New eco-rules threaten industrial property investments, report warns

The UK’s industrial and logistics (I&L) property sector faces a seismic challenge, with up to 85% of sub-100,000 square foot properties at risk of being unlettable by 2030 due to upcoming Minimum Energy Efficiency Standard (MEES) regulations, according to the BIG Things in SMALL Boxes 2024 report by Potter Space and Savills.

Supply shortage and MEES regulations collide

While demand for industrial and logistics space remains strong, supply constraints have suppressed demand by 38% nationwide. Now, new MEES regulations are poised to exacerbate the issue:

  • By 2027, all I&L facilities must achieve a minimum EPC rating of C.
  • By 2030, the threshold rises to a minimum EPC rating of B.

Currently, 47% of small to mid-box properties fall short of the 2027 requirements, and 85% risk becoming unlettable by 2030.

Jason Rockett, MD of Potter Space, warns:

“We welcome a more sustainable future and support the EPC regulations, but immediate action is needed. Without clear government support and funding, these impending deadlines risk creating a crisis for businesses and the economy.”

Retrofitting solutions and challenges

Retrofitting properties to meet higher energy standards is one potential solution, but it comes with significant hurdles:

  • High Costs: Upgrades are expensive and may displace existing tenants.
  • Building Viability: Older properties may not withstand extensive retrofitting.
  • Heating Systems: Removing heating to improve EPC ratings could make facilities less functional.

Jenna Strover, Head of Commercial Delivery at Potter Space, suggests innovative approaches like installing solar panels:

“If we utilised all available roof space on small to mid-box units for photovoltaic panels, we could generate enough power to support 4.3 million homes.

Call for government action

Property leaders are urging the government to provide:

  • Funding Support: Grants or incentives for retrofitting and sustainable upgrades.
  • Integrated Planning: Streamlined processes to develop new small to mid-box units alongside big-box and residential projects.
  • Clear Roadmaps: A structured timeline for implementing MEES changes, giving landlords time to adapt.

Clare Bottle, Chief Executive of the UK Warehousing Association, highlights simple measures to improve EPC ratings without full retrofitting:

“Reassess your EPC ratings for accuracy, upgrade to LED lighting, and adopt rooftop solar. These initiatives can make significant strides towards compliance.”

The clock is ticking

With 2027 just around the corner in property terms, the sector must move quickly to adapt or risk severe stock shortages. Proactive investment in sustainability, combined with government support, could help transform the small to mid-box market into a cornerstone of the UK’s Net Zero future.