UK waste management: a new asset class within the industrial market? Ruth Hollies and Kevin Mofid report
Waste is a fact of life! The UK government's waste strategy is based on a hierarchy that starts with resource efficiency, moving through waste minimisation, to reuse, recycling, incineration, and landfill as the final option. The delivery of this strategy moves the UK away from landfill as a waste management tool. Over the past 10 years the development of options to deal with waste in a commercial setting has increased with new ways of dealing with waste: reduce, reuse, recycle, and recover energy. Crucially, many operations are suitable for existing industrial buildings or land set aside for future industrial or distribution use, and upon completion create an asset with a long-term secure income stream.
The UK lags behind most of Europe when it comes to efficient methods of extracting resources from our domestic, commercial and industrial waste. Currently, 61% of UK domestic waste goes in landfill, and the government is committed to the EU Landfill Directive to reduce that by 75% of what it was in 1995. Assessments of landfill capacity suggest that there are only eight years left at current sites. Landfill bans for certain materials are being considered to reduce greenhouse gases; and landfill as a disposal route will be the least preferred method.
The UK waste market is only beginning to find its feet in a commercial property sense, with companies just starting to make the transition from waste collection to processing for recycling and energy. Energy from Waste (EfW) is embryonic but government strategy appears to favour recovering energy from residual waste (ie, that which cannot be recovered for reuse/recycling); energy from food waste through anaerobic digestion, and wood waste incineration. All waste management measures will require some physical facility - which will vary in complexity - from which to operate, and a move towards EfW from residual waste would be significant.
In a few years' time, a several factors mean that the waste management industry will have to undergo exponential growth to accommodate future demand. These factors include:
The waste management landscape of today has been driven by policy initiatives. The EU Landfill directive was the catalyst for the UK to introduce a more comprehensive waste policy. Defra produces a waste strategy document which gives its objectives for the coming years; the new government's detailed strategy is due early next year.
One of the key objectives of policy is to meet the EU directive and this has been implemented through incentives such as packaging recovery notes (PRN) to encourage recycling, landfill tax escalator, voluntary agreements like the Courtauld commitment on packaging reduction and halving construction waste to landfill and funding for activities where capital may be difficult to obtain, plus landfill allowance trading schemes (LATS).
Compared with Europe the UK ranking in how it treats waste is poor (see figure). The UK sends 61% of its municipal waste to landfill compared with 34% in France and only 21% in Germany.
All of this, combined with the government's belief in the green economy providing jobs and growth opportunities, means the waste business is looking quite exciting.
Energy from waste
Another key area of growth will be EfW. The plethora of technologies available and materials used for EfW is quite wide: burning poultry litter, anaerobic digestion (AD) of food waste, combined heat and power and incineration of residual waste. Government policy is likely to be made to achieve the highest environmental benefits in terms of GHG targets.
The waste that currently goes to landfill has the potential to be converted into electricity and other useful by-products, such as heat. Companies trading in renewable obligation certificates (ROCs) will be able to purchase electricity that is sustainably produced.
Impacts on real estate
As landfill diversion becomes a major objective, technologies are rapidly improving, with many suitable for deployment in existing industrial facilities or planned developments. Research by BNP Paribas Real Estate concluded that the waste management industry required 50m ft2 of property to house the operations required to meet our landfill diversion and energy creation targets.
Waste will be dealt with differently in future. There will be many more steps in the waste chain, requiring more property. UK-based waste management and recycling specialists Biffa has predicted that as many as 300 landfills will be closed and 3,000 other sites needed. The type of facilities required will range from material recovery facilities (MRF), plastic recovery facilities, resource recovery facilities, to other energy and recovery needs.
The short-term opportunities involve targeting MRF operators. The increase in joint collection of recyclable materials and the rise in recycling will push demand for these facilities. Currently, they process between 2-3m tonnes of municipal waste but localised demand/supply conditions need to be assessed to take full advantage of opportunities .
Additionally, distribution warehouses with high eaves are suitable for other energy operators who use gasification or pyrolysis technologies. However, there are many other factors that must be satisfied, for example secure supplies of feedstock, a connection to the electricity grid and a potential power off-take.
There will continue to be substantial growth and take-up of both traditional space and land as the sector strives to meet the legislative and CSR demands. As the market matures the sector will consolidate, with some changes in occupational needs.
The key long-term development, however, is that distribution/industrial landlords and developers will try to incorporate such facilities into future developments as anchor tenants.
In many cases operators in the waste industry have property requirements similar to traditional logistics operators.
Moreover, because of the level of capital expenditure associated with the fit-out and technology required, waste industry operators will be taking leases far in excess of more traditional operators, in many cases 25 years or more.
Ruth Hollies is chair at SPR. Kevin Mofid is associate director, logistics research, BNP Paribas and SPR committee member.