The recent changes proposed by the new Labour government to the UK’s planning system are set to significantly reshape the real estate sector. The National Planning Policy Framework (NPPF) draft document, released for public consultation on 30 July 2024, emphasises economic growth, infrastructure development, and housing expansion.
The proposed changes for economic growth policies in the consultation document recognise the need to adopt a more holistic approach to planning than seen previously. Until now, support for the industrial and logistics sector which at its core acts as a driver for and enabler of sustainable economic growth, has been limited within the policy framework, despite its key role as part of the UK’s critical infrastructure.
Positively, material published alongside the draft NPPF explicitly references the sector’s £84.9 billion gross value added annually and the 1.2 million jobs it supports, highlighting its essential role in the UK’s infrastructure.
The proposed changes to policy recognise that logistics development, along with gigafactories, laboratories, data centres and strategic infrastructure works, are key to delivering growth. Following the release of the draft NPPF, communications were issued almost in parallel from the Department for Transport highlighting the positive inclusion of freight and logistics as a growth industry and “transforming infrastructure to work for the whole country, promoting social mobility and tackling regional inequality” – this is clearly a government which is engaged and focused on change.
Key changes
The section of most relevance is the chapter on economic growth where the draft NPPF proposes important changes reflecting its ambition to deliver economic growth. This includes requiring LPAs to identify appropriate commercial sites for needs of the modern economy, and identify strategic sites for local and inward investment to meet anticipated needs over the plan period. This includes at paragraph 84b a range of specific modern economic uses including laboratories, gigafactories, data centres, digital infrastructure, freight, and logistics.
However, this is not intended to be a definitive list of sectors to be supported. The draft NPPF goes further at paragraph 85 with a new requirement to make provision for the “expansion or modernisation of other industries of local, regional or national importance to support economic growth and resilience”. Practically, this broad phrase identifies Local Plans should positively and proactively encourage sustainable economic growth across the board.
However, a significant shortcoming in the current planning system is the method by which many local planning authorities (LPAs) estimate future land needs for economic development. Existing methodologies broadly used in plan making are based on provision for employment land relating to past take-up rates that have not kept pace with rapid changes in industry and business requirements. Current evidence bases were mostly prepared pre-Brexit and before the Covid-19 pandemic and there has been a sea change affecting the sector including, among other things, through the growth of online retailing, housing growth, increased freight volumes, reshoring/near-shoring and consumer expectations for same-day or next-day delivery. This has led to ‘suppressed demand’ for space for a number of years and there is a significant national supply and demand imbalance.
The draft NPPF provisions should necessitate updated guidance rectifying this significant issue by identifying a standardised method for calculating industrial needs over plan making periods reflecting the evolving, structural drivers of demand within the industrial and logistics sector. This will enable LPAs bringing forward new policy frameworks to accurately forecast future demand and allocate sufficient employment land.
The draft NPPF also introduces the concept of the "grey belt," allowing for adjustments to Green Belt boundaries under less restrictive conditions. This change requires local authorities to review these boundaries if they cannot meet their housing and commercial development needs, potentially unlocking more land for industrial and logistics purposes in locations that are otherwise appropriate for this form of development.
Moreover, the draft NPPF and associated documents suggest that the Government is prepared to be more hands on in the planning process, introducing the potential to expand the range of developments that fall under the Nationally Significant Infrastructure Planning (NSIP) system particularly for renewable and digital infrastructure projects including data centres. Irrespective of whether or not this would be preferable in Planning terms to the conventional Town and Country Planning Act route, this proposal reflects a government that is engaged and focused on enabling growth. It will be important there is optionality around the NSIP route, given the conventional route is likely to take less time on sites where the principle of development is less contentious, and the relative flexibility of the TCPA for allowing amendments post the grant of planning permission.
Boosting the Digital Infrastructure and Tech Sector
The Labour government has placed a strong emphasis on expanding the UK’s tech sector, particularly through the development of digital infrastructure. Peter Kyle, the Secretary of State for Science, Innovation, and Technology, has outlined plans to significantly grow the UK’s data centre and gigafactory industries. Chancellor Rachel Reeves has also committed to speeding up planning processes for major data centre projects, a move that could increase demand for logistics space, especially in tech-driven regions.
The latest data centre research from Savills suggests that across Europe almost 100 new data centres are planned to be delivered within the next 3 years. However given the growth in bandwidth usage by cloud computing and AI applications demand will continue to outstrip supply and we expect existing clusters, many of which are in the UK, to continue to grow.
The demand for industrial and logistics space is also growing due to the semiconductor industry. According to research from Savills, the EU will require nearly 11 million square metres of new industrial and logistics space by 2028 to meet rising demand. Additionally, the UK is projected to need up to 21 million square feet of space for gigafactories producing batteries by 2040, with an additional 2-3 million square feet required for warehouse space to support supply chains.
Policies encouraging faster planning approval for industrial and logistics developments including for data centres and semiconductors, combined with the flexibility offered by support for redevelopment of Grey Belt land, will be key to bridging this gap by accelerating the delivery of these crucial projects. Planning has long acted as a barrier for future growth and altering the current system will allow for direct and indirect investment into the UK economy highlighting that ‘Britain is a place to do business’.
The growing role of E-Commerce
The continued growth of e-commerce is another critical factor driving demand for logistics space. Forecasts suggest that online shopping will grow from 22.2% of total retail in 2022 to 28.4% by 2027, potentially increasing revenues by over €62.4 billion. Research indicates that for every additional billion euros spent online, an extra 775,000 square feet of warehouse space is required. Consequently, the UK may need up to 58 million square feet of additional warehouse space by 2027.
This surge in e-commerce is also intensifying the need for efficient last-mile delivery systems. Companies will require more localised distribution centres to meet consumer demands for fast and reliable delivery, further driving the need for logistics space. The draft NPPF supports this growth by encouraging local authorities to earmark land for logistics hubs, ensuring that the necessary infrastructure is in place to support e-commerce expansion. Additionally, the strengthening of effective cross boundary planning, which recognises the locational requirements of the sector, will support the efficient and reliable handling of goods, whilst the introduction of the grey belt further facilitates the release of land near urban centres, where demand for last-mile logistics is highest.
Housing development and logistics demand
Housing development is another key focus of the Labour government, with a new target of building 371,541 homes annually, representing a 21% increase from previous targets. This expansion is directly linked to increased demand for logistics space, as each new home requires an additional 69 square feet of warehouse space to support its distribution needs. If the government meets its housing targets, an additional 25.64 million square feet of warehouse space will be required each year. The draft NPPF’s emphasis on unlocking land for development, particularly in areas near housing developments, will be key to meeting this demand.
Issues
Notably however, there is no reference within the draft NPPF to the Government’s national industrial strategy or to require plans to maintain a rolling supply of immediately deliverable land for economic growth which some had suggested. Furthermore, two major hurdles for the industrial and logistics sector are the speed of planning decisions and the capacity of the National Grid to support the power needs of developments. Labour’s commitment to recruiting more planners and upgrading the national transmission infrastructure is targeted to respond to these challenges, although the scale of the task facing local authorities remains considerable.
Conclusion
The recent changes to the UK’s planning policies under the Labour government are poised to significantly impact the industrial and logistics sectors. By aligning planning reforms with broader national objectives, such as boosting tech infrastructure, supporting manufacturing, driving e-commerce growth, and expanding housing, the draft NPPF provides a robust framework for facilitating the expansion of these critical markets. While the revisions are promising, further legislation, policy announcements and guidance will be necessary to fully understand and implement these changes. Assuming the draft NPPF is published without material changes following feedback from the consultation exercise, Local Planning Authorities will need to carefully reassess their land strategies to make site allocations to deliver growth, including brownfield, Grey Belt, and Green Belt sites to accommodate the evolving needs of the industrial and logistics sectors and support the government’s growth ambitions.