Industrial and logistics (I&L) space is on a “cliff edge”, with up to 85% of small to mid-box space in danger of becoming “unlettable” by 2030, due to planned updates to EPC regulations.
The warning comes in the report Big Things in Small Boxes 2024, published this week by property company Potter Space, in partnership with Savills.
The report predicts that the Minimum Energy Efficiency Standard (MEES) regulations could have a devastating effect on the market for I&L space below 100,000 sq ft..
By 2027, I&L facilities must have an EPC rating of at least C to be let. Currently, 47% of small to mid-box stock doesn’t meet this standard, the report reveals.
In 2030, when facilities will require an EPC of B or higher, up to 85% of these spaces could be unlettable, the report warns.
It also revealed that, while the outlook for this sector is good - with demand expected to continue rising - supply is lagging behind.
As a result businesses have been historically unable to find the warehouse space they need to grow and expand.
The report said that lack of available stock has lead to a suppressing of demand by 38% across the country.
It warns that the impending MEES regulations will only exacerbate the situation.
Jason Rockett, Potter Space managing director, said: “Two years ago, the journey to Net Zero and the incoming EPC regulations were high on the industry agenda, but this seems to have fallen away – which is surprising considering the impending guidelines.
“2027 is not that far away in property terms, and we need to see immediate action on this to ensure the businesses that use our facilities and that are the lifeblood of our economy have the space they need to keep doing business.
“We welcome a more sustainable future within I&L and support the EPC regulations, but we want to see the timescales and the support needed from government reviewed to ensure they’re achievable.
“The industry needs a clear roadmap including available funding where appropriate to assist occupiers and owners to bring buildings up to scratch.”
He added: “We would also like to see an integrated approach to planning at all levels, so that land can be made available for small box to mid-box developments alongside big box and residential.”
The report suggests that retrofitting is one possible solution, but warns that this presents its own problems, since it is costly, requires the displacement of tenants that may have nowhere else to go, and notes that some facilities aren’t in good enough condition for extensive works.
Some units may achieve an improved EPC rating by removing heating systems from their spaces, however this can have a knock-on impact on the useability of those facilities.
Jenna Strover, Potter Space head of commercial delivery, said: “We also want to take a more holistic and innovative approach to sustainability, thinking beyond EPC.
“One way of improving the sustainability of the sector is through solar panels. If we made use of all available roof space within small to mid-box for photovoltaic (PV) panels, we could generate enough power to support 4.3m homes.
“Our overall aim should be to create future-ready spaces that meet the needs of businesses and provide the environmental measures to support a greener future.”
Clare Bottle, UK Warehousing Association chief executive, said: “The small to mid-box market caters to an enormous range of businesses from SMEs through to much larger organisations seeking wide distribution networks and flexible spaces.
“Losing significant portions of existing stock would be very challenging. We are here to support our members in meeting MEES standards and urge them to take a proactive approach.
“We would recommend as a first step that landlords have their EPC reassessed to confirm accuracy following methodology changes in recent years.
“There are a number of initiatives to consider such as upgrading to LED lighting or adopting rooftop solar that could help you meet those EPC standards without significant retrofitting.”
The free report can be downloaded here.
