Upfront investment attracts occupiers
Owners of industrial commercial property can often be reluctant to spend money on their assets without a tenant lined up. The question is, should they simply bite the bullet, or should they wait until they have interest from a potential tenant before investing?
Ross Sinclair, director in Savills’ Scottish business space team in Glasgow, says that certainly in central Scotland the time is ripe for those who are able to upgrade in order to attract interest.
He says: “Against a backdrop of diminishing supply and an absence of new development, industrial rents across Scotland’s Central Belt continue to climb.
“Landlords who are willing and able to invest in the refurbishment of an existing asset have a real opportunity to reap the rewards.”
Sinclair says that the supply of good quality industrial units along Scotland’s M8 corridor has been severely compromised for a long time, with construction costs and a lack of competitive funding making the development of new industrial units unfeasible.
The possibility of having to pay revised vacant property rates if a new building is not let immediately is also discouraging developers from speculative builds, contributing to the decline in supply.
But Sinclair says the market is now feeling the knock-on effect. “A common feeling of frustration among landlords and tenants is caused by the difficulty Scotland’s industrial sector has in meeting targets for both investment returns and, on the other side, operational needs.
“The development pipeline is so tight at the moment that firms are finding it hard to find the right premises if they want to relocate to expand, grow and adapt.”
Neil Mcallister, partner in the industrial team at Ryden, says that some buildings on the M8 corridor date from the 1970s or 80s and are realistically coming to the end of their lifespan but location is key to whether or not it is cost effective to refurbish them.
He says: “Sometimes it may not be viable, but if the building is sited with easy access to the motorway network, and the floors and frames are OK, then such buildings will be worth refurbishing.”
“Tenants tend to want to move quickly into premises, rather than wait for a refurb to be completed, so developers do well to have something ready to let.”
Evidence of newly refurbished units letting quickly, some even pre-letting, is likely to propel other landlords into upgrading plans.
Canmoor’s Westfield North Courtyard in Cumbernauld, for instance, has seen 40,000sq ft of new lettings across five refurbished units, leaving only one unit of 14,000 sq ft available.
Collectively the deals have increased the headline rental rate at the industrial scheme from £3.75 per sq ft six months ago to £4.50 per sq ft.
Rent rises on buildings with similar levels of inward investment are even more impressive. At C2 Capital’s Anniesland Business Park in Glasgow, recent lettings on refurbished space, including the arrival of Screwfix on the park, have more than doubled rents from £2.50 to £6.25 per sq ft.
Sinclair says: “Scotland has long seen a game of cat and mouse in which landlords of industrial stock have often been reticent to spend money to improve buildings until a tenant had been secured.
“However now, wherever possible, landlords should look to harness the demand and rental growth and look to refurbish units in order to attract occupiers.”
“Scotland has long seenagameofcat and mouse” ROSS SINCLAIR DIRECTOR, SAVILLS