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Tenants holding the whip hand
Steve Williams, Head of Warehouse & Industrial Agency at Lambert Smith Hampton, says that for warehouse and industrial property tenants still in the marketplace there are some very attractive deals on offer - but they won’t be around for ever.
As a market driven by retail and consumer spending it should come as no surprise that there has been a marked slowdown in the demand and supply of warehouse premises in the UK. In fact, the Lambert Smith Hampton Industrial and Distribution Report 2009 which was recently released indicates that demand this year will fall by 20%.
The above means that for those tenants, which are still in the marketplace there will be some very attractive deals on offer.
In terms of speculative developments, i.e. supply, this has all but ceased with one or two exceptions. Funding is no longer available to developers looking to build speculatively and this coupled with the gloomy outlook for expected demand and the spectre of empty property rates, has meant that the supply of new stock is at a standstill.
The market is only likely to return to normal as the economy starts to climb out of recession and despite well publicised government bail outs and the significant amount of money being pumped into the economy there seems little prospect of the position changing within the next 12 months.
Until the banks decide to start lending again things will not change.
Attractive markets for Occupiers
Given these difficult circumstances in the current market, owners, occupiers and investors that are holding vacant buildings are seeking to ease some of the financial pain they are feeling. Some are paying empty rates and some are paying empty rates, rent and service charge. Therefore with the current levels of demand and the gloomy economic outlook there are a number of very attractive offers in the marketplace.
All incentives offered to tenants are increasing. Rent free periods are getting longer, capital contributions are growing and previously set rental tones in areas are likely to be slashed by landlords seeking tenants.
Similarly, in circumstances where a tenant has a break clause or lease expiries coming forward in the next 12 months, landlords are being proactive in trying to keep tenants on site. In some cases rent free and capital contributions offered can be for years rather than months.
Demand/Supply Imbalance – It Won’t Last Forever!
Forecasts suggest that this demand/supply imbalance will last for another 12-18 months depending upon the speed with which the economy recovers. It will not however last forever. As existing supply is taken up and tenants take advantage of the terms on offer the situation will slowly turn back to favour landlords due to the inevitable shortage of stock in the medium term. At this point expect rents to return to previous levels.
Therefore if you have a ‘trigger’ in your lease our advice is to act now and take advantage of the terms currently available as they won’t last!
For an electronic copy of the Lambert Smith Hampton Industrial and Distribution Report 2009 report please email sawilliams@lsh.co.uk
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