Post by James Nicholls

Why tackling industry and public perception will be the key to unlocking a mixed-use, multilayered future for logistics

James Nicholls of Stephen George + Partners recently took part in a Savills/CoStar roundtable debate alongside representatives from SEGRO, M&G Real Estate, Garbe, Barratt London, Big Yellow Self-Storage and the Greater London Authority (GLA) to discuss how London’s industrial sector is responding to increased demand, rent rises and a scarcity of available land.

The debate was in part response to the launch of SEGRO’s ‘Keep London Working’ report, produced by Turley, which offers a critical insight into the importance of industrial land in London and the vital role it has in supporting the capital’s future economic and population growth. However, the evidence suggests that with population growth, the scale of logistics activities will need to increase, and this will prove difficult if the critical land needed to create necessary facilities remains scarce.

Industrial land is being lost rapidly, frequently to residential use, at a rate three times greater than the GLA had expected. According to the report, at the current rate of decline, the GLA’s expected release of industrial land by 2031 could be reached this year.

As high-density housing targets inevitably pile pressure on scarce land resources and the growth of ecommerce leads to greater consumer demand, Stephen George + Partners has long argued that logistics should be treated as essential infrastructure in areas of high-density urban expansion such as London and South East. We also believe that consolidation of uses – such as click-and-collect or facilities with flexibility for multi and common users – will help maximise the value of a site and create economic benefits for landowners, developers and landlords looking to diversify their portfolios.

We’ve also argued that small-scale urban logistics facilities, more appropriate to integrate into mixed and multi-use masterplans, give space to build above and further maximise the value of a site. Rather than thinking about logistics sitting side by side with residential, particularly in space-constrained inner-city sites, we need to start thinking about these buildings being multi-layered, with office space, PRS housing or student accommodation sitting above ground-floor urban logistics facilities.

As was pointed out by delegates at the Savills/CoStar debate, we are already seeing multi-storey high-density residential schemes with ground-floor logistics and retail in London. Indeed, as was noted by Garbe’s Tristram Frost, the widely used industry term ‘beds and sheds’ is perhaps a distraction: “You don’t have to put beds with sheds – you could put offices, retail and all sorts of other uses, too.”

Asked whether there is evidence that occupiers are interested in multi-storey and industrial-led mixed use, Richard Sullivan, National Head of Industrial & Logistics at Savills acknowledged that “a number of occupiers are looking at this very seriously… The demand exists but there are a whole host of questions that flow from it.”

As we pointed out in our recent ‘Logistics: aquestion of scale’ article, one of these questions is how get different funding parties to work together in joint venture and with different funding streams for each use element. So it was interesting to hear from M&G Real Estate’s Michael Williams who was asked whether he could envisage a fund able to easily juxtapose residential and industrial.

Michael highlighted the recent launch of a fund with a target of £350m and a ‘beds and sheds’ focus targeting student accommodation, build-to-rent and last-mile logistics. However, he was cautious about the speed with which the institutional market is shifting: “I think from our perspective it is about a long-term sustainable investment,” said Michael. “If that is the way things are going we are keen to get involved in the future… but it is about getting people’s minds around how it will be in the future. Speaking to our residential fund manager, the main problem with beds and sheds is around people’s perception.”

We believe that tackling the perception that residential and logistics do not mix is crucial. As noted above, considering scale in the design of inner-city logistics will make them more appropriate for residential developments and therefore easier to integrate into mixed and multi-use masterplans, perhaps creating more scope for architectural innovation and alternative building envelope materials. Carefully considered design will also allow the flexibility for multi-use.

It was encouraging to hear our views echoed by the industry experts at the roundtable. Using a comparative retail-led example, Greg Tillotson, Regional Development Director of Barratt London, said that the success of a multi-use, multi-layered approach “lies in the design quality and how the uses are separated and serviced, the long-term management. We are working on two big schemes with Sainsbury’s in Fulham and Nine Elms and they are 100,000sq ft superstores but the residential wraps around it and we have not had a problem at all with selling flats there. It is no more difficult than any other site in central London. It works and it is integrated.”

Stephen George + Partners is confident that logistics and residential can mix and we could show numerous examples where they do work side by side. As a practice, we’ve already had major success in delivering logistics adjacent to residential where understanding residents’ concerns and addressing them with design solutions enabled us to deliver our clients’, stakeholders’ and the market’s aspirations. The real challenge now will be whether the idea of multi-use, multi-layering on top of each other is going to be acceptable, particularly on the higher value residential side.

Watch this space…

A full summary of the Savill’s / CoStar ‘Beds and Sheds and the need for industrial led mixed us ’ roundtable debate was published ahead of Shedmasters at MIPIM 2017 on 15 March. It can be read HERE

Potential Section