How to get started in industrial development

Simon Keen and Tom Newcombe begin a three-part series looking at some of the things that a landowner needs to consider when setting up a new industrial/logistics estate. In this article they delve into the initial considerations. The market for industrial and logistics warehouses has never been hotter. So it is no surprise that landowners increasingly see it as a viable option for the development of strategic land, as either: a stand-alone estate; or the employment aspect of a wider scheme. In this series we will be looking at some of the things that a landowner needs to consider when setting up a new industrial/logistics estate. To keep things simple, we have assumed that one landowner owns all necessary land, and so doesn’t need to involve neighbouring landowners. That won’t always be the case; site assembly is often needed, either by one person acquiring it all or multiple landowners entering into a collaboration or joint venture agreement, but that’s a complication for another day. This first article discusses the support a landowner may need to manage the promotion and development of the site, and the need for a flexible planning permission to facilitate phased development. Teamwork The landowner must be clear how much it can and will do itself. A core team of commercial agents, planning and other consultants, solicitors and construction professionals is essential, but not every landowner has the necessary expertise or resources to instruct and manage them, especially if their focus day-to-day is running an unrelated business. It often makes sense to appoint someone else to perform that role; the additional cost is money well spent. Promoters A promoter will manage the planning strategy (including pre-application discussions), the appointment of appropriate consultants, the promotion (if appropriate) of the site through the development plan (ie local plan and/or neighbourhood plan), the preparation and submission of the planning application, and the negotiation and approval of the planning conditions, leading on any section 106 agreement (on which the landowner will need its own advice before signing). Their role will usually end once a satisfactory planning permission has been granted and is safely through its judicial review period, or on a sale of the consented site. Their fee can be calculated in a variety of ways. It is often a percentage of the fees paid to the consultancy team, plus a success fee, which could be: a fixed amount; a percentage of the uplift in value achieved on the grant of planning permission; or if their role includes selling the consented site, a percentage of any sale proceeds. Appointing a promoter is a good choice for a landowner that: wants to develop the estate itself or through multiple developers; wants to see what planning permission can be obtained before committing to anything longer-term; or does not want to be involved in the development at all and intends simply to sell the site with the benefit of planning permission.  Developers It can be more advantageous to appoint a development partner to take a more holistic, longer-term view of things, with a vested interest in obtaining the best planning permission and then delivering the most profitable development. Many developers will undertake the promoter role and then lead on the delivery of the development as a whole. This is often a joint venture with the landowner and developer working together, contributing their respective skills and resources, and sharing risks and profits. The land could be transferred into a jointly owned special purpose vehicle, with the developer providing services to it and being paid fees and dividends, but a contractual arrangement is more common, with: land drawn down when needed; the developer investing its cash and expertise; and  receipts being shared at the end. Where the landowner intends to retain the completed development as an investment, the developer may simply be a consultant, managing the process for its client, and being paid a fee for doing so. Allocation  Getting the right planning permission is critical to success. The process might start with seeking an allocation for employment-led development in the development plan, before any planning application is submitted, especially if the site has no, or an inappropriate, allocation, so is unlikely to obtain a planning permission that doesn’t comply with the current development plan. Allocation can take several years on its own and will involve several stages of promotion through:  calls for sites; early consultations and drafts; and examination of the draft plan (usually in public) by an inspector. Sites do occasionally come forward without specific allocations, but industrial/logistics estates often won’t succeed if not supported in the development plan. Masterplanning Before promotion through the development plan, and certainly before submitting a planning application, the legal title should be reviewed for development constraints such as restrictive covenants, electricity pylons, gas pipelines and third-party easements. A financial appraisal and masterplan for the development should also be prepared. The right consultancy team is needed early on to advise on all relevant matters, such as:  off-site highway/railway improvement works;  habitats/biodiversity;  surface water drainage;  landscaping; and  utilities.  Off-site infrastructure can be a major part of any development, especially where significant additional vehicle movements are anticipated or, on a multi-modal facility, increases in railway capacity or new sidings are needed. This can be via condition, or highways agreements, but also might be part of the section 106 process. Third-party land may be needed, so early identification and negotiation is essential to avoid unintended ransom situations. The landowner may want to control the masterplanning process, in particular, to manage development costs. However, an experienced team of consultants led by a skilled and properly incentivised promoter/developer should be able to balance the likely requirements of relevant authorities with the need to work up a deliverable and profitable scheme. Who appoints the design and planning consultants will depend on the situation. A promoter retained as “lead consultant” will usually advise the landowner on making appointments, whereas a developer with a longer-term role may appoint them itself, with the landowner then having reliance on their work. Outline planning permission With a masterplan prepared, and any development plan allocation secured, the planning application (usually an application for outline consent) can be worked up and submitted. While the process of preparing and submitting the application, and the actual planning process itself, is normally managed by the promoter/developer for the landowner, the landowner will need to be involved throughout, especially in any decision on: appealing a refusal or non-determination by the local planning authority; what to do if the application is “called in” by the secretary of state; and how to respond to any objections. The landowner also needs to sign the section 106 agreement and will want assurances that decision-making at the local planning authority has been appropriately handled throughout, so that the planning permission should be unchallengeable when granted.  The masterplan will help identify how the development could be phased, which is critically important when negotiating planning conditions and section 106 obligations. The advice of good consultants and lawyers is invaluable here, as well as that of the promoter/developer. The planning permission needs to be deliverable, so the triggers for payments and delivering infrastructure should be phased to enable plots to be developed one by one – ideally based on floor areas delivered, not tied to individual plots, so that plots can come forward in any order. Generally, the landowner will need to approve the detail, as will the promoter/developer, to ensure they are both satisfied with the viability of the scheme. Pre-agreeing an objective list of “onerous conditions” (including section 106 obligations) upfront is normal, where it can sensibly be done. The masterplan will also help identify what could be left for approval as reserved matters. A flexible outline permission will cap the overall consented floor area but leave as much as possible (eg the precise estate layout and size of individual buildings) to be approved later. This may need to be within parameters, especially where an environmental statement has had to be prepared as part of the application process (which is usual for industrial/logistics estates, given their size and potential impact).  Reserved matters applications should be able to be submitted plot by plot, together with only necessary infrastructure, over as long a period as possible to allow for fluctuations in occupier demand. It might also be desirable for reserved matters applications to be made for specific items of infrastructure ahead of any on-plot development, and a separate infrastructure phase is often a good idea to ensure quick implementation of the consent without triggering any infrastructure levy or many planning conditions or section 106 obligations. Collaboration is key  Appointing the right promoter/developer and consultant team is extremely important. Even an experienced investor/developer, willing to “go it alone”, will need support and advice from consultants to obtain a deliverable and viable outline planning permission. Many investors now partner with development consultants, rather than retaining the necessary expertise in-house. Simon Keen is a partner in the commercial property team and Tom Newcombe is a partner and head of planning and environmental at Birketts LLP Next week: Marketing of the consented estate, how the development of each plot (and associated infrastructure) could be delivered, and options for managing that infrastructure. Photo © Scott Webb/Unsplash