Industrial and logistics is one of the property classes to have emerged stronger than ever from the global pandemic, with increased investor interest in the sector accounting for 27% of all investment into UK real estate in 2021.
However, the investment boom in industrial and logistics arrives at the same time that the United Nations has declared a climate emergency and institutional investors are looking to mitigate the risks to their property portfolios from climate change and deliver better Environmental, Social, and Governance (ESG) outcomes for all their stakeholders. Developers of industrial and logistics property are coming under increasing pressure to satisfy the ESG criteria of investors and meet the UK Government’s legally binding target of Net-Zero Carbon by 2050.
Owners and developers of industrial and logistics property are also needing to meet the expectations of occupiers, many of whom have their own ESG and net-zero strategies, as well as a requirement to look after the health and wellbeing of their staff. According to Cushman & Wakefield’s recent ‘Industrial Goes Green’ report, over 80 percent of industrial occupiers are asking about sustainable warehouse solutions and 60 percent of them would like their facilities to be green-certified.
Designing and delivering sustainable schemes
For those of us charged with the design and delivery of industrial and logistics property, the rapid influence of these pressures is evident to see, with owners, developers and operators looking to upgrade the sustainability of their schemes. Here at Urban Edge, we’ve received a number of recent enquiries from industrial and logistics clients looking to improve the sustainability of their schemes or to design and deliver net-zero buildings. Where targeting BREEAM Excellent was once a rarity and something to shout about, it’s now rapidly becoming the bare minimum.
Our design for a new 95,000 sq.ft industrial distribution warehouse on the Erdington Industrial Estate in Birmingham, for example, is targeting BREEAM Excellent. Likewise, we have recently completed the redevelopment of a former factory site in Croydon to provide a high quality Class B development for modern industrial operators and have, in the past six months, been directed by our client to design and deliver the scheme to net-zero.
At the same time, we are currently working with industrial and logistics property owners who are looking to decarbonise their existing portfolio of stock, improve their energy efficiency and find ways to achieve net-zero.
Rising energy costs have, of course, had their part to play in some of the decision making, as too has impending legislation. Owners of existing industrial and logistics property will need to keep an eye on the Minimum Energy Efficiency Standards (MEES) which is expected to extend further to non-domestic properties by 2030 and require an EPC grade B or above. This will be of particular concern for landlords with more historic property portfolios as significant retrofit measures may be required to meet the new energy-efficiency regulations. We would advise landlords to futureproof their portfolios against regulatory changes by seeking advice sooner, rather than later, so that a detailed profile of a building or buildings can be undertaken to decide where and what interventions are needed.
The net-zero journey
Whilst net-zero is fast becoming the ‘must have’ for owners and developers seeking finance or looking to attract and retain top-drawer tenants, we must also pause to acknowledge that the industry is at the very start of its net-zero journey, with differing interpretations of net-zero clouding matters further.
In truth, most current net-zero buildings are primarily targeting the elimination of fossil fuels (net-zero energy), but there is a clear distinction between operational carbon and embodied carbon. Put simply, operational carbon emissions are those associated with the energy used to run the building, whilst embodied carbon emissions are those associated with the materials and products used in its construction and across the building’s whole life. A true net-zero carbon building would need to address both of these sources of carbon, without recourse to major offsetting.
Net-zero has proved particularly challenging in the industrial and logistics sector where institutional standards for the specification of buildings have dominated for a long time and many developers and designers have just stuck with what they know. This is gradually starting to change, driven primarily by the demands of modern occupiers who not only want smarter and more efficient space, but also sustainability and wellness initiatives to meet their ESG benchmarks and attract and retain quality employees.
You can see this reflected at our scheme in Erdington, where our design not only maximises the site with a single 95,000 sq.ft building, split into two independent units, but also proposes a number of interventions and initiatives to improve energy performance, reduce air pollution and improve local air quality. Available roof space has been fitted with PV technology, whilst car-share spaces are to be included on the site to encourage shared journeys and 12 EV charging bays are provisioned for electric vehicles.
For the industrial and logistics sector to start delivering fully net-zero carbon buildings, a number of challenges lie ahead, not least tackling the predominant use of steel in construction which has very high embodied carbon. Whilst we’ve spoken to a number of progressive industrial and logistics developers who are exploring the possibilities of timber frame and cladding, insurance hurdles remain due to perceived fire and water risk. Hybrid construction models, such as the use of a concrete core and base as recently proposed by insurance research group RISCAuthority, could provide a way forward to allow for an increased use of timber and other sustainable products whilst mitigating the safety concerns. We will watch with interest how the situation develops.
Early engagement the key to a greener future
Clearly, delivering on commercial expectations, maintaining productivity and profitability, whilst ensuring buildings are highly sustainable or net-zero is an extremely fine balancing act and requires a deep understanding of the industrial and logistics sector’s needs, coupled with experience of sustainable design and technical know-how. Early engagement with experienced architects is key as we can consider sustainability and energy efficiency at all stages of design from site considerations, design and masterplanning, construction and all the way to a building’s operation.
As buildings are currently responsible for approximately 25 percent of UK CO2 emissions, with around 30 percent of those emissions from non-domestic buildings, industrial and logistics real estate has an important role to play in meeting the UK’s overall net-zero Carbon targets. Whilst net-zero is challenging, it also opens up opportunity and will secure a long-term future for companies operating within the sector.