The Future is Now: Logistics 2022

The Future

The Headlines

Intensification in London is not for the faint hearted

Land constraints in the regions mean planning by appeal

The sector is setting its own bar for sustainable development

Power is king but power is scarce

Skilled jobs are in high demand

The sector is delivering on social value

Executive Summary

Iceni has engaged with a range of senior executives in the industrial logistics industry to take a snapshot of the key challenges – and opportunities – facing the sector. This follows on from the interest in our previous 2021 release. This work provides a platform for the sector to speak out to and inform a wider audience. The key messages we have found are as follows:

In London there are concerns about colocation and Class E permissions diluting stock, meanwhile stacked facilities appear to be an ever closer reality but may need public sector support. Land remains extremely scarce, driving rents up and pushing business further out, increasing vehicle journey times. Practical responses are required from authorities and the GLA which may involve MOL and Green Belt release if town centres are not to be re-purposed for distribution hubs.

Across the country increasingly Local Plans are stalling or being abandoned. The industry prefers certainty but without allocations and up to date evidence we are seeing more Very Special Circumstances Cases (VCS) coming forward. The case needs to be made for why not building further distribution space in advance of local plans will damage the UK economy and result in consumer supply side shortages. Further, the case needs to be made for why the climate emergency should have primacy over development plans.

Power remains a critical issue but access is increasingly difficult and impossible in some places. Planning ahead for infrastructure is essential.

The sector is leading the way in sustainable development with many developers – but not all - exceeding government requirements and future proofing development.

Transition in deliveries is also happening with a surge in electric vehicles and commitments to more of them.

The skills profile is changing with a greater need for technicians and IT specialists to support more advanced systems. At the same time labour is in short supply. In the South East, businesses are questioning whether the labour supply exists to occupy the jobs that the industry is seeking to create.

The sector delivers significant social value through a wide range of interventions to support local communities across the country. However, there remains a knowledge gap in communities understanding the benefits of the logistics industry, and where social value investment is derived.

For more information, please contact:

Matthew Kinghan, Director, Economics t: 07753 222 920 e: mkinghan@iceniprojects.com

Stuart Mills, Associate, Strategic Planning t: 07771 394 497 e: smills@iceniprojects.com

James Bompas, Director, Business Development t: 07736 314 143 e: jbompas@iceniprojects.com

Rents have rocketed and values peaked, although now face the threat of recession and ever rising costs.

Introduction

In 2021 Iceni spoke to a range of senior executives in the logistics industry to get a snapshot of the issues of the moment. We thought it was a worthwhile exercise – so we have done it again for 2022. What we have found is that many of the issues remain but that the sector is pushing the boundaries and challenging convention –in an environment where land is scarce and demand is high.

In 2022 Iceni has been lucky enough to be involved in some cutting edge development projects as well as undertaking leading logistics research for the public sector. These include at one end SEGRO’s White Hart Lane uber sustainable development, and at the other, SEMLEP’s Warehousing and Logistics in the South East Midlands study.

The pace of change in the sector in recent years has been astonishing. Whilst the peak of online retail has fallen back as covid has subsided, it remains in line with growth following the long term trend, and occupier demand remains resilient. Rents have rocketed and values peaked, although now face the threat of recession and ever rising costs.

On 10 October 2022, at the Last Mile Logistics Conference, which was co-sponsored by Iceni over 94 people were polled on “what do you see as being the most important factor affecting the industrial and logistics sector today?”. The results are below.

What do you see as being the most important factor affecting the industrial and logistics sector today?

Cost increases

Constrained supply

Sustainability targets

Diversity and attracting talent

Shift in occupier demands

In our 2022 work we wanted to focus more on the planning issues. Feedback indicates different issues in the capital to the wider country, however Local Plans are central everywhere. One uniting factor across the industry is the importance of people and increasing focus on community.

Whilst delivering these measures increases the costs of construction, which are already rising hugely with inflation, they also contribute to longer term lower operating costs.

Power & Sustainability

Power: Access

The need for power is one of the most critical issues for the logistics sector. Changes in the way the sector operates, including increased levels of internal automation, the need to charge battery powered electric vehicles and support cold storage for perishable goods, means demands for power continue to increase.

Access to the grid for power is a major challenge in many locations. In West London providers are reporting as a worst case that there is not sufficient electrical capacity for a new connection up to 2035, partly due to new datacentres absorbing high levels of power1 Local Plan makers need to work with infrastructure providers to ensure timely and cost-effective delivery. Unintended consequences result in unplanned or sub optimal locations for development.

Power: Transitioning

At the same time the industry is demonstrating its ability to deliver best practice sustainable developments that can ensure that power is derived from the most sustainable sources possible, reducing grid reliance, minimising carbon footprint and offering tenants some form of protection against cost increases. Whilst delivering these measures increases the costs of construction, which are already rising hugely with inflation, they also contribute to longer term lower operating costs.

Developers pushing the sustainability envelope provides the best platform possible for occupiers. Many developers go above and beyond required standards – with industry rather than government leading the way.

Many of the industry’s leading businesses are now delivering net zero buildings. Photovoltaic panels are one of the most obvious ways the sector can support sustainable energy generation, particularly given the large roof areas involved in increasingly large buildings.

Sustainable measures and renewable energy technologies are increasingly important considerations at planning committees.

There is also major potential for retrofit PV on existing stock, although this depends on individual structure’s suitability as well as ownership and leasing arrangements.

Apex Park, Daventry, Prologis: a carbon negative development with a 1.4MW rooftop solar system, resulting in a building which will return more energy to the grid than it uses, rated BREEAM ‘Outstanding’

SEGRO Park Tottenham will create a 190,000 sq ft designed to net-zero energy standards for base build, the building’s energy supplies will be sourced from renewables on-site and off-site, to achieve net-zero carbon in operation. The roof areas will be fitted with photovoltaic panels which will capture solar energy and convert it into electricity, generating 10% more energy than the building uses.

Image Credit: Proglosis

Image Credit: Proglosis

Symmetry Park, Biggleswade, Tritax Symmetry: Phase 1 consists of a pre-let to Co-op for a new BREEAM Excellent 661,000 sq ft distribution centre which will use energy from Co-op’s energy buying co-operative, Co-op Power. Plans for the centre include installing 3.5 MW of solar PV in roof and supplying the balance from Biggleswade wind farm.

Image Credit: Tritax Symmetry

Image Credit: GLP

GLP delivered Magnitude 313, at Magna Park Milton Keynes as its first net zero carbon development to be officially verified as Net Zero carbon for construction, achieving a 25.8% reduction in embodied carbon compared to a standard logistics building.

The mileage and emission from delivery vehicles is one of the biggest impacts the sector has.

Delivery Emissions & Transitioning

The mileage and emission from delivery vehicles is one of the biggest impacts the sector has. The transport and logistics sector contributes around 24% of global CO2 emissions2 with transportation of goods accounting for the vast majority of this – HGV’s make up around 16% of the UK’s domestic transport emissions3 Meanwhile research shows that 70% of endconsumers are willing to pay a 5% premium for green products4 and the industry is beginning to respond by investing in more sustainable modes of transport, most readily achieved through the roll out of electric vehicles.

Amazon in March 2022 launched 5 electric DAF HGVs in the UK for the first time. They are the first of nine electric HGVs expected by the end of 2022, joining more than 1,000 electric delivery vans already on the road in the UK. Amazon’s goal is to deliver 50% of shipments with net-zero carbon by 2030. In 2021, Amazon delivered more than 45 million packages in the UK by more sustainable transportation methods, such as electric vans or cargo bikes.

Royal Mail has a target of 5,500 EVs by spring 2023 with a range of 170 – 200 miles. Royal Mail is working towards an overarching climate goal of net-zero emissions across the value chain by 2040. Royal Mail is also exploring alternative fuels as well as EVs. In May 2021, it added 29 40-tonne biogaspowered trucks to its fleet.

DPD are pushing the envelope for sustainability. They recently announced their 25:25:25 vision, planning to deliver to 25 of the largest towns and cities in the UK with zero and low-emission delivery means by 2025. In 2021 Oxford become DPD’s first all-electric

city, with all parcel deliveries being made from DPD’s new, state-of-the-art Bicester eco-depot provided by Tritax Symmetry.

DHL have announced plans to have more than 80,000 e-vehicles on the road and 60% of last mile delivery electrified by 2030. in the UK every new courier vehicle purchased will be electric, resulting in 100% of the UK-wide courier fleet being electric by 2030.

A lack of labour (and rising labour costs) are key drivers for automation processes in warehouses which can significantly improve productivity.

People vs Robots Jobs, Skills, Automation

A Major Employment Driver

Employment in the transport & storage sector has grown by 80,000 jobs in the last 5 years5, accounting for 9.5% of all jobs growth. In the East Midlands it is the top growth sector 6 highlighting the importance of this region to logistics activity. During the pandemic demand for online deliveries surged from 21.4% to 37.8% of goods, driving labour demand. Whilst online retail levels have now (July 2022) fallen back to 24%, labour demand remains sky high. In some areas unemployment rates are so low, particularly in the East Midlands, that many posts are going unfulfilled.

A lack of labour (and rising labour costs) are key drivers for automation processes in warehouses which can significantly improve productivity. Investing in automation is a costly businesses – with operators reporting costs of £50m for a single warehouse. Some sectors are better suited than others to automation –notable e-fulfilment - with 20-25% estimated to have adopted some form of automation across logistics real estate facilities.

With Changing Skills and Roles

The feedback from the sector is that more automation doesn’t necessarily mean a reduction in employment. But it does means the profile of skills required in the sector is beginning to change, particularly for larger units. Historically perceived as a low wage low value activity, increasingly roles are for technical and managerial alongside the traditional driver and operatives. SEMLEP7 report that looking at job postings in the last 3 years, 65% are for technical roles including project / sales managers, software developer / engineers and computer support. Major upskilling is required to meet these needs with the private sector and public sector

responding. This includes the Hub at Prologis’s DIRFT – and a range of new logistics courses at Cranfield and Northampton University.

Delivering Wellbeing, Social Value & Mobility

The social value that the logistics sector delivers is often overlooked. Iceni has identified a wide range of programmes that engage people from a wide range of backgrounds.

Goodwill Solutions based in Northampton is a flexible supply chain business providing worldclass logistics services whilst delivering positive

DPD intends to extend the sustainable, autonomous final mile solution across the city, which could enable it to start removing traditional delivery vans from the road network .

social impact. It won the Queen’s Award for Enterprise 2020 and supports a wide range of hard to reach groups into employment including offenders and ex-offenders, armed forces, the homeless and unemployed.

SEGRO launched its Community Investment Plans in 2022. With ambitious targets in supporting students in STEM subjects, wider skills and job programmes and community health and wellbeing. The first of these in Slough will provide over £380,000 of investment in skills, employment, environmental and economic programmes, benefitting more than 3,500 local people. SEGRO has also provided hundreds of thousands of pounds in funding to the Centre for Engineering and Manufacturing Excellence’s (CEME) Gateway to Skills programme.

Future Cube is an innovation centre in Rainham designed to support London’s SMEs in manufacturing, logistics and construction . The Future Cube facility is the result of a partnership between Havering Council, SEGRO, the London Riverside Business Improvement District (BID), and the Greater London Authority with the Manufacturing Technology Centre (MTC) as the lead delivery.

The Future is Now

Whilst the post worker’s job isn’t under threat just yet, in some communities robot deliveries have been out there for some time. Starship robots launched in Milton Keynes in 2018 and now operate 180 robots undertaking delivers. DPD at July 2022 are commencing autonomous robot deliveries in two Milton Keynes neighbourhoods. If the trial is successful, DPD intends to extend the sustainable, autonomous final mile solution across the city, which could enable it to start removing traditional delivery vans from the road network8 .

The iterations of and adopted version of the New London Plan aimed to drive intensification as a solution to the sector’s ongoing supply issues.

Planning in London

It is widely acknowledged that ongoing losses of industrial land supply in the capital have caused significant issues for the sector, with a severe shortage of modern industrial units persisting against a backdrop of all time highs for industrial rents. Whilst vacancy rates have climbed since the pandemic, at sub 5% they remain ‘too low’ in market (and historical) terms, which mean insufficient choice for occupiers and a brake on business growth.

Our research has highlighted the following key issues:

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The impact of Class E and co-location – yet to bear fruits for industrial stock

Whilst this trend provides shiny new living and working spaces, the delivery of new proper industrial with ‘4.5m eaves and roller shutters with yard space’ is in short supply. Although there is a market for this stock, for mainstream occupiers this is putting further pressure on already contracting general supply.

Intensification – Stacking

At the other end of the spectrum is going up. Here there are signs of some progress. Credit to BeFirst who went first on their Industria stacked scheme which topped out in September 2022. SEGRO are also moving forward on their V Park in Brent, with more to come, whilst uncertainty remains over GLP’s Silvertown G-Park.

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The potential of vertical stacking – which remains challenging in viability terms but there is a glimmer of hope

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Ongoing rental and value increases overtaking other uses – including residential

ƒ Demand for ultra urban last mile – and a need for a change in perception

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Significant pressure on MOL and Green Belt –with some release needed

Intensification – Co-location

The iterations of and the adopted version of the New London Plan aim to drive intensification as a solution to the sector’s ongoing supply issues – a sea of students living over Travis Perkins’s (other building suppliers are available). The introduction of Class E provided a twist in the tale, as B1(c) blended into Class E. Stakeholders report a prevalence of residential / Class E co-location permissions on SIL, LSIS and non-designated sites, typically replacing general industrial premises.

The reality is that stacking is only viable where land price is heavily discounted, due to the scale of cost involved. Authorities need to be realistic about the prospect of stacked schemes yielding sufficient space to meet demand – with construction costs continuing to rocket, the deliverability of this route remains in question. However, if the current schemes can demonstrate success, we may start to see more stacking in the right locations, potentially with public sector support and intervention.

All-time Highs in Land Value

Spring 2022 saw an all-time high in land values for industrial – in some parts of London this surpassed other commercial uses, including retail, and eventually residential. There has been some cooling in the market subsequently but it does highlight the unintended consequences of under allocation of industrial land in Local Plans.

Whilst masterplans have come forward in traditional industrial locations to deliver significant new housing development,

E-commerce may have tailed off since the height of the pandemic however the medium-term trend and outlook remains highly resilient.

developers are now seeking to deliver industrialonly schemes, supported by the exceptionally high industrial values. This poses issues for Boroughs that are now reliant on these areas to meet challenging housing targets and will be reluctant to accept that their freshly published masterplans are already out-of-date. There are numerous retail parks with planning permissions for high-density residential schemes, which industrial developers are now circling – there are far-reaching implications for authorities and their housing land supply in this dynamic.

Demand for Ultra-Urban Last Mile - Need for a Change in Perception

E-commerce may have tailed off since the height of the pandemic however the mediumterm trend and outlook remains highly resilient. There needs to be a coherent strategy for last mile hubs in the capital. Iceni’s involvement in some of the pioneering schemes highlights need for education of officers, members and the public in what these developments involve. With super sustainable developments and a focus on delivering wider benefits for the community (see SEGRO’s White Hart Lane amongst others), and electric vehicle delivery, this is the present and not the future.

Residents and Councillors unfamiliar with the nature of a modern last-mile facility instinctively raise concerns regarding noise, safety and the impact of delivery vehicles on local neighbourhoods. However the now-established examples such as DPD’s Westminster depot demonstrate how these facilities, increasingly vital to London’s economy, can be sensitively integrated into central locations.

And Finally – Boldly Going Where No One Has Before

Given the effect of the pandemic on industrial markets it is essential that Local Plans have up to date evidence that this is robustly and transparently prepared and reflects markets signals – as per the PPG. If this leads to the conclusion that MOL or Green Belt needs to be reviewed as part of the Local Pan process then authorities should not hesitate to commit. Without adequate supply the local and regional economy is stifled and the risk of pushing supply out to the Home Counties is more frequent and longer vehicle trips. Hounslow have most recently braved the way in proposing release for industrial needs.

Without a practical approach from authorities (and strategic support from the GLA) we risk moving towards a planning by appeal / VSC process, with greater cost and greater risk for all parties involved. The authorities surrounding London would also welcome a more proactive and coordinated approach to maximising delivery within London’s boundaries, given the significant political challenges they are facing in releasing Green Belt to meet their own needs.

Investors and decision-makers are deeply uncomfortable when a planning strategy recommends an approach that deviates from a Local Plan first-approach.

The Plan-led System is Failing Is now the time for Very Special Circumstances?

Out-of-date local plans and stretched Local Planning Authorities are now the norm, rather than the exception. Growth in the logistics market has been fast-paced due to market demand and changing consumer preferences. The planning system has failed to keep up. In this year’s research, we discuss the hot potato that is the Green Belt.

Interviews with those in the sector confirm a strong desire to deliver schemes through a plan-led scheme. By definition, logistics schemes tend to be largescale, and require significant infrastructure provision. As such, the market likes consistency, certainty, and calmness. Investors and decision-makers are deeply uncomfortable when a planning strategy recommends an approach that deviates from a Local Plan first-approach.

That said, out of exasperation for many, the sector is increasingly contemplating a change in strategy. One that is planning application-led approach, framed around a robust package of Very Special Circumstances Case (VCS), which clearly outweighs any harm, and is capable of being heavily interrogated.

Last year, there were a number of decisions that were made by Planning Inspectors and the Secretary of State that allowed planning permission for logistics schemes due to the planning weight that was afforded to the Very Special Circumstances, which balanced against a lack of local plan allocation.

This section explores some of the schemes that have been successful and provides commentary on the Very Special Circumstances that allowed decision-makers to grant planning permission.

Site Name: Wingates Industrial Estate, Westhoughton, Bolton

Applicant: Harworth Group

Local Planning Authority: Bolton Metropolitan Borough Council

Date of Decision: 21 June 2021

The outline application sought consent for a range of class B1(c), B2 and B8 space, together with education and training facilities and food and drink uses. A second application sought full permission to upgrade local highway infrastructure.

The site did have a draft allocation; however, this was not afforded any weight by the Secretary of State. The Secretary of State also afforded the Green Belt harm substantial negative weight and the landscape and visual harm significant negative weight.

Notwithstanding this, the economic benefits of the scheme were given very substantial weight. In his view, the provision of up to 2,500 direct and indirect jobs and enhanced skills in the local workforce carried substantial weight in the planning balance. It was accepted that the need to tackle deprivation and its causes are even more acute in Bolton than elsewhere within the wider Greater Manchester conurbation and the north of England generally. Evidence provided also confirmed that there was a need for development of this type.

It was recognised that the proportion of the Bolton workforce with skill levels below NVQ3 is above the Greater Manchester average. Weight was also given to the economic recovery and well-being of Bolton, especially following the Covid19 pandemic.

The following elements were all found to each carry limited weight: landscape mitigation, a net gain in biodiversity, sustainable drainage, off-site highway works, new or diverted footpaths, improved bus services and enhanced pedestrian and cycle access.

Ref: APP/N4205/V/20/3253244

Site Name: South of the M62, St Helens, Merseyside

Applicant: Omega St Helens Ltd and TJ Morris Ltd

Local Planning Authority: St Helens Metropolitan Council

Date of Decision: 11, November 2021

This application sought planning permission for 205,500 sq.m (approximately 2,212,002 sq.ft) of floorspace with 30% as general industrial (B2) and 70% storage and distribution (B8). The application site consists of around 75 hectares of predominantly arable farmland. It lies to the south of the M62 between junctions 7 and 8, and immediately west of the existing Omega development.

The scheme was resolved to grant at the local level, but subsequently called in by the Secretary of State. In light of its resolution to grant planning permission for the development, St Helens Council appeared at the Inquiry in support of the applicant.

It was accepted that the scheme would have a negative impact on the Green Belt. However, in approving the application, it was recognised that previously developed land alone would not deliver the Local Plan.

The Inspectors accepted that, given the M6 corridor’ s attraction for logistics operators, the supply of employment land had not kept pace with demand and was now critically low. The Planning Inspector also concluded that whilst Warrington had historically capitalised from logistics uses, the adjoining authority, St Helens had not seen the same benefits. St Helens was acknowledged as a deprived authority that is getting poorer, with a high level of multiple deprivation.

St Helens is also in the highest priority group for the Levelling Up Fund and Towns Fund. Therefore, very substantial weight attributable to the schemes’ economic benefits were considered to amount to Very Special Circumstances justifying a grant of permission.

Ref: APP/H4315/V/20/3265899

Site Name: Thurrock Marshes, Nr Tilbury, Thurrock

Applicant: Nordor Holdings Limited

Local Planning Authority: Thurrock Council

Date of Decision: 17 September 2022

This application sought planning permission for 7,650 sq.m (approximately 82,344 sq,ft) of B1/B2/B8 floorspace. The scheme also included 161 homes.

The application was recommended for refusal on the basis of it being positioned in the Green Belt. It also had a recent appeal refusal for a similar type of scheme in June 2018 (Ref. APP/ M1595/W/17/3188665). This appeal gave weight to the delivery of housing, improved connectivity and cycle upgrades. However, in summary, it was concluded that the benefits do not individually or cumulatively clearly outweigh the substantial harm that would arise to the Green Belt.

Notwithstanding the recommendation by officers, the Planning Committee went contrary to recommendation largely due to the benefits associated with the residential element.

Members concluded that Tilbury is undergoing economic growth with the Port of Tilbury and an Amazon fulfilment centre being major employers, but that housing growth had not kept pace. Therefore, weight was given to the inter-relationship between housing and jobs, particularly with the scheme also providing affordable housing. Weight was also given to the scheme being “shovel ready” (despite it being an outline planning application) and that jobs would be generated during the construction phase. Other benefits of the scheme included the delivery of open spaces and the fact that the site is protected by national flood defences.

The application was referred to the National Planning Casework Unit as a departure from the Local Plan, but the Secretary of State decided not to “call in” the scheme. A reserved matters application has yet to be submitted.

Conclusion

So, in thinking about the next 12 months, is it planning by appeal? Are we likely to see a new level of Very Special Circumstances that are framed around Biodiversity Net Gain; health and wellbeing benefits; skills and training; the Climate Emergency, and infrastructure delivery. Or, with a recession looming, will we see a softening in local objection for those schemes that offer strong potential for economic development.

1 https://www.london.gov.uk/sites/default/files/checked_ westlondoncapacity_0.pdf

2 https://www.carboncare.org/en/climate-change.html

3 https://www.gov.uk/government/statistics/transportand-environment-statistics-autumn-2021/transport-andenvironment-statistics-autumn-2021

4 https://www.bcg.com/publications/2020/climate-action-paysoff-in-transportation-and-logistics

5 ONS: Workforce jobs by March 2017- March 2022

6 ONS: Workforce jobs by region and industry March 2017March 2022

7 https://www.semlep.com/warehousing-and-logistics/

8 https://www.dpd.co.uk/content/about_dpd/press_centre/dpdto-launch-autonomous-delivery-robots-in-milton-keynes.jsp