The industrial sector has always played second fiddle to the retail and office sectors, and it is not surprising why. Firstly, shops and offices are more glamorous and talked about than factories and warehouses and secondly, the returns which have been generated from the retail and office sectors have exceeded those generated from the industrial sector.
As a result of this, and at times, there tends to be a lack of good quality information published about the industrial sector and those who own industrial property at times feel left in the dark. I am afraid to say that this article will not necessarily shed any light on rents, values, yields and returns but will simply touch on a few basic issues and highlight the dangers facing those who own industrial property in this day-and-age.
In order to make informed decisions on whether to buy or sell industrial property, you need to have a basic yet clear understanding of the industries which own and/or occupy industrial units which is by no means as easy as it may sound. The industrial sector is made up of storage units, distribution units, warehouses and factories – or as they are sometimes collectively referred to, ‘sheds’. The occupiers of these properties are manufacturers, exporters, self-storage companies and distributors. All these industries have suffered over the years and are going through periods of change. As they do so, they will inevitably need to address their occupational requirements and some will need to rationalize their accommodation whilst others may need to expand. Whichever decision they arrive at, landlords must be ready to react.
If you own an industrial unit which is let, but which could soon be vacant, as a result of either the tenant coming to the end of their lease or the tenant becoming insolvent, then you will need to consider ways to find another tenant and replace the lost income. This will be harder than it seems as occupational demand is presently very scarce and where there may be interest from a prospective tenant, they will surely demand a rent free period, capital contribution and short lease and seek to pay a rent which may be less than you were previously receiving.
When an industrial landlord finds that they are unable to attract a tenant, which is very common these days, and it is not unheard of for an industrial property to sit vacant for several years, in addition to having to pay empty rates, and at times loan interest payments, a landlord will also have the added burden of looking for ways to either redevelop the site or change the use of the unit. With industrial properties and sites, this can sometimes be very tricky as there may be contamination problems, the building may contain deleterious materials, the land may sit on a floodplain and the building and site may be too large for you to contemplate redeveloping.
These are just a few problems which an owner of an industrial site may face and since the industries of the companies who occupy industrial units are so difficult to understand, and trends difficult to predict, you will never be clear when times may change, for the better or worse, and if the latter, ways to mitigate loses and generate gains may not be as straightforward as if you owned a High Street shop or town centre office building.