Distribution companies' increasing demands for ever-larger buildings are set to fundamentally change the way industrial property is marketed, let and taxed, warns commercial property specialist Richard Bache.
Distribution companies are demanding more space than ever in their warehouses in order to store more goods, but the rise of automated storage and retrieval systems means that industrial buildings are getting higher rather than expanding in just two dimensions.
The result, according to Mr Bache, associate, and industrial and distribution property and development specialist at the Birmingham office of BK, is more work for agents. "What is increasingly important to distribution companies is not the floor area of a building, but its cubic capacity," he tells Business Property Review.
"With the introduction of computer-controlled racking systems, companies can make much better use of height in most new warehouses, rather than taking more floorspace.
"So we will gradually see agents' details of new and second-hand industrial warehouses include not just the floor area of the building, but also its cubic capacity and, over time, it is capacity which will become most important."
BK has already produced its first set of details for an industrial property it is marketing, which shows the capacity of the warehouse, as well as its floor area. There are already a number of warehouses built which are more than 30 metres to the eaves and more are planned.
Mr Bache cites the example of Bird's Eye's 200,000 sq ft distribution centre at Hams Hall, which has been operating for three years, while Argos has just taken 563,500?sq ft at Centre 38, Burton, near Barton-under-Needwood.
"By building tall, to 30 metres or over, these operators and the developers are making a considerable saving on the cost of the land which would be needed if they went for a more usual 20-metre eves height," he says.
"With the cost of industrial land having risen on average in the West Midlands by more than 20 per cent in the past 18 months, this makes good commercial sense for both developer and tenant.
"There are also economies of scale for construction costs in building higher rather than wider. While foundations need to be deeper, the roof is smaller and the additional steelwork needed for the frame hardly adds to the overall cost."
According to Mr Bache, the tall building boom is coming at the right time for the industrial property sector as it faces additional construction costs from new government regulations and tax.
He says: "The new proposed Part L building regulations are expected to add at least five per cent to construction costs of big sheds, while the new aggregates tax is estimated to increase the cost of roads and bridges on industrial estates by seven to ten per cent. With these additional costs of construction, money saved on land is even more important.
"Provided that planning authorities continue to grant approval, this trend for tall buildings seems set to continue as distribution companies invest in additional automation.
"With cubic capacity starting to play a role in the marketing of a building, how long will it be before we see landlords starting to let buildings according to their capacity and local authorities setting their rates per cubic metre rather than per square metre?"