Manufacturing Expansion
The manufacturing sector appears to be set for expansion, with Oxford Economics forecasting that growth in output will accelerate over the next ten years.
7 minutes to read
The manufacturing sector appears to be set for expansion, with Oxford Economics forecasting that growth in output will accelerate over the next ten years. But what does this growth in output mean in terms of floor space requirements? How much space will be needed? Can existing facilities accommodate growth in manufacturing, or will new facilities be required? Understanding the future requirements of the sector in terms of real estate needs a deeper understanding of the UK manufacturing landscape: which sectors are set for growth, how space is utilised, where facilities are located, and what the relationship is between output and needs in terms of floor space/facilities.
WHERE IS MANUFACTURING CURRENTLY TAKING PLACE?
The North West accounts for the largest share (16.2%) of UK manufacturing and production floor space; this is followed by the West Midlands (14.4%) and then Yorkshire and Humber and the East Midlands, each with c.12% share of floor space. London has the smallest share (3.8%) of the UK’s floor space, followed by the South West and Wales, each with c.6%.
HOW DOES THIS DISTRIBUTION OF SPACE COMPARE WITH OUTPUT?
As well as accounting for the largest share of floor space, the North West of England remains the leading manufacturing area of the UK in terms of output, with total manufacturing gross value add (GVA) worth £29.5 billion, 14% of the UK total. However, while the West Midlands comes second in terms of share of floor space, the South East region comes in second place in terms of output (GVA), with £26.1 billion, which represents 12.6% of the UK total. Meanwhile, the West Midlands comes in third place in terms of output (GVA) with £21.9 billion, or 10.6% of the UK total. Northern Ireland accounts for the smallest share of UK manufacturing output (2.8%). However, Northern Ireland is excluded from the distribution of floor space analysis due to a lack of data. Aside from Northern Ireland, London, the North East, and Wales are the lowest in terms of manufacturing GVA; this corresponds roughly with the regions with the least floor space. However, the South West region, despite accounting for just 6.0% of floor space, accounts for 8.6% of GVA.
"It takes 4,228 sq ft to generate each £million of manufacturing output."
MANUFACTURING PRODUCTIVITY – FLOOR SPACE UTILISATION
How efficiently floor space is being utilised depends on several (interdependent) factors, including the industries operating in that region and the operational costs associated with operating there. However, floor space requirements don’t translate neatly into estimates of output.
High-value manufacturing sectors will typically generate greater GVA per sq ft of floor space. However, these sectors also have higher operational costs, with higher rents and a highly educated, more costly employee base. For many high-value manufacturing sectors, the need for highly educated or trained staff means that location choices are driven by the availability of specialist labour, with rent costs a secondary consideration. This may mean operational efficiencies are needed to keep costs down.
Technology is improving operational efficiencies in many manufacturing sectors, with greater automation improving accuracy and productivity. As a result, floor space utilisation rates have improved over time. Another factor driving increased manufacturing productivity is the shift away from heavy industry towards more high value manufacturing sectors, which generate a greater GVA per floor area.
HOW MUCH FLOOR SPACE DOES IT TAKE TO GENERATE £1 MILLION OUTPUT (GVA)?
Across the UK (excluding Northern Ireland), it takes 4,228 sq ft to generate each £million of manufacturing output (based on current floor space occupancy and 2023 manufacturing GVA).
However, as greater operational efficiencies have evolved and the UK’s manufacturing landscape has shifted, this figure has improved.
Ten years ago, there was approximately the same amount of floor space occupied by manufacturers as there is today. The total occupied floor space in 2014 was just 0.4% lower than it is now. However, over the past ten years (to 2023), manufacturing output rose 8.6%. The productivity of manufacturing floor space has improved by 9% in ten years, reflecting both improvements in productivity as well as shifts in terms of the composition of manufacturing.
The South East region has the highest levels of productivity and the smallest floor space per £million GVA. Here, £million of manufacturing GVA is generated with just 2,332 sq ft of industrial floor space. This is closely followed by the South West (2,896 sq ft), the East of England (3,003 sq ft), and London (3,346 sq ft).
The North East region has the lowest productivity rates – that is, the largest floor space per £million output. Here, it takes 5,728 sq ft of industrial floor space to generate £1 million manufacturing GVA. This is followed by the West Midlands, with 5,728 sq ft needed.
"The productivity of manufacturing floor space has improved by 9% in ten years, reflecting both improvements in productivity as well as shifts in terms of the composition of manufacturing."
The types of manufacturing present in each region will play a key role in determining the amount of floor space needed to generate £million GVA.
What do improvements in productivity mean for floor space requirements in the future?
Productivity has improved over the past ten years, meaning the amount of floor space needed to generate each unit of output has reduced by 9%. We expect improvements to continue over the next ten years. That is, the amount of floor space needed to generate output will continue to shrink. Manufacturing output (GVA) is forecast to grow 12% over the next ten years (Oxford Economics). This growth in output could be closely matched in terms of productivity improvements, which would mean no net change in floorspace occupied by manufacturing.
However, the manufacturing landscape will continue to evolve. Some manufacturing sub-sectors will see growth, while others may see contraction, and improvements in productivity in existing sub-sectors may necessitate new or upgraded facilities.
The headline figures alone fail to offer indications of growth or areas of opportunity. We must dig into the sectors and locations where manufacturing sectors are expanding, and new sources of demand are materialising. The facilities needed by modern firms and nascent growth sectors are unlikely to be the same facilities that are being vacated by older, more traditional manufacturing sectors or by sectors facing decline. We must, therefore, explore these areas of growth in more depth to understand the opportunity.
"The headline figures alone fail to offer indications of growth or areas of opportunity. We must dig into the sectors and locations where manufacturing sectors are expanding, and new sources of demand are materialising."
MANUFACTURING TAKE UP
While the total floor space occupied by manufacturers has not risen in the past ten years, there has been a great deal of change, with shifts in terms of the industries, the locations and the types of facilities and specifications. As a result, manufacturing firms have accounted for approximately a quarter of all take up of facilities over 50,000 sq ft in the last three years. Some sub-sectors of manufacturing have grown substantially, and this has been reflected in take up activity.
Over the past three years, manufacturers have taken up 28 million sq ft (units over 50,000 sq ft). And in 2024, manufacturing accounted for 27% of take up. Significant subsectors include aerospace and automotive manufacturing, as well as food manufacturing and advanced manufacturing and engineering firms. Take up by fabricators of semi-finished products and component parts (e.g. metals, plastics and rubber products) has also been an important segment of the market, with demand for these intermediate products stemming from growth in energy manufacturing, defence, and pharma as well as other sub-sectors.
Just over half of manufacturing take up in the past three years has comprised new facilities (units over 50,000 sq ft). As manufacturers increasingly look to improve productivity, and with the growth of new and nascent sub-sectors, we are likely to continue to see demand for new and often bespoke facilities continue.
"The facilities needed by modern firms and nascent growth sectors are unlikely to be the same facilities that are being vacated by older, more traditional manufacturing sectors or by sectors facing decline."
