Densification and population growth in the UK are driving a need for more housing – with the mayor of London for instance setting targets to build more than 52,000 new homes a year to 2031 in the capital.
But densely populated cities also need adequate logistics and industrial capabilities to support growing numbers of residents, especially given the growth of e-commerce and the expectation of same- or next-day deliveries.
However, we have seen instead a significant loss of available industrial floorspace to make way for residential or other uses.
In a report published last year, the Centre for London's Industrial Land Commission revealed that over the last two decades, London has lost a quarter (24%) of its industrial floorspace, while Greater Manchester and the West Midlands saw theirs decrease by a fifth (20% and 19% respectively).
This has resulted in a chronic imbalance between supply and demand that is putting pressure on available land.
We therefore need to rethink how we build industrial schemes. One option with tremendous potential is introducing smaller, multi-storey, so-called stacked industrial uses into mixed-use developments in space-poor urban areas.
Alongside this, the Industrial Land Commission report also noted that the vacancy rate has plunged from 16% to 4% in that period – and to just 2% in central London – leading to spiking rents and land values.
The report further highlighted the important part industrial land plays not only in supporting new housing but also as a significant source of employment in Greater London.
In fact, while jobs associated with industrial activities such as warehousing, repair or manufacturing have been found to boost the London economy by £78bn, that figure is likely far higher considering the contribution of less traditional and more creative, smaller-scale industrial activities.
The Greater London Authority echoes that sentiment, stressing the vital role of industrial land in London's economy.
High-quality warehouses, strategically located urban logistics and last-mile distribution hubs are vital to enabling the flow of goods, services and trade that help London maintain its position as a global capital.
Stacked industrial uses not only help optimise limited space, but also herald the emergence of a new asset class. Although the concept has proven successful in Japan, the US and elsewhere, it remains a nascent sector in the UK and Europe. There are only a small number of schemes, with British Land and SEGRO among the early movers.
This still represents progress, however, as such developments are bolstering market confidence in the future of stacked industrial uses, and we anticipate that the sector will continue to grow.
Stacked industrial is also gaining recognition as a viable response to land shortages across different sectors, with examples emerging of how industrial stock can be successfully integrated into mixed-use neighbourhoods.
At NEAT Developments, for instance, our team is working with BlackRock Real Assets on a sustainable new mixed-use community with stacked industrial at Uplands Business Park in east London's Blackhorse Lane.
The project will bring more than 29,000m2 of light industrial floorspace, rated excellent under BREEAM, as well as 1,800 new homes, enhanced public realm and a range of restaurants, cafes, outdoor markets and retail, leisure and amenity spaces.
Our aim is to cultivate a diverse and vibrant hub in an industrial park that is already attracting a growing number of independent businesses and creatives.
These include start-ups and SMEs from vegan food producers and craft beer brewers to a children's book illustrator and one of the UK's biggest jeans manufacturers. Overall, the scheme is expected to generate more than a thousand additional jobs.
By increasing and reimagining the existing industrial floorspace on the site through the provision of stacked units, it is now possible to cater to a wider variety of industrial users while addressing the housing shortage.
We saw for ourselves that this needs a thoughtful approach that strikes the right balance between residential, industrial, leisure and food and beverage uses, and we are now involved in a number of similar new sites.
When it comes to viability, industrial rents in London are now reaching £270–£320/m2 and, at current yields, this represents around £7,500/m2 on a capitalised basis, which is not dissimilar to residential values in many locations in the outer zones of London.
Industrial uses are also quicker in terms of planning and construction than residential, and carry fewer obligations such as affordable housing and the Community Infrastructure Levy.
Moreover, while stacked industrial is still expensive to build – between two and four times more expensive than residential depending on the number of storeys, the inclusion of ramps or lifts, floor loadings etc – it is possible to increase footprint (and thus lettable space) by a factor of two to four over a traditional shed.
At a time of rising rents and land values, this can offset the increased capital cost.
Stacked construction also offers the opportunity to better integrate some businesses – for example, manufacturing and front-facing sales on the ground floor, R&D on the first floor and business administration on the second floor.
The function of industrial land can vary widely, and one of the first priorities for developers should be to assess its compatibility with residential developments.
For example, smaller businesses, creatives, craftspeople and artisan producers have more scope to mix with residential than some traditional large-scale industrial, logistics and manufacturing functions.
The approach will need to be site-specific. This requires a comprehensive understanding of the area and the end user to make units that are fit for purpose, considering for instance the yard space available, ramps or lift facilities, or whether ground-floor access is needed.
At Uplands, there is a growing number of customer-facing businesses, such as breweries that turn into taprooms at night. Importantly, such mixed-use developments need to be designed with the tenant front and centre, focusing on placemaking and enhancing public spaces.
City locations also support the development of more convenient 15-minute neighbourhoods. These encompass living, working and leisure and allow people to meet most of their needs within a short walk or bike ride of their home or workplace.
Sustainability matters a great deal to today's residents and companies, and inner-city industrial space can go a long way to meeting wider carbon reduction goals.
One of the main benefits of bringing light industrial uses into urban areas is the strong transport links already in place, which can shorten delivery lines and enable more efficient supply chains.
Speaking to industrial tenants, we have found they also value new fit-for-purpose premises to attract workers.
The design of industrial-led mixed-use developments does need to navigate the complexities of the planning process and certain technical constraints.
In an evolving policy landscape, industrial real-estate players should work together with local government to forge the best path to better meet the needs of people, the business community and cities.
Agent of change issues are critical here – for example, in separating out vehicle movements serving the industry from safe pedestrian access for the residential occupiers.
Updates to policy E7 of the London Plan on intensification, co-location and substitution and the safeguarding of strategic industrial land and locally significant industrial sites from being taken over by housebuilding, reflect growing awareness that employment land is as crucial as residential land.
Guidance is therefore shifting to encourage maximising the use of existing land through measures such as stacked industrial and, where appropriate, the co-location of industrial and residential uses.
Varying levels of planning protection are needed for the different activities taking place on industrial land, with flexibility built in to adapt them to local needs rather than a blanket approach across sites.
In the current climate, stacked industrial can contribute to mitigating land shortages as well as adding considerable value in the long term, improving space efficiency and helping to address some of the most pressing challenges in our urban regions.
'In an evolving policy landscape, industrial real-estate players should work together with local government to forge the best path to better meet the needs of people, the business community and cities'