LAW
Womble Bond Dickinson partner Adam Heather discusses the challenges of navigating sustainability, technology and market shifts
The future of industrial investment
Modernisation – automation, robotics, conveyor systems and other technological innovations are changing what industrial occupiers need.
Diversification and maximising value have always been cornerstones of any investment strategy.
Despite headwinds from many directions, the traditional industrial sector has shown resilience and still offers opportunities for income and capital growth, despite market challenges.
This is especially so in Teesside. Our region boasts some of the largest industrial parks and developable sites in the UK, which benefit from access to major port, rail and road infrastructure, including the extensive freeport.
This has attracted a variety of industrial occupiers in the advanced manufacturing, oil and gas and petrochemical sectors, as well as decarbonisation and net zero projects that look to complement and balance this industrial heritage.
The drive towards net zero, technological advancements and a changing occupier market create opportunities for investors willing to tackle the additional regulatory, operational and industry-specific challenges that alternative uses bring.
Net zero and sustainability Improved sustainability is now a strategic goal, with evidence showing that highperforming assets can command a premium. Upgrades in sustainability and efficiency can and do add value.
However, assessing, measuring and reporting on these improvements is less straightforward due to varied and sometimes conflicting industry and regulatory standards that can be applied, the government’ s recently revised UK Net Zero Carbon Buildings Standard being the latest addition.
Navigating this regulatory landscape requires specialist knowledge and robust and secure data capture.
Initiatives such as behind-themeter power generation and storage, reconfiguring yards to accommodate electric vehicles and installing charging facilities can all enhance an investment.
However, new grid connections can be a barrier for the unwary and delays can be costly for the unprepared. Onsite power generation, such as rooftop solar, adds resilience to an asset but requires operational forethought and proper planning to avoid leasing and liquidity traps.
Technological evolution Bigger is not always better. Ground floor square footage is no longer the sole measure of a shed’ s potential. Automation, robotics, conveyor systems and other technological innovations are changing what occupiers need in terms of the size and load-bearing specifications. Better operational efficiency, like better sustainability credentials, can command a premium.
IoT-enabled buildings, smart sensors and similar technologies can boost operational efficiency for some occupiers but can also raise cybersecurity and data ownership concerns that may require innovative solutions outside the usual landlord-tenant framework.
Occupier profile The rise of e-commerce, the demand for ever faster delivery times and the retreat of“ just in time” supply chain fulfilment have driven demand for logistics space. But recent quarters have been more
challenging for investors, with flattening demand from occupiers and increasing vacancy rates. While some industries that once provided a steady flow of tenants for industrial spaces are declining, new opportunities are emerging.
Teesside has land banks that benefit from access to the kind of infrastructure, utilities and resources that are needed to support the largest and most complex projects that businesses in the industrial and renewables sector are looking for. The opportunity to match these sites with occupiers’ needs is obvious, but those needs are not always being met or affordable.
Government priorities, as highlighted in the Modern Industrial Strategy, along with significant public and private spending in renewable energy, advanced manufacturing and decarbonisation, present new opportunities for investors in industrial real estate on Teesside.
Investors targeting these sectors must consider different occupier needs, such as proximity to innovation clusters, security, access to skilled workers and connectivity to complex supply chains. They may also need to consider requirements for industryspecific facilities such as advanced HVAC systems and access to power.
Developers taking advantage of an occupier bias towards quality new space must evaluate whether building bespoke or more versatile flexible spaces is more advantageous in a changing market, while they wait to see if the government’ s strong message on planning reform will deliver much-needed structural change.
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