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With numerous headwinds facing businesses across all sectors, it has become ever more important for occupiers to plan ahead. For industrial and logistics firms, whether parcel carriers, manufacturers or e-commerce companies, the operational challenges they would ordinarily face have been compounded as costs of energy, labour and materials continue to rise.
These pressures, combined with issues bought about by both Covid-19 and Brexit, have forced them to scrutinise their supply chains, manufacturing networks and overall set-ups to see where cost savings might be made. For this reason, occupiers have been modernising and, in some cases, re-organising their real estate to increase efficiencies within and between their warehouses, manufacturing sites or distribution centres.
With this in mind, what questions do occupiers need to be asking themselves when acquiring a new building, how soon should they be starting their search and, ultimately, what should they be factoring into their decision making?
Essentially, the more time occupiers have to make this decision, the more options they will have to review. By acting up to two years in advance, this also allows for the possibility of build-to-suit, which would allow a business to tick off more of their criteria and enable a developer to include any tenant specific variations.
The longer the lead time the greater the chance of locking in the right unit with the correct specification. Part of this is securing these variations within the heads of terms, prior to committing to an agreement for lease. As occupier requirements become more advanced, the complexity of enhancements increase. Additional power requirements, higher slab loadings for mezzanines and insulated slabs for freezers are examples of changes that can be far more cost effective when designed into a scheme early on, rather than retrofitted during or after construction.
For many, however, planning this far ahead isn’t always feasible. If that’s the case, they’ll need to decide what they might be willing to compromise on. With record low vacancy rates across the UK, the number of readily available options for warehouse occupiers have never been so limited. It’s unlikely they will be able to find their perfect building, so a list of priorities is key. This can be anything from location to size, eaves height, dock and level access doors, or ESG credentials.
Another benefit of starting the process early is less time pressure on negotiations, which is especially important given the current market fundamentals. It also de-risks the ordering of long lead time items required for the fit-out, while allowing for contingency in case of delivery slippage or delays in construction.
Also on the checklist is how tenants want to structure their occupation; this includes lease length, reinstatement, break options and how their rent reviews are structured (this is increasingly important given current inflationary trends). These will all impact on the rent they’ll end up paying for the space. Key to this is taking advice.
Finally, how much are they willing to pay to secure the best unit? This will require the occupier to consider a number of cost-factors and while property is one, this will need to include metrics such as labour, inbound supply and transport. If they can mitigate one by choosing a well located warehouse unit, then this should keep costs manageable.
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