With recent powered land values eclipsing those achieved by logistics which direction should landowners and developers take?
When considering the best prospects for bare land development in the UK, two of the most prominent options are the construction of data centres or the establishment of logistics hubs. Each presents distinct opportunities and challenges, shaped by evolving market demand, regulatory frameworks and infrastructure requirements.
Data centres are increasingly in demand due to the exponential growth of cloud computing, artificial intelligence, and digital services. The UK’s robust digital economy and its status as a European tech hub have accelerated this trend. Developing a data centre requires proximity to reliable power sources, robust fibre connectivity and, ideally, locations outside flood plains. Planning permissions can be complex, with local authorities scrutinising energy consumption, sustainability credentials, and potential impacts on local communities. However, once operational, data centres offer long-term, stable income streams due to lengthy leases with blue-chip tenants. The sector is also benefitting from government incentives for digital infrastructure, though developers must address environmental concerns, particularly around energy usage and carbon emissions.
On the other hand, logistics hubs are thriving on the back of the e-commerce boom and changing consumer habits. The UK’s strategic location, extensive transport network and proximity to major urban centres make it an attractive market for logistics development. Logistics hubs require good access to road, rail and sometimes air or sea freight infrastructure. Planning considerations include traffic impact assessments, noise, and environmental mitigation. The sector is also facing increased regulatory scrutiny, particularly around energy efficiency and compliance with Minimum Energy Efficiency Standards (MEES) and upcoming EPC requirements.
Financially, both sectors offer strong prospects. Data centres typically yield higher capital values per square foot but involve significant upfront investment and longer development timescales. Logistics hubs, while often less capital-intensive, benefit from strong occupational demand, shorter build times and the flexibility to adapt to changing market needs. Both asset classes are attractive to institutional investors seeking stable, inflation-hedged returns.
The strategic factors to evaluate include:
Data centre site
- Power availability: Data centres require massive, reliable electricity supply with redundancy. Proximity to substations and grid capacity is critical.
- Connectivity: Must be close to fiber optic networks and internet exchange points for low latency and high bandwidth.
- Risk profile: Sites should have low natural disaster risk and stable climate conditions to protect uptime and equipment.
- Planning: Often faces complex planning and environmental regulations. Noise, heat, power and water usage may trigger additional scrutiny.
- Cooling & water access: Cooling systems (air or liquid) need ample water supply or innovative solutions for thermal management.
- Security & ESG compliance: High physical and cyber security standards are essential. ESG goals (e.g. net-zero targets) increasingly influence site viability.
- Environmental impact: High energy use but low traffic.
Logistics site
- Transport links: Must be near major highways, rail hubs, ports, or airports for efficient goods movement.
- Land size & layout: Requires large, flat parcels with space for warehousing, truck manoeuvring, and parking.
- Labour access: Proximity to workforce pools is vital for operations like picking, packing, and distribution.
- Planning: Typically faces fewer planning hurdles than data centres, but traffic and emissions may be concerns.
- Speed to market: Logistics developments can often be built and leased faster, offering quicker ROI.
- Tenant demand: Driven by e-commerce, retail, and manufacturing. Understanding local demand is key to securing anchor tenants.
- Environmental impact: High traffic, emissions and land disturbance.
Ultimately, the choice depends on site specifics such as power availability and connectivity for data centres, or transport access for logistics. Developers must weigh planning risk, infrastructure requirements, and market demand. In the current climate, both data centres and logistics hubs represent compelling opportunities, but careful due diligence is essential to maximise the potential of bare land assets.
If power and fibre are abundant, choose data centres for long-term, high-value digital infrastructure. If access and workforce are strong, choose logistics for faster ROI and job creation.
Savills & Tritax's Future Space report shares the views of occupiers, investors, and developers on the key trends shaping the Industrial and Logistics market over the next 12–36 months and beyond.
