Touching the void

South of the Thames lanlords are thinking outside the box for ways to dodge the stranglehold of empty rates.  Jessica Davies reports.
The bludgeoning effect of empty rates has prompted landlords to be a bit more creative in their wheeling and dealing. David Marriott of Core Commercial says: “There are cases where landlords are letting tenants move in to a building for nominal or no rent at all, on a short-term basis – just to get someone in.”
The deal is that the landlord will then continue to market the property while the tenant covers the regular building rates. The downside for the tenant is that they may only have a short notice period to move out – as little as two months – “then again, they are paying no rent,” says Marriott.
“Occupiers know they have a strong hand,” he adds, and the result is that some companies have already wised up to these cracking opportunities. As an example, Marriott points to a couple of charities, which have already approached landlords with such requests.
Stock is in seriously short supply in the region, particularly in prime locations such as along the M25. Chip Mitton of Altus Edwin Hill says that in the South East in particular, “if anyone is looking for a modern high bay big shed, there’s nothing there.”
Marriott reckons people will soon have to compromise on location and start looking further afield. In the outlying locations such as Rye, in East Sussex, where demand is thinner on the ground, Marriott says it is now possible to rent sheds for as little as £2 per sq ft.
But this won’t last. As soon as all the prime locations have been snapped up, rent in secondary or even tertiary locations, such as Rye, will undoubtedly soar. However, even dirt cheap rent may not be enough to tempt companies to set up shop in Rye. “It doesn’t matter what is offered,” says Marriott, “people just won’t go there”.
The real bargains around the M25 locations are to be had on leaseholds rather than freeholds. Marriott says that on a ten to 15-year lease, it’s possible to get one to two years rent-free. Mitton agrees, saying that all landlords are prepared to offer incentives of some sort. On a five-year lease tenants can get nine, possibly 12 months rent-free, depending on the headline rent, he says.
Despite the fact that the past six months have been the worst on record, Marriott reckons there are definite “signs that things are picking up”. He points to a number of deals in the pipeline stretching from Croydon to Dover. The KPS Group, photocopy supplier and service provider, bought a 7,650 sq ft unit on Boxley Road in Maidstone for £750,000.
And south east of the Thames, Mitton reckons there is a fair bit of activity for big sheds. JJ Food Service has bought the former MFI 67,000 sq ft building in Sidcup on a freehold deal for some £72 per sq ft. And Crossways Cargo Centre has let a 60,000 sq ft shed to a German company at £6.50 per sq ft on a ten-year lease with 12 months rent-free.
Royal Mail took a short-term (three months) lease on a 160,000 sq ft shed at Sandpit Road in Dartford, to help it deal with the Christmas rush.
Mitton reckons there is still a steady stream of companies looking at properties, and there has been particular interest from the waste and recycling sector for design and build opportunities. That said, “this sector is still very young,” says Mitton, and as a result, there are plenty of enquiries but not necessarily the commitment yet, and gestation periods can be as long as 18 months to two years.
Nonetheless, Marriott believes that “people are starting to come out of the woodwork”. Companies are starting to think ahead and plan for the future. Once stock runs out, people won’t have much choice but to build. “There is an air of optimism for 2010,” says Marriott.