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itLogistics, Warehousing & Commercial Real Estate
The ongoing growth in eCommerce fulfilment services, combined with supply chain challenges, increased consumption and demographic growth has caused investors to flock to warehouses and commercial retail as the latest real estate boom.
However, when considering the utility infrastructure required to support a development, we are currently observing similar challenges in the logistics, warehousing and commercial real estate sector that our data centre clients are also facing. Networks are constrained, there are significant delays in securing network connections/ capacity, and corporate sustainability directives and government mandates are requiring developers to be ever more creative in considering how demand is managed/ rationalised and incentives and opportunities are capitalised upon.
Optimising utility procurement and delivery is a crucial requirement for unlocking potential cost and risk-reducing opportunities that provide the developer with a true competitive advantage in the marketplace. Realising that unique strategy on a scheme can sometimes be the determining factor as to its overall viability and success.
How we helped a UK logistics park developer
By closely supporting our client throughout the master planning stages of its project, it was possible to drive whole lifecycle efficiencies throughout the procurement and delivery stages, by influencing the technical, commercial and regulatory aspects of the development process.
The distance between the point of connection and development was initially rationalised, reducing overall cost and de-risking the delivery programme. The opex costs for the development were modelled and the most appropriate wholesale tariffs secured.
A 61% capex saving to the client equating to £4.65m was secured on a staged ramp-up of power for the proposed development. Initial savings were driven through consultation and negotiation within the de-regulated market. The final accepted offer was secured with the incumbent statutory electricity network provider following a review and representation of its initial proposal.
The Challenge
The construction of major warehouse and commercial developments are inextricably linked to the ability to source/ utilise power and other utility resources. The impact of available utility networks with sufficient capacity runs across every aspect of the market, from informing decisions on site selection, through the design and construction phases and the operation of such facilities.
With an increased focus on sustainability in design and the phasing out of fossil fuels, such as natural gas, legislation is now requiring developers to migrate towards more sustainable practices, including all-electric strategies. The conundrum now is how to access these electricity networks which are becoming increasingly constrained when considering both demand capacity and generation export. With forecast growth for warehousing likely to remain substantial, we are fast approaching the crunch point where we have to accept that in the UK we simply do not have enough power to continue as we are. In simple terms, the ‘magic pot of power’ is running dry.
The situation is similar to that being experienced in the data centre sector where we have honed expertise and knowledge over many years and we are now applying it to the exciting warehouse, commercial and logistics sectors.
The Opportunity
Regulation and de-regulation across the utilities market has continued to provide opportunities when developing procurement and delivery strategies for a project and with the dynamic nature of utilities networks, no two strategies are ever the same. The energy sector, specifically the electrical utility market, has traditionally offered the most competition and opportunities to innovate, providing significant CAPEX and OPEX saving opportunities when procured and delivered efficiently. We are now seeing similar opportunities develop within other utilities markets too.
The Solution
We are currently advising clients on a number of solutions to reduce their reliance on utility networks, such as the National Grid. This includes creating more efficiency and/ or scaling back capacity requirements by rationalising or optimising critical infrastructure. In some cases there is the option to consider generating their own power to supplement any shortfall utilising renewable power such as wind, hydro, solar and waste to energy.
The surge in demand for warehousing and commercial real estate that we have witnessed over the past decade poses a major power challenge to the industry in the UK and there is now a real requirement for participant companies to evolve their utilities strategies to accommodate this demand. We can help.
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