How much will market turmoil bring down warehouse rents?

There’s no doubt that landlords and developers face increasing pressure as the economy slows, and Andy Melvin from warehouse and distribution property specialist sbh offers some advice on how recent developments can help you negotiate the best deals.

“Until last year the commercial property market had been enjoying more than 15 years healthy trading, so the recently reported 20% fall in capital value was a big shock. While rental incomes may still look sound, asset values are plummeting. Even worse, with rates now levied on empty properties, leaving a building unoccupied is now a costly option. Landlords with empty properties are increasingly keen to let at even lower rents, with generous incentives such as rent-free periods or capital contributions.

For companies negotiating a rent review, these developments provide powerful market evidence to refute demands for increased rents. Would-be tenants too are better placed now than for a generation, as while rents may have risen up to 2007 they may now be coming down. Only the “upward only” clause in modern leases may prevent rents from actually falling.

Landlords will still quote top rentals achieved in the good times as evidence of market value, but the current market turmoil and recent rental settlements should provide more powerful arguments if professionally presented.

Employing a specialist with knowledge of current trends to negotiate on their behalf is an effective way to ensure that the occupier pays the current market rent, and not the far higher values prevalent until recently.

As a guide to what can be achieved using a professional negotiating team, sbh has been able to cut an average of 60p/ft² from the landlords’ original proposals over the past seven years, culminating in saving drinks giant Diageo more than £1m pa on one distribution centre. With a recession looming, shrewd tenants are perfectly placed to get even better deals with the right help.”

September - 2008