UK faces warehouse supply crisis as 60% likely obsolete

About 60% – or 37.5 million sq m – of all warehouse space in units above 4,645 sq m in the UK risks failing to meet minimum EPC B requirements by 2030 and will thus be unlettable according to research from Knight Frank.

[Image: Benjamin Huggett/Unsplash]

“While newly constructed warehouses generally meet top sustainability standards, 82% of the UK’s existing stock built before the year 2000, does not meet minimum EPC requirements,” said Knight Frank’s head of logistics and industrial Charles Binks. “It is obvious that significant capital expenditure is required to retrofit these warehouses and mitigate obsolescence risk, however just 6% have undergone upgrades in the past five years.”

Knight Frank found that even by 2027, 18% (11.9 million sq m) will fail to meet the standards because of the prevalence of older, underperforming stock.

This will further exacerbate the ongoing undersupply of logistics space since development activity is slowing and large multinational occupiers increasingly want modern, energy-efficient buildings in order to meet their own ESG goals and reduce operational costs.

Online retail is set to grow by 29.1% over the next five years, reaching £146.9 billion in spending by 2027, and KF said that ecommerce alone is set to create requirements for warehousing space totalling 4.2 million sq m of warehousing space requirements. Vacancy remain low relative to historic levels and the shortage of energy-efficient stock is likely to cause rents to rise – growth of 3.1% per year is forecast over the next five years.

Charles Binks.

There are distinct regional variations in the condition of warehouse stock. While in Wales only 24% of warehouses over 4,645 sq m meets EPC B grade, in the North East the figure is 33% and in the North West, 39%. About 40% of this space in Yorkshire and The Humber meets the criteria.

Knight Frank said this highlights the need to address the ageing warehouse stock in these areas. However, over the last decade, the number of BREEAM-rated industrial buildings has been consistently growing, with 1,411 buildings being certified and the majority (62%) receiving a ‘Very Good’ rating.

“Occupier demand is becoming increasingly focused on high-quality facilities that can offer ESG credentials,” Binks said. “Operators are increasingly discounting facilities that do not fit with their, or their customers’, sustainability strategies.

“The prospects for rental growth should offer incentive. However, investors must accelerate the rate at which older facilities are upgraded or they will become unlettable.”