The future of industrial investments: navigating sustainability, technology, and market shifts

Discover how sustainability, technological advancements, and market changes are shaping the future of industrial real estate investments with Jon Hobbs, partner at international law firm Womble Bond Dickinson.

Diversification and maximising value have always been cornerstones of any investment strategy. The traditional industrial sector has shown resilience and still offers opportunities for income and capital growth, despite market challenges. 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 in itself, with evidence showing that high-performing 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 recently revised "UK Net Zero Carbon Buildings Standard" by the UK Government being the latest addition. Navigating this regulatory landscape requires specialist knowledge and robust and secure data capture.

Initiatives such as behind the meter 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.  On-site 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.

Government priorities, as highlighted in the Modern Industrial Strategy, along with significant public and private spending in defence, advanced manufacturing, life sciences and data centres, present new opportunities for investors in industrial real estate. 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 industry-specific facilities like 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, whilst they wait and see if the Government's strong message regarding planning reform will deliver much-needed structural change.

Interested in learning more about the future of industrial investments? Contact our team to get expert insights and investment opportunities tailored to your needs.