readdress the balance by encouraging a discussion at the highest levels as to how the industrial market can be supported as the country looks to achieve the sustainable economic growth of this sector.