INDUSTRIAL & SUSTAINABILITY – WILL IT MATTER TO OCCUPIERS IN A POST-COVID WORLD?

Within the built environment, the drive to improve sustainability and reduce carbon emissions has accelerated at pace, especially in recent years. Indicative of this is the UK’s commitment to achieve Net Zero by 2050 and ban the production of new petrol and diesel cars by 2030.  Recent developments in the property world include an announcement last week of the 18 new members to the World Green Building Council’s signatories to its Net Zero mandate – the list includes Berkley Group, Grosvenor, Savills, The Crown Estate and Tritax.

Historically the industrial sector has had a mixed reputation for its environmental credentials, but this opinion is deemed archaic and irrelevant as far as new developments are concerned. In August this year, at Magnitude 314 in Milton Keynes, GLP delivered the first verified Net Zero logistics building in-line with the UK Green Building Council Net Zero Carbon definition. In October Tritax Symmetry were granted consent for another Net Zero verified unit of 60,000 sq ft. Pre-let to DPD in Bicester, this develops on DPD’s deployment of the largest fleet of emission free delivery vehicles within the logistics sector.

Whilst these examples are extremely important steps for the property sector, they only serve to prove what we already know – that the mid to big-box occupiers now demand sustainability, in some cases, Net Zero.

Why? This commitment to Net Zero is becoming increasingly established among multi-national occupiers with competitive sustainability targets to meet. However, it is important to question whether the movement is prevalent to all occupiers or, only larger developments where it is a requirement to deliver highly sustainable or Net Zero units?

If we believe a commitment to improving sustainability is filtering down to the SMEs, would they pay a premium to occupy buildings that help them achieve Net Zero? Has Covid-19 altered their perspective on this?

When trying to answer the question of is sustainability important to SMEs it is necessary to consider the type of buildings they occupy. Typically, SMEs occupy small new or second-hand units on developments where there is perhaps less demand to deliver the level of sustainable features  seen within the development of mid to big-box units, where target occupiers have sustainability targets to meet.

For these larger developments to achieve Net Zero a much larger initial capital outlay is required. This is to complete detailed analysis of the embodied carbon within supply chains, introduction of solar panels and reduced air permeability etc. – all of which increase constructions costs. Whilst these costs can be passed to occupiers with greater rents, the developers have to be confident their target occupiers are willing to pay the rents to merit the additional construction costs.

As mentioned, developers can be confident that the larger occupiers will pay the requisite rents for Net Zero buildings, however this is less certain for smaller occupiers. It will be interesting to see how this develops in the coming years, particularly in London, where supply of new build industrial is hugely constrained. This lack of new supply means availability is often limited to refurbished units where sustainability improvements are difficult, or to the few new builds where a significant rental premium is applied to reflect the ever increasing cost of land.

As with business across all sectors, location and operating cost are two of the main property considerations, and identifying a balance is pivotal. Unfortunately, due to the economic uncertainty resulting from the pandemic and a chaotic Brexit deal, the sustainability of a building remains a bonus rather than a requirement for occupiers.

Going forward into the New Year the events of 2020 are likely to see sustainability fall down the list of priorities for many occupiers as they grapple with an uncertain economy and the impacts of Brexit. Let us hope a vaccine brings the normality that allows sustainability back to the forefront of occupier’s minds, as without sustainability being a key consideration for SMEs the UK Net Zero target of 2050 will seem increasingly ambitious.