Urban farming could result in further demand for logistics space

Eddie Russell from international law firm, Charles Russell Speechlys, looks at the implications on the property market of a rise in indoor agriculture

We will have all noticed increasingly bare shelves in the salad and veg aisles of late. There are a number of competing factors such as labor shortage (particularly acute in the UK following Brexit), poor harvest and distribution issues that are placing strain on the supply. In this context then the idea of 'onshoring' production and moving it closer to the end user makes complete sense. Added to that, there are the benefits of reducing pollution from fertilizer and a higher output generally.

For this high-tech indoor farming to really take off there needs to be suitable stock within easy traveling distance of the consumer with an ample energy source. Perhaps therein lies the problem, at least for the time being with speculative development slowing while many developers wait for interest rates and supply costs to stabilize. There remains a shortage of good quality logistics stock and a low vacancy rate so increased demand will put further pressure on supply.

Although there are obvious environmental benefits as stated above, these are countered somewhat by the fact that these buildings will be thirsty for energy to sustain the suitable growing atmosphere within. These facilities will likely face similar challenges to the data center sector with a requirement for high volumes of water and a large heat output from the operation.

Heat pumps may be a good option to recycle heat generated by the building and there could be scope to recycle rain water and install solar panels. That all helps but is unlikely to alleviate the need for a high electricity input, an item high on the agenda for logistics occupiers across all sectors.

Any kind of specialized installation is likely to be unique to the occupier and so landlords will want to ensure that there are tight reinstatement obligations in any occupational agreements with operators. They would not wish to see alterations undertaken that make the unit so bespoke that it could not be used by a third party in the future.

If forming part of the estate, the energy requirement will also require careful planning to ensure there is an adequate supply for all tenants on the estate. Landlords and tenants alike will no doubt be focusing on renewable and alternative energy sources and how they can be incorporated going forward as we push toward net zero.