As published in United Kingdom Warehousing Association on 01 July 2022

Long before Russia’s invasion of Ukraine unleashed a tidal wave of sanctions manufacturing supply chains were at breaking point amid a dearth of both shipping containers and micro-chips.

The Covid catastrophe had already persuaded many business sectors to increasingly adopt the principles of Environmental Social and Governance (ESG) under pressure from customers financial institutions shareholders and activists.

Now as the economic turmoil caused by conflict continues to spread the choice is increasingly stark between those who commit to the future – and those who still linger in the past.

If there’s a battleground for the cause of sustainability, it is the UK’s warehousing sector and its supply chains through which the life-blood of an economy long cull built on trade must flow.

Developers, investors, architects and advisers are being urged to deliver a new generation of distribution centres and logistics’ schemes which put ESG principles into practice.

Those who can design and operate such space whilst committing to sustainability in all its forms will gain a competitive and reputational advantage as the refuseniks lag further and further behind.

The new ESG-focused mindset is perfectly exemplified by Hollis which operates from a network of of offices across the UK, Germany, Ireland, The Netherlands and Spain. Its refurbishment of a 43,000 sq ft warehouse for SEGRO on the Premier Park scheme at London’s Park Royal achieved net-zero carbon at the operational level earning a BREEAM ‘Excellent’ rating and won the ‘Building Performance’ category at the 2021 Building Awards. Hollis also achieved the same targets for LaSalle Investment Management, when a fire-damaged 31,600sq ft industrial unit in London’s White Hart Lane required a complete rebuild.

Among the features to catch the eye at the latter were EV chargers for visitor use, a real-time app monitoring energy use from roof-mounted PV panels and the re-use of recycled fabrics and flooring materials.

“Any developer/investor committed to ESG and sustainability will need to incorporate multiple features wherever possible” says Hollis Director Carl Sablon who heads its industrial and logistics team.

“We are seeing significant demand for EV chargers for employees, rainwater harvesting, biodiverse landscaping, energy-efficient lighting and on-site renewables.”

“The challenge then is to see how you can include other innovations whether it’s a new-build or a refurb. One idea we’re looking at is to use small robots to clean PV panels on a roof so they’re always operating at peak efficiency.”

“I believe people in our position, project managers, designers and others have a responsibility for what goes into a building.

“We should all make the effort to identify more sustainable products and apply our moral compasses to our decision-making and recommendations.

“We want to turn these buildings into amazing places and it’s such a privilege to be in this position that we owe it to ourselves and the industry to constantly strive to do more”

It’s easy to understand why such passion attracted SEGRO when it wanted Unit E at Premier Park to become its first net-zero carbon industrial building in the UK.

“It was enjoyable to work with them as they were so open to even the smallest detail such as the use of non-concussive taps to reduce water consumption, and sensors within the office space so the supply of fresh air could be automatically varied based on the level of CO2” says Sablon

“They seem to be a couple of years ahead of the pack, and because most of their schemes are in or around London, they benefit from higher rents and because their revenues are greater they can then spend more on capex”

Sablon says developers/investors committed to the ESG agenda and sustainability are also benefiting from the ‘gentrification’ of many of the UK’s industrial estates. “If you went back say ten years they were usually full of businesses which weren’t particularly bothered about their environment because location was the critical factor.

“During Covid though we saw a significant upsurge in in internet-based businesses. Most of these ventures work out of industrial units, the owners are proud of their building which is an integral element of their brand.

“Naturally they also want to attract and retain the best talent and working out of modern and well-equipped space is central to both their ESG policies and their recruitment strategies”

The current furore about rising energy prices and the reliability of future supplies has intensified the focus on the use of solar PV panels, a trend which Hollis identified during 2021.

“We decided to enhance our service last autumn by appointing a solar industry specialist Stuart Patience which allowed us to bring solar PV advice in house and dovetail this with our existing services” recalls Sablon.

“If a client has net zero aspirations, or just wanted to reduce their energy bills, we can now assess the EPC performance, model potential PV- based systems and project manage everything.

“In early 2021, we saw a massive shift in the market. Developers and landlords really bought into sustainability and wanted to reduce their carbon footprint, not least because they were under pressure from investors, shareholders, and fund managers.

“They wanted to discover how they could progress their sustainability goals. Instead of BREEAM ‘Very Good’, people wanted to know what it would take to gain an ‘Excellent’ rating, so part of the process was educating and informing people about what was possible.

“The trend was also notable from a tenant perspective. One of the UK’s largest parcel delivery companies for instance, wanted a unit at Heathrow, but wouldn’t consider anything which didn’t have an EPC rating of at least A+”

Feedback from Hollis’ UK offices suggests that a two-tier warehouse market will evolve in the medium-term.

“We believe some funds and landlords who are very ESG conscious will invest in significant amounts of capex as they’ll be able to achieve higher rents once the asset is operational and higher returns when it comes back to the market” says Sablon.

“We’ll also see some who aren’t particularly focused on sustainability and will simply do bog-standard refurbishments without focusing on achieving higher EPC ratings. However, from 203, the market will level up as the new standards come into force”

At JLL’s London office the head of EV Solutions Sahan Abeln believes with equal passion and commitment that a holistic approach to the sustainability agenda is essential for the UK’s real estate community and particularly for warehouse operators and developers.

He spent 20 years in his native Netherlands with Shell where his final project was to lead the development and implementation of a strategy for the electrification of its high-utilisation fleets.

“I realised that the landlord and the grid connection on the site were the most important elements of a comprehensive sustainable energy strategy from a real estate perspective” says Abeln.

“The most productive approach is to combine solar and energy management for your warehouses and the sit, use EV chargers for your delivery fleet, and for the vehicles which load and unload.

“You need to look at ‘loading electrons’ in the same way you look at loading pallets. It doesn’t require additional downtime and controlling the energy supply chain of your vehicles really opens up opportunities to reduce costs”

Abeln’s data certainly bears noting for the operators of TPL fleets and everyone else in the warehouse sector and its supply chains.

“If you do a CBA (cost-benefit analysis), you see savings of between 10% and 20% for the life-cycle of each vehicle which in the logistics sector (with margins typically 3% to 5%) is a significant amount.

“Over the next three to five years we think the adoption of this strategy will pick up quite rapidly. People will become more used to driving and operating EVs, as will companies in their supply chain and everyone will become more aware of the cost and reliability benefits.

“Companies will change their strategies not because of ESG but because there are powerful commercial imperatives to convert to EVs”

Abeln shares the conviction of Hollis’s Sablon that architects and developers must ensure their space is fully prepared for next-gen vehicles and trucks.

“I don’t mean just putting a few chargers in the parking bays. They need to be EV-ready for the delivery trucks and other vehicles which will use that site and make sure the physical space and technical conduits are in place.

“They also need to give serious thought to power supplies access to grid capacity, how they can dovetail solar power into their EV strategy and to consider feed-in tariffs alongside other energy-saving management systems.

“Foremost it’s a significant commercial and cost-saving opportunity which obviously aligns well with reducing your carbon footprint and hitting sustainability targets.

“Warehouses use a lot of water and generate a lot of waste, so the approach needs to be fully integrated. If you’re building a new warehouse, it presents a great opportunity to review how you use your supply chain.

“Some clients refurbishing warehouses and distribution space are finding the costs of being ready for the future are acceptable because the building is in decent shape.

“However, where they aren’t in good condition and particularly in locations where there are grid constraints, they have a real problem and it might be the site will soon no longer be suitable for logistics”

Abeln and his team are now working with landlords, developers and tenants to understand how the principles of ESG can be most effectively and efficiently applied to their operations as they make the journey to Carbon Net Zero.

“Obviously these are very new conversations. If you look at the HGV sector, all the talk for the last ten years has been about hydrogen, but that technology hasn’t evolved to deliver significant saving in in terms of the vehicles or the fuel.

“However, over the same period there have been remarkable advances in battery technology, drive-train efficiencies, and capacity and vehicle capabilities.

“The narrative about electricity from hydrogen vs batteries has shifted considerably and people are looking at their CBAs and realising that EVs are now very competitive with diesel-powered trucks and vans as charger costs continue to fall.”

Abeln readily accepts though that such discussions will never be purely about data and financial projections.

“Companies do need to get more practical experience of using the new generation of EVs and not just relying on anecdotes about the early ones which were typically diesel vehicles which then had battery technology shoehorned into them,” he says.

“If the manufacturer claims their truck has a range of 350miles, is that accurate under operational conditions? What happens when the weather is cold and how does it work when you put a refrigerated trailer behind it?

Companies will change their EV strategies not because of ESG but because there are powerful commercial imperatives to convert to EVs.

“There’s also still work to be done to make people see real estate logistics and mobility as integral elements of energy sustainability.

“There is in investment in in insulation, heating ventilation and power supply, and in the warehouses we see more efficient use of robotics and automation, but mobility in its widest sense is still to be fully embraced”