Almost 60% of warehouse stock set to miss EPC targets

More than half of the UK’s warehouse stock will be obsolete within seven years. New research into units of more than 50,000 sq ft by Knight Frank shows 18% of warehouse space, totalling 128m sq ft, will fail to meet the 2027 EPC C target. However, that figure almost triples to 404m sq ft, or 60% of stock, at risk of being unlettable by 2030, when EPC B will become the minimum requirement. The firm said just 6% of that space had been upgraded in the past five years. The prevalence of older, underperforming stock and its potential for obsolescence could further exacerbate the chronic undersupply of logistics space, the agent said. The picture becomes even more concerning at a regional level. In Wales, just 24% of warehouses measuring more than 50,000 sq ft meet the EPC B grade minimum. In the North East the proportion is 33%, the North West is 39%, and Yorkshire and the Humber is 40%. But Knight Frank added that, based on the current rate of retrofitting, the North East and East of England regions have the potential to achieve a minimum EPC B grade before 2030. The firm’s head of logistics and industrial, Charles Binks, said: “Occupier demand is becoming increasingly focused on high-quality facilities that can offer ESG credentials. “Operators are increasingly discounting facilities that do not fit with their, or their customers’, sustainability strategies. While newly constructed warehouses generally meet top sustainability standards, 82% of the UK’s existing stock built before the year 2000 do not meet minimum EPC requirements.” While vacancy rates have risen slightly over the past six months, they remain very low relative to historic levels and much of the space currently available is in older, second-hand stock. Ecommerce alone is set to create 45m sq ft of warehousing space requirements during this period. He added: “It is obvious that significant capital expenditure is required to retrofit these warehouses and mitigate obsolescence risk, however just 6% have undergone upgrades in the past five years. “The prospects for rental growth should offer incentive. However, investors must accelerate the rate at which older facilities are upgraded or they will become unlettable.” This shortage of energy-efficient stock is expected to see UK industrial rents increase, with growth of 3.1% per annum forecast over the next five years. To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews Image © Pixabay/Pexels