By Blair Peterken - JLL
What you need to know when selling commercial warehousing
Industrial agency work is not that different to other agency practice: the end goal is to achieve the best possible outcome for the client. We have vendors and lessors to service and buyers or tenants to sell products to.
The general definition of an industrial property is ‘anything with a roller door’. However the definition is dependent on the zoning of the site within the local government area and can include, but is not limited to, warehouse-offices, factory-warehouses, industrial units, industrial parks or light and heavy manufacturing buildings, as well as mixed-use commercial sites.
Just as my clients concentrate on particular markets and sectors specific to their business, industrial agents also need to specialise in their own designated markets. This is especially important as most leading agencies within Australia combine the sales and leasing function within their industrial divisions. Therefore it is vital to have a strong understanding of the value of the property and the market within which it is located.
For example, the South Sydney industrial market has changed dramatically over the past five years as it has gone through a gentrification process.
As zonings change in certain areas and the demand for residential dwellings increase, the older industrial shed is being sold to residential developers for more than what an owner occupier or investor would pay.
This trend will continue as long as there is demand for residential units.
Adapt to your market
These are changes in my industrial market that we have had to adapt to over time and this is what makes the South Sydney market so dynamic. We could be selling a mixed-use site to a developer one day, then leasing a warehouse to a transport operator the next. Access to Port Botany and Sydney Airport and the close proximity to the city and Eastern Suburbs will always continue to attract strong enquiry from industrial users. It is important to identify your own area’s calling cards.
Key considerations that a buyer may look at in an industrial property are the size of the site and what improvements are required. The location and the FSR (Floor Space Ratio) could also affect their decision.
Often a purchaser will ask if the site has any contamination – the answer will be in a contamination report. The price, functionality of the property and whether it suits their business requirements will ultimately determine the purchase.
The zoning of an industrial property is also critical to an occupier – if the zoning doesn’t allow for a particular business use then it can be a deal breaker. There are a variety of occupiers within the industrial sector operating a broad range of businesses with unique requirements in relation to their property needs (see below).
Negotiating a lease deal can take a lot longer than a sale, as tenants can start looking for space up to 12 months before their existing lease expires. There are a number of points to be negotiated and agreed upon by the lessor and the lessee before a deal is done. Some of the required terms for negotiation are:
- Rental price – how much per sqm/per annum?
- Incentive – how many months’ rent free? This is to assist the tenant in moving and fitting out the new building.
- Term of the lease and lease commencement date?
- Annual increases in the rent?
- What bank guarantee is required?
- What works does the lessor have to do?
Once the above terms are all agreed and a ‘Heads of Agreement’ is signed, then it is inevitable that solicitors will want to make changes to the draft lease – a game of back and forward occurs until both parties are in agreement and the lease is signed.
Industrial specialists need to provide tailored advice and resources that take into account the individual requirements of each client in order to effectively operate in a fast-moving and complex property market. A comprehensive understanding of the clients' needs allows the client to concentrate on their core business and leave the property requirement to a dedicated specialist.
Industry property requirements
Here are a few general examples of property requirements for a selection of industrial business types:
||Likely property requirements
|Importer and distributor
||High clearance warehouse for racking and good container access. Office areas are usually provided; 10%-20% office area is common.
|Freight and logistics
||High clearance warehouse, also for racking, large hardstand/yard area for containers and truck parking/turning. If it is for a larger corporate, then a large office may be included. The higher the office content, the higher the rent.
||Low clearance warehouse with high power supply, usually over 600 amps per phase.
||Generally low clearance warehouse, but if a gantry crane is required then high clearance is necessary. Higher power supply and cannot be located close to residential due to noise.
||Usually requires a higher office ratio. Prefer a clean professional image with a clean warehouse and a modern office fit out. Not usually located in the older traditional industrial areas.
||High clearance warehousing for the installation of cool rooms or freezers. Racking for dry goods is also installed. Small office area is usually required. They tend to sign long-term leases because the capital they invest in setting up is large.
Know your tenant’s needs
When leasing, there are a number of other questions that an industrial agent must ask a tenant in order to effectively match that tenant with the right property.
- What size warehouse do they require?
- Is there a height requirement?
- How much office space is required? (15sqm per person is the general rule)
- What is the intended use?
- What lease term do they want? (A longer lease usually means the tenant has better negotiating power)
- When does the tenant’s current lease expire? (What’s their timing?)
- Where is the tenant’s current location?
- What are the truck movements/access requirements? (Number of trucks per day and if access for a B-Double truck is required then there are certain roads that those trucks are only allowed to use)
What is their budget range?