Thursday 27th Oct 2016 - Logistics Manager

Back for good

The last decade has been a blast with plenty of speculative warehouse space already built to choose from in places you never even knew you wanted to be located in; and the last three years – well it’s like the market has been on speed – mind-blowingly excellent deals with whopping great incentives, cheap rents and seriously short leases.

You’d almost forgotten what long term leases were; what five years? Well hello, I hate to point out the blindingly obvious but the party is over.

We’re going back to the good old days when all you could hear were cries from the industry for shorter leases, lower rents and demands that property developers and funds actually listened to the needs and wants of the clients they professed to serve.

Back then, in September 2000, the answer was this: “There is a gap between expectations of occupiers and those of landlords/developers and funds who take risks in developing big sheds and who are averse to letting buildings on short term leases…”

Someone could have said that yesterday.

Occupiers looking to secure modern, well located properties are almost certain to find that there is very little to be had and virtually nothing being built.

According to Jones Lang LaSalle’s latest UK Industrial Trends Today report: “Speculative industrial development remains extremely limited. At September 2011 there was approximately 1 million sq ft of industrial floorspace under construction speculatively in 24 schemes across mainland UK. This compares with the pre-recession peak in mid-2007 of 15.5 million sq ft in 131 schemes.”

There is only one thing to do: opt for Design & Build and swallow a 15 year lease or else pay a hefty premium for the privilege of a shorter one.  Don’t forget though those longer leases carry the prospect of “alienation” the complex assignment and sub-letting arrangements which leave operators with liabilities on properties that they have ceased to occupy.

This system means that an operator who has signed a lease might remain the guarantor for a competitor who now occupies the property – any yet obtained the business by undercutting the original operator. Rather like having to guarantee the mortgage payment for someone squatting in your house…

Does that sound all too far-fetched and like it could never happen now? Well it will unless occupiers get savvy and pass on all liabilities… longer leases are back for the foreseeable future.

23145 Liza Helps is Logistics Manager’s Contributing Editor, Property