New data has revealed that up to 85% of sub-100,000 square feet industrial and logistics space could be rendered unlettable by 2030, if planned Minimum Energy Efficiency Standard (MEES) regulations come into force.

BIG Things in SMALL Boxes 2024, an industry report by leading property company Potter Space in partnership with Savills, takes an in depth look at this specific market.

It found that while the outlook for this important sector of the UK economy is good, with demand expected to continue rising, supply is lagging behind. As a result businesses have been historically unable to find the warehouse space they need to grow and expand. Lack of available stock has in fact suppressed demand by 38% across the country.

Impending MEES regulations will only exacerbate the situation. By 2027, I&L facilities must have an EPC rating of at least C to be let. Currently, 47% of small to mid-box stock doesn’t meet this standard. In 2030, when facilities will require an EPC of B or higher, up to 85% of these spaces could be unlettable.

Jason Rockett, MD of Potter Space, says: “Two years ago, the journey to Net Zero and the incoming EPC regulations were high on the industry agenda, but this seems to have fallen away – which is surprising considering the impending guidelines.

“2027 is not that far away in property terms, and we need to see immediate action on this to ensure the businesses that use our facilities and that are the lifeblood of our economy have the space they need to keep doing business.

“We welcome a more sustainable future within I&L and support the EPC regulations, but we want to see the timescales and the support needed from government reviewed to ensure they’re achievable. The industry needs a clear roadmap including available funding where appropriate to assist occupiers and owners to bring buildings up to scratch.

“We would also like to see an integrated approach to planning at all levels, so that land can be made available for small box to mid-box developments alongside big box and residential.”

Retrofitting is one possible solution, but this presents its own problems. It’s costly, it requires the displacement of tenants that may have nowhere else to go, and some facilities aren’t in good enough condition for extensive works.

Some units may achieve an improved EPC rating by removing heating systems from their spaces, however this can have a knock-on impact on the useability of those facilities.

Jenna Strover, Head of Commercial Delivery at Potter Space, adds: “We also want to take a more holistic and innovative approach to sustainability, thinking beyond EPC. One way of improving the sustainability of the sector is through solar panels. If we made use of all available roof space within small to mid-box for photovoltaic (PV) panels, we could generate enough power to support 4.3m homes.

“Our overall aim should be to create future-ready spaces that meet the needs of businesses and provide the environmental measures to support a greener future.”

Clare Bottle, Chief Executive of the UK Warehousing Association, comments: “The small to mid-box market caters to an enormous range of businesses from SMEs through to much larger organisations seeking wide distribution networks and flexible spaces. Losing significant portions of existing stock would be very challenging. We are here to support our members in meeting MEES standards and urge them to take a proactive approach.

“We would recommend as a first step that landlords have their EPC reassessed to confirm accuracy following methodology changes in recent years. There are a number of initiatives to consider such as upgrading to LED lighting or adopting rooftop solar that could help you meet those EPC standards without significant retrofitting.”