Howard Lupton, examines the need for joint ventures between industrial and residential developers to keep up with the demand for warehousing and homes within the M25.
Retailers need more last-mile logistics capacity within the M25, but will the market deliver it when residential development is at the forefront of the political and planning agenda? One solution is to combine the two, particularly in urban environments where mixed use developments fit more naturally into the wide variety of existing commercial and housing stock.
In the impending general election each political party will promise in its manifesto to deliver more houses and it is widely accepted that the UK needs 300,000 more homes every year for the foreseeable future. However, only one third of those new homes are currently being delivered. Every year, 65,000 new homes are needed in London where the competing pressures of housing, offices, logistics and other commercial uses are at their most acute. Part of the solution for London must be intensification of use of development land and there has been recent speculation that this will lead to multi-use, multi-storey developments, combining last-mile distribution space on the ground floor; dividing commercial use such as offices, gym or medical on the next floors, topped off by residential uses above. These residential uses may not necessarily be flats for open market sale but could be student accommodation, affordable housing or private rented sector units.
There are many challenges to delivering these revolutionary types of development. Local Authority planning policy is unlikely to have anticipated this type of combined development and whilst there will be separate policies of retaining industrial land and promoting residential development, a developer proposing a combination of the two is not likely to have planning policy to rely on. Developers will say that planning is difficult enough to navigate even within the constraints of policy, so it may be that planning policy makers need to lead the change to encourage these developments. Planning policy may also be needed to force change where the value of land for residential use far outstrips the value of it for distribution use. The next challenge is that the funding institutions and developers are naturally conservative when it comes to backing new products and they have tended to be split, in focus and expertise, between property in the industrial sector and residential sector. New mixed use industrial and residential projects are most likely to be brought to fruition by joint ventures between experienced industrial developers and residential developers, in the same way that block-by-block or side-by-side schemes, mixing other commercial uses with residential use, have been brought together.
Added to these are the practical challenges of the physical combination of uses which have historically been deliberately kept apart. This includes factors such as noise, air quality, environmental issues, fire safety, construction and design. No doubt these challenges may be overcome but they will add to costs and those increased costs will be passed onto the logistics providers in the form of rents which will be higher than traditional distribution schemes.
As always there are legal issues and challenges to take into account when a new combination of uses or new construction methods are to be employed. Of most interest to retailers will be those less prosaic legal issues which impact directly on the cost and manner of operation. Foremost will be the planning conditions imposed directly in the planning permission or arising as obligations under the S.106 Agreement which will be heavily prescriptive on times of operation, sustainable travel and noise. Various legal tenures will be mixed in the same building and the way in which those interests, which will generally be leases, combine will be vital to establish a workable framework for management and maintenance of the building. It will be vital that service charge regimes, established in the various leases, work both legally and practically.
As retailer demand for last-mile capacity increases the investment and development market is likely to rise to the challenge with innovative solutions, including ‘beds and sheds’. Legal solutions will be a small but important part in the jigsaw of both initial delivery and long term occupation.
First published in Essential Retail magazine, June 2017