Powering UK growth through small-box strength

Even against the backdrop of short‑term global volatility, the government’s steps on planning reform and its support for high potential sectors signal an intention to move the country into a more confident phase.

Yet progress becomes real when companies have the space they need to invest, expand and innovate, and right now, that space is in critically short supply. Currently, growth measures aren’t going far enough, because they don’t consider how and where business growth will take place.

In a successful modern industrial economy, much of this would happen in units below 100k sq ft. They form the foundation of our industrial economy, but are neglected and overlooked by Government, by policymakers and by planning.

These buildings matter more than they’re given credit for. The I&L sector as a whole generates £128 billion in GVA each year and supports 4.5m jobs. Sub-100k sq ft units comprise 95 percent of these units, and they contribute 62% of all I&L business rates. As well as forming essential storage and distribution hubs, they are where businesses refine products, assemble components, develop prototypes and build momentum.

When a company secures the right premises, energy levels lift, decisions move faster and ambitions grow. Modern space helps them create more jobs and engage more customers, making more robust contributions to the economy.

The strength of demand across the small to mid-box market makes this picture even clearer. National suppressed demand over the past decade sits at 35%, which means almost 60 million sq ft of space that businesses would have taken simply was not available. Across the last decade, the lost economic output from this shortfall is estimated at £3.3 billion in GVA, while 48,000 additional jobs could have been created. These figures reflect real companies with real plans that could not move forward. This missed opportunity isn’t due to a gap in the market, it’s the result of a system that’s set up for failure.

Behind this challenge is the fact that average availability has remained at 6.1% for more than a decade. The accepted benchmark for a balanced market that can support growth is 8 percent. The restricted supply of suitable units has pushed rents up by 79 percent since 2014. Investors see resilience in this performance, but for many occupiers the lack of choice means they are working from older premises that restrict productivity and do not meet future requirements.

Another problem looming for the industry is Minimum Energy Efficiency Standards (MEES). The government still hasn’t confirmed its plan for non-domestic MEES improvements despite consulting on it in 2021. Should the initial proposals go ahead, we could see around 40% of small to mid-box I&L unlettable by 2027, rising to 79% in 2030.

Government has signalled that it recognises this pressure. Planning reforms show commitment to faster decisions and more effective coordination on major schemes. These moves are vital for long-term confidence, but we need to go further, and faster. The next phase needs to ensure that smaller, locally delivered schemes benefit in the same way, since much of the country’s industrial growth depends on activity at this level. We know from experience that even straightforward applications can face long delays, which increases cost and creates uncertainty for everyone involved.

Clear recognition of industrial and logistics space as economic infrastructure would help shift this. If local authorities were supported in understanding these buildings as essential to productivity, land allocation and planning decisions would more accurately reflect the scale of demand. It would also bring planning policy closer to the ambitions of the Modern Industrial Strategy, which relies on early stage innovation happening in the right environments. The high growth industries identified in that strategy already operate from sub-100k sq ft premises, and more will be needed.

When ambitious businesses move into modern units with good design, improved environmental performance and space that reflects their ambitions, they grow. And when they grow, they contribute more to the economy.

With improved planning capacity, clearer guidance on energy standards and closer collaboration between property owners and local authorities, the opportunity ahead is significant – and if government doesn’t embrace this, it is missing a trick.

Our latest report, BIG Things in SMALL Boxes, sets out the detail behind this opportunity and the actions that will help unlock it. I encourage readers to download it and join us in driving this essential part of the UK economy forward.

By Jason Rockett, MD, Potter Space