Source:  Propertyweek.com

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Landlords are letting their sheds to unconventional occupiers. Stuart Watson reports

With a return to recession putting the bite on occupiers and landlords, some sheds owners are turning to unusual tenants to let their properties. For occupiers, industrial units can offer a cheap alternative to property on the high street, while for landlords, unconventional tenants provide a substitute source of demand to help fill their units and avoid empty rates liabilities.

Mark Bowden, a director at Caisson Investment Management, says: “You have to be realistic about attracting a broader tenant base. We are now a service-based economy. We don’t make as much as we used to [in the UK] and there is only so much distribution going on.”

Caisson manages the industrial element of the Kembrey Park estate in Swindon, on behalf of its client, Rockspring. Caisson has let a unit of 2,267 sq ft to a mortgage broker, which has installed a modular office pod as its sales office for the area.

Fiaz Meralli, managing director for the Swindon franchise of UK Mortgage Force, says the decision makes sound commercial sense: “We have been operating in Swindon town centre for four years.

We wanted a presence on the high street, but in four years we had not one walk-in client. We realised we didn’t need expensive property. We owned where we were before, but the cost of renting would have been £44,000 a year. Here we are paying £24,000, including utilities and rates.”

He adds that the space is larger and arranged on a single level instead of over multiple floors. Parking is easier and clients working on the surrounding business park can drop in for lunchtime meetings. Furthermore, UK Mortgage Force is using only part of the space available and can simply add to its modular office system if it needs to expand.

“We are seeing more and more enquiries like this,” says Bowden. “In the 1980s these business would have been above shops, but those properties have been given over to residential use and there’s no parking near them.”

Another 1,100 sq ft unit on the estate is occupied by Gatehouse Studios, which is run by a recording engineer who started his business in his garage and needed a larger, but still cost-effective, space.                                                                                                                        

Sausage role

Meanwhile, bakery chain Greggs has established 31 of its shops in converted industrial units and has plans for further expansion.

“We are looking to acquire 100 properties this year and 50% of those will be ‘smart properties’ on industrial estates, in trade counter units, at transport locations, on business parks and in hospitals,” says Steven Jones, Greggs’ regional property manager for the south-west. “Turnover is generally lower, but so are rents. Our branches on industrial estates are going well.”

Co-operation from local planners is required to change to the A3 restaurant and cafe use class.

It is worth the effort, argues Chris Davies, leasing manager for Segro’s Beeches Trade Park near Bristol, where Greggs recently opened a 2,200 sq ft branch.

“Greggs is quite a draw for a ‘white van man’. It’s a better facility than your usual burger van. People working on the estate can eat at the breakfast bar, and you get an improved rent,” he says.

Neil Francis, an associate at DTZ in Cardiff, has noted an increasing number of conversions of industrial units for leisure use in south Wales.

“In Cardiff, Boulders Climbing Centre took a lease on space at St Catherine’s Park which is a trade counter and warehouse building that has been subdivided,” he says. “It is visible from the busy Newport Road, but they are paying industrial rents as opposed to retail. There is also a trend for industrial and warehouse units to be used for gyms, football centres and children’s entertainment centres.”

However, some landlords remain sceptical about alternative uses, particularly in more expensive areas around London, warns Ben Wiley, a partner at Strutt & Parker.

“I have had calls from a gym, a martial arts centre, a skateboard park and someone wanting to teach music, but most of them are start-up businesses of some description,” he says.

“Landlords are still willing to do a [cheap] deal, but covenant remains important. A lot of investors would rather hold on to the property and wait for a stronger tenant.”

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Contact for enquiries

Lisa Allsup

Caisson Investment Management

Lisa.Allsup@caisson-im.com

+44 207 280 9600