Solving The Unsolvable In London Industrial And Housing

It is the unstoppable force hitting the immovable object.

London needs more last-mile logistics and industrial space to meet the needs of the ever-growing e-commerce sector and its robust small- and medium-business sector.

But it also needs to build homes at almost double the current rate to meet the demand of its growing population. Land is finite, so how can the needs of these two seemingly conflicting sectors both be met?

The planning policy to find a solution to this paradox is being put in place, and innovative developers and local authorities are starting to find ways to combine beds and sheds. But the idea needs to scale fast.

In the draft version of London Mayor Sadiq Khan’s London Plan published in December there was an explicit acknowledgement that current development policies are hindering the industrial sector.

In its Keep London Working report released last February, industrial REIT Segro estimated that 247 acres of industrial land are being lost every year to other uses in the Greater London area. The mayor wants to reverse this, whilst also hitting the target of building 65,000 new homes a year instead of the current 40,000.

So now, apart from in the boroughs of Havering, Newham and Barking and Dagenham, there will be a policy of no net loss of industrial floorspace in London boroughs. In Enfield, Brent, Ealing and the Old Oak and Park Royal Development Corp. there is a target for increasing industrial floorspace.

The new London Plan calls for greater densification of industrial space, which Savills Associate Planner Russell Smith said will require greater innovation from developers in the sector, who will need to be especially mindful that a huge proportion of increased demand will come from the e-commerce sector. 

A report from Oxford University academic Carl Benedikt Frey on the impact of automation on retail and logistics outlines some ways industrial could get dense. These include building up — multistorey logistics, fairly common in Asia but almost non-existent in the U.K. — building down — underground logistics, for example the 2M SF underground facility submitted for planning in Hounslow by Formal Investments — or utilising technology to allow Airbnb-style shared or flexible warehousing.

But what of the until-now unheard-of option of blending beds and sheds in one area? The new London Plan explicitly encourages this.

“The new plan sets out a process that could allow residential development on designated industrial land provided there is no net loss of industrial floorspace,” Smith said. “If successful it could lead to new ways of working for industrial and logistics occupiers and transform some of London’s traditional industrial areas into vibrant mixed-use neighbourhoods.”

“People have yet to change their perception of the industrial and logistics industry, which for some remains synonymous with noisy HGV’s and dirty yards, despite this no longer being the case due to the sector’s increasing emphasis on sustainability and protecting the environment,” Savills Industrial Director Richard Sullivan said. “In reality, is it really any different to living up against a railway line or next to a dual carriageway? With smart building design it could even present a better option for many.”

There have been two significant schemes looking to achieve this mix in the last year.

In the plus column, a joint venture between Segro and housebuilder Barratt has planning permission for a scheme in Hayes in West London that will see 250K SF of industrial space alongside 1,100 new homes.

But a much larger joint venture between the pair at Meridian Water in North London hit the buffers last year when local authority Enfield severed the development agreement over the terms of the deal. That scheme would have created 10,000 new homes alongside more than 500K SF of last-mile delivery facilities. A new development partner on the £6B scheme is yet to be found, and the process highlights the fine balance between uses of land and between public and private sectors needed to make the concept work.

London local authorities are on the whole on board with undertaking mixed-use developments both large and small that look to blend both residential and employment space. In many cases this involves repurposing or redeveloping old industrial assets that are not fit for purpose in the modern economy.

In 2016, The London Borough of Barking & Dagenham set up its own development company called Be First to provide a development solution when it came to building new schemes in the borough. It has put together a portfolio of 800 private rented-sector units, built a mixed cinema, office and residential scheme in an old leisure centre, and is looking at uses for old industrial units.

“We’re lucky enough to have a large amount of land available at the right price point,” Council Leader Darren Rodwell said. “We think changes in the way people work and the needs of cities like London mean that there needs to be more development of both employment space and residential in the borough — we don’t want to just become a dormitory.

“We’ve got a lot of sheds from the 1930s that are big but don’t employ a lot of people, and we’re looking at how we can utilise those. If it’s a nice old building with interesting architecture we can use the structure and repurpose it. If it’s not, we can knock it down and build on top of it.”

In terms of how private-sector developers can best work with local authorities, Rodwell said “we won’t work with anyone who just wants to throw something up and leave”, adding that having its own developer meant the council was not as beholden to private-sector partners. 

In the meantime, as these innovative solutions and hybrid concepts are being worked upon, the severe shortage of space for last-mile delivery facilities, coupled with increasing demand, means that the value of existing stock is set to continue rising.

“In places like London we are seeing industrial rents hit £30/SF, which is unheard of,” M7 Chief Executive Richard Croft said. “If you already own these assets then rents are going to continue rising and it's a very good thing. If you’re looking to buy into the sector it is getting increasingly difficult.”

For the greater good, solving the problem of how to use land for two things at once is something that needs to happen fast.

To hear more on this and everything to do with the industrial and logistics sector, join Bisnow's London Industrial and E-Commerce event at the Royal Institution at 7.30am on 18 October.