Investment in the industrial and logistics sector is soaring: demand is strong and void periods are low. However, amidst Brexit these are uncertain times, so many investors are keen to hold on to assets and maximise income returns, rather than trade them in.
It may seem that investors need to do little to keep their asset returning optimum value. However, we would argue that investors need to take a proactive approach to ensure their assets continue to attract and retain occupiers. This is especially so for investors of older and small / medium sized units.
What do industrial occupiers want?
The supply of the right type of space is struggling to keep pace with demand. However, what industrial occupiers are demanding is evolving. An increasing number of industrial occupiers want a hybrid environment with spaces for work, rest and play. Growing numbers of SMEs are taking up space in multi-let industrial units, attracted by the flexible nature of these buildings, the rents, and the ability to work alongside other likeminded companies. There has also been a huge growth in online retailers seeking strategically located, affordable large warehouses with flexible space that can be adapted quickly to reflect market conditions.
Industrial sector investors really need to understand what today’s occupiers are looking for – and seek to provide it.
Giving occupiers what they want
With rents at an all-time high investors and asset managers have more capital available to improve their assets. Indeed, investment activity is also at a record high. In 2018 we refurbished over 4 million sq ft of sheds, including many portfolio projects for some of the UK’s top funds.
There is a big difference in the types of refurbishments being carried out by larger portfolio holders and SMEs. Larger portfolio holders can generally achieve higher rents, enabling them to invest in large-scale changes whilst SME firms are having to be cleverer with the capital they can spend on improvements.
Clients are increasingly looking to implement sustainable measures such as: photovoltaics and solar hot water systems; solar shading; air and ground source heat pumps and other high efficiency electrical heating/cooling solutions; and electrical and heat energy storage.
Rental income is, of course, vitally important but maximising dilapidations recoverability is another potentially significant source of funding for investors. This aims to reduce the landlord’s net spend on refurbishment work required for a new letting but the process must be carefully managed.
In fact, investors would be wise to seek advice covering a range of other specialisms including cost and project management, measured survey and environmental consultancy to make the most of the expenditure they have available and ensure their asset is as best placed as it can be.