The Lux List / Finance

Warehouses: The Dark Horse of Commercial Property

The coronavirus pandemic has posed many challenges to the prime property sector, yet, a high level of confidence in the real estate market remains.

Mar 31, 2021 | By LUXUO

While the pandemic temporarily suspended the demand for office and retail properties, residential, industrial properties and warehouses have remained buoyant. Lockdown was a good reminder of the intrinsic relationship between our everyday habits and behaviours and an asset’s value. largemortgageloans.com specialises in financing commercial developments. Paul Welch, CEO of largemortgageloans.com comments, “It’s a great time to invest in industrial property such as sheds and warehouses– especially near towns and cities. There is a burgeoning demand for storage space from occupiers such as online retail corporations such as Amazon. Sheds are relatively easy to build and investor-friendly. Securing a lease with Amazon or any similar online retail services could result in a high return.

According to the RICS commercial property and survey report, during Q3 of 2020, capital value and rental projections in the industrial sector showed positive signs. It is hardly surprising when we factor in the accelerated digital transformation undergone on a macro level due to the pandemic.

An influx in online shopping changes in consumer behaviour caused by the acceleration of digital transformation due to the pandemic has resulted in a higher demand for industrial, commercial buildings in logistics and distribution, such as warehouses and big sheds. The short window for delivery is narrowing. 

Consumers’ expectation is that a manufacturer will drop a parcel on their doorstep in under 24 hours is a benchmark set by Amazon, and if competitors want to keep up, the window of delivery is narrowing. There is an expectation that drones will do the heavy lifting for us. While this will free up roads and reduce traffic, the demand for storage will not cease. Order patterns, higher volumes, speedier delivery, and narrowing margins ensure that warehouse space is being used more efficiently than ever before. Land in suitable locations is in short supply, which is why the UK is likely to end up moving towards multi-storey warehousing, particularly in London, where the demand is at its highest. 

Overseas capital is familiar with multi-storey warehousing and less likely to be wary about snapping up a multi-story property. In the UK, this idea is a relatively new concept. Development that integrates a sustainable output will be desirable as the Government continues to move towards the carbon-neutral agenda for 2025 to tackle climate change. Smart packaging will also be trending, as more businesses will look for more ways to create a circular economy. Developers that look to future-proof warehouse space with sustainable environmental technology will be more attractive to those seeking a long-term lease. 

Image Credit: Courtesy of CHUTTERSNAP on Unsplash

Sheds, warehouses and factories values are dependent on the location (proximity to major road systems and key population areas) and the size and layout. A majority of warehouse space is located either near town or city centres or within the ‘Golden triangle’ in the UK’s centre. The value is also driven by how accessible it is by sea, air, road or rail. For example, warehouses with easy access to Junction 18 will be in the upper end of the priced bracket due it’s accessible location. If you are considering developing, it would be worth looking into changes in infrastructure. Emerging locations with good connections will be prime property- snap it up before it’s too late.

According to statistica, large industrial sheds are cheaper per square foot than small sheds, with prices varying between 16 GBP in Heathrow, to 3 GBP in remote locations such as Aberdeen. Warehouse units which are valued the highest are located in Heathrow, Greenford, and Hayes, all of which are within close proximity to Heathrow airport. 

Construction and Development 

One of the significant advantages of sheds and warehouses is that they are relatively cheaper to build than other commercial property. This is partly because they take less time to create, and materials are much less expensive. Their modular design makes them multi-functional. As they are so simple to build, it is easy to reconfigure the layout or to deconstruct entirely.

Image Credit: Courtesy of Ruchindra Gunasekara on Unsplash

Unlike other structures built for specific purposes, sheds can be converted into retail, office, warehouse or storage spaces. With the materials being so cheap and easy to install, they can adapt to any business’ needs. They can even be aesthetically pleasing if adapting the shed to be residential or retail space. The most common industrial sheds are made with galvanised steel resistant to rust and corrosion, making them cheap to maintain and great for potential investors.

Triple Net Leases (NNN)

It is possible to have leases that last several years with industrial sheds, which can be beneficial to the landlord as there is less hassle to find new tenants frequently. Also, triple net leases, which aren’t available for residential properties, are another attractive benefit to investing in commercial property. These leases absolve the landlord of most of the property expenses, and things like insurance, property taxes, and structural maintenance become part of the tenant’s expenses.

Get in Touch

If you are interested in pursuing industrial property or warehouse development, get in touch with one of the real estate advisors to discuss your options. largemortgageloans.com provides financing for residential and commercial developments. 


 
Back to top