What is happening NOW to commercial property prices?

[Ecommerce&MailOrderGuy]

Hi all.
Thinking of upgrading to a 52,000 sq foot single warehouse/office premises from our current 35,000 sq foot ramshackle collection of multiple buildings and a satellite warehouse.
Looking at an 'introductory deal' of £1.50 per sq foot for year 1 building up to £2.50 per sq foot in year five. We are currently paying around £3.00 per sq foot.
My question is.......is it a buyers market out there?
What the flip is going to happen to commercial property prices after Corona?
Should I buy outright?
Anyone who happens to be heavily involved in this sector I'd love to know your thoughts please?
By the way we are an online business - so pretty much storage/distribution classification.

 

[Ecommerce&MailOrderGuy]

Sorry to bump this message but I've had an update which may interest anyone who happens to be following this message.
To buy outright would be in the region of £1.5 million.
Building seems sound - 1990s construction. Probably too much office space but might be able to sublet part of this. 37,500 square foot is storage.....could reduce some office space to take this to storage to 40,000sq foot. Location North East England.
year 1 £1.50 psf, Year 2 £2 psf, Year 3 £2.50 psf, Year 4 £2.75 psf, Year 5 £3 psf.
How do these rates sound?
Would love to hear from anyone who has any knowledge and experience of these things.

 

[Chris Ashdown]

If you can afford a £1.5 million building then you should have the ability to buy in expert advice from someone in the that industry rather than forum members who know nothing about either your real requirements or specialist knowledge in your part of the country

 

[Ecommerce&MailOrderGuy]

Bit harsh that Chris.
Most business people have experience of dealing with commercial property.
I'm providing a current real-life example that other board members may find interesting.
Hopefully there will be other board members who may have experience.
Hey - like most I've been through the mill. We started with a 1000 sq foot unit 15 years ago, progressed to a 5000 sq foot warehouse and now have the chance to move on again.
I love talking to people who have similar experiences and who want to share.
As a UKBF 'legend' I find your response startling and disappointing to say the least.

 

[samuel5]

Hi

I don’t get this.....
£1.50 psf, Year 2 £2 psf, Year 3£2.50 psf, Year 4 £2.75 psf, Year 5 £3 psf.

Why you paying £1.50 per square foot for in year 1 and £3 in year 5? And I thought you are buying it?

Where I’m from (Romford, Essex) industrial units rent for about £10 per square foot.

Sam

 

[Ecommerce&MailOrderGuy]

Hi Sam
I suppose the low starting figure is a way to get you 'in'.
We have managed to get rent free periods before at the start of a lease (typically first 3 months free). I think our current premises had a discount at the start too....something like £2.50 per square foot, then £2.75 then £3.00 after 3 years.
We're probably not in a position to buy outright but its interesting to have a number. For what I can see 10% yield is expected as a 'rule of thumb' on industrial units so this works out at about £2.80 per sq foot or something.
I remember seeing a TV documentary on that guy that owns The Range. He was showing the camera crew around a fairly old building and said something like 'This is what £2 per square foot looks like'. So the deals are out there.
I looked recently at a new retail park and the rent was £16 per square foot with rates something like £8. I'm fortunate to be in online retail. It's not fair on shop owners, I understand that. £16 per square foot would feel risky - especially on a long lease.
Personally I try to avoid long leases just in case something goes wrong. Typically 3 years with a 6 month break clause.
The low prices are probably due to our location in the North East?
Mind you - The Range guy (Chris Dawson IIRC) was based down Plymouth way I think?

 

[Alan]

So 40,000 sq ft at average of 2.25 = £90,000 p.a.

£1,500,000 price = 6% yield

Sounds cheap to me either way, but last time I had anything to do with commercial property I was paying £40/sqftfor office space just outside docklands ...

 

[anonuk]

We've noticed that with commercial properties, the bigger you go, the cheaper it is per sqft. Our new property is a 3000sqft industrial unit and is £8 per sqft, whereas our old property was around £11 per sqft for a 770sqft unit. We managed to get 4 months rent free in our first year for our new unit and had it split across the year, bringing the price down to £5.40 per sqft for the first year.

I've never seen a deal where the rent increases annually though. Our lease is for 10 years with an upwards only rent review at 5 years. I would have been very reluctant to sign something that increases each year - imagine if you stay another 5 years, what guarantee do you have that the landlord won't keep increasing the rent £13,000 - 26,000 a year?

I personally think the rates you've been offered seem good (obviously I don't know property prices in the North East), but I would never just accept the price the agent is asking, and would always go back to the agent with a counter offer personally. Try and reduce the amount of times the rent increases or something because the annual increase could become a real issue in years to come.

 

[The Byre]

Right now, anyone making predictions about the future of business is totally 'Southend-on-Sea' i.e. several stops past Barking. (That joke was especially for @Clinton who for some twisted reason wants to hear it now and again.)

If the whole World can miraculously morph back to normality very, very quickly then we might just avoid the mother of all economic downturns - what used to be called a depression before some Charlie invented the concept of 'negative growth'.

Yesterday's figures from the ONS show that the UK has had about 1,850 additional deaths every day - over and above the expected average of 1,600 per day that would be normal for this time of year. Easing the lockdown at the moment would be politically 'difficult' to say the least - and the longer the lockdown, the greater will be the economic effects.

It's payday tomorrow and if the lockdown persists through to next payday, you may see businesses going to the wall a six-pack at a time. If that happens, distressed collateral will be going cheap.

 

[Ecommerce&MailOrderGuy]

It's the uncertainty that is making this decision extra exciting/terrifying.
I'm in online gardening equipment so very fortunate to have had strong sales recently. Our current buildings are fine....basic but fine. Think they were built about 1972 and not impressive to look at but impressive low cost . With stock flying out at 3x our usual peak rate (my commiserations to you guys on lockdown - lady luck can be a cruel mistress) its been a bit of a pain managing a satellite warehouse 2 miles away. This satellite is 12,000 sq foot and even older/cheaper but has helped us to grow at relatively low risk. (ie, last time business growth demanded it we 'added on' rather than 'moved on'. We have over 4000 SKUs and managing social distancing in our creaky old units has been difficult.
Not sure whether this is a great time to buy or a silly time???
That's the risk in business I guess?
As a business owner I'm quite happy to make a call on this - as usual I have to!
Just thought Id put it out there for debate - hopefully to also open up a conversation about property costs generally. I know we all want this virus to be past so we can get back to normal but does anybody know what ructions it is causing to the property industry?
I read in newspapers that this is not a good time to be in the commercial property game - but this will be different between high street retail and warehousing I'd guess.
BTW - I'm not just looking to move due to the extra recent trade, I think we would need to move soon anyway. We are very quiet in Autumn/Winter due to the nature of the goods we sell - so this would be a good time to move. We are in the fortunate position where we don't have to move.......but this might be a good opportunity. A very good opportunity if we can move with rates low or at the bottom.

 

[Deleted member 59730]

I read in newspapers that this is not a good time to be in the commercial property game - but this will be different between high street retail and warehousing I'd guess.

The newspapers seem fixated on commercial property being high streets and retail parks. Ugly sheds will be in demand as the nation learns even more about online.

 

[MBE2017]

The newspapers seem fixated on commercial property being high streets and retail parks. Ugly sheds will be in demand as the nation learns even more about online.

Agreed, but whether now or six months will be cheaper is hard to say. Personally I think there will be better deals in six to 12 months, but the price is just one consideration, amongst many other things.

As The Byre says, no one knows anything atm. Look at BA looking to lay off a quarter of its workforce, and it gives you some idea of the future upheaval in the near future for most businesses.

Down to the OP atm, but the economy runs on confidence, and that is going to drain away very soon once reality starts to bite.

OP, how would the deal look if you lost 30% turnover?

 

[anonuk]

The newspapers seem fixated on commercial property being high streets and retail parks. Ugly sheds will be in demand as the nation learns even more about online.

I don't know. @atmosbob makes a good point.

The entire world is learning what you can do on the Internet - from video chats to ordering food, and buying gifts to have sent straight to the recipient, and I mean people that would never have usually done so.

So, if the demand for eCommerce increases at a rate that's quicker than it has been, then surely warehouse space will only become more expensive as the demand for warehouse space increases.

The only slight fly in the ointment is that there are also going to be lots of businesses that unfortunately do not survive this crisis and so there could be a higher than usual amount of warehouses available that landlords want to get rid of quickly.

 

[Ecommerce&MailOrderGuy]

We've been pretty prudent over the last 15 years. We could probably take a 30% hit and still be alright. Our warehouses are a bit 'higgily piggily' and this has become more apparent since we have been stress tested to the max this last week.
Agree about 'warehouse sheds' vs 'high street'. I get on well with my current landlords and they specialise in the latter. They manage a number of warehouse estates and they mentioned that occupation was strong and demand high (but they would say that to a sitting tenant wouldn't they ). We were actually looking to make a move back in May 2016 but then the brexit bomb went off. We decided to play it safe and take on a satellite store to wait until the dust settled.

 

[The Byre]

If it was me - save my money and buy a warehouse with office space and land for future expansion.

But that's me! I believe strongly in garnering equity to lower risk and provide a financial base from which I can strike when opportunity raises its head.

 

[Ecommerce&MailOrderGuy]

I've read that I should (as a business owner) buy a property outright then put it into a SIPP pension - then kind of charge myself interest. This seems a sound idea. Before, as my business was growing and changing very quickly it felt better to simply lease. Even now I fancy renting until I know the new area is safe from crime etc. I do like the 'freedom' of leasing but I suppose I am getting to be an older geezer now so why not buy?

 

[Porky]

Hi

Currently paying £12 per square foot on a 3,000 modern office premises. 7 official parking spaces. Staffordshire region.

Appreciate warehouse space attracts significantly lower costs but if you can sub let a chunk of the office space on the new unit it would make a significant contribution to your costs? So could be something to seriously consider.

Obviously at the moment it’s grim but on the other side of this business has to bounce back ultimately.

The unit could be a good investment if you can afford to ride this out, problem is we don’t know how long this interruption will go on for or if we return having a second phase of lock down.

Good luck

 

[The Byre]

Obviously at the moment it’s grim but on the other side of this business has to bounce back ultimately.

Ultimately - yes! But when? 14 years ago the markets were at their peak - and we have not reached that level yet! This C19 affair is pushing most businesses back severely and it could be 20 years before we get to 2006 levels of trading.

I am the eternal optimist but even I have to face reality and the certainty of a very, very severe economic downturn. As I stated above, the current length of the lockdown is what will decide on how severe this whole thing will be. Looming over all this is record debt and we all know the joke about IOU £1k and I have a problem - IOU £1m and YOU have a problem! Right now the banks are beginning to realise just how big THEIR problems could get!

Worldwide, debt is somewhere between $200 and $250 trillion and a whole load of institutions that are holding paper are going to have to find out that much of that paper is just paper.

I am all for holding paper if all that paper gets honoured, but if the concern issuing that paper goes by the name Enron, Silicon Graphics, TWA or Pan-Am, well - you get to feel like those poor saps that invested their hard-earned savings in Carlo Ponzi's 'Securities Exchange Company' only to discover that it was all just a Ponzi scheme.

In today's money, Carlo made off with about $200m. Bernie Madoff added a couple of noughts to that figure and received 150 years in prison. I believe that he is due for release on December 11th 2158, when he will no doubt be free to reenter society a better, wiser and fully reformed man.

That's the trouble with debt - it becomes a carousel. I borrow from you. You borrow to lend to me. You lend to others and bundle that debt and sell it to someone who borrows to buy it and so on and on and on and . . .

That's a pretty fine scheme until someone breaks the chain and the carousel stops. There are many Bernie Madoffs out there waiting to be discovered. Trading rooms at banks are full of them!

But just as I wrote all that, my messaging service 'pinged' me from Berlin. The economic news is dire. I haven't digested it all, but over 300,000 have lost their jobs and over 10m are working part-time or are furloughed. Easing the lockdown has resulted already in an increase in infection rates and the economic wise men of Germany are telling the government to brace themselves for the possibility of total economic collapse of the Italian, Spanish and Greek states.

And they are quick to point out that Germany is in relatively good shape - the economic news from America is far, far worse!

Time to sell feel-good stuff online!

 

[Bob Morgan]

'Industrial Sheds' will become 'Residential Accommodation' in the near future!

 

[Deleted member 59730]

the economic wise men of Germany are telling the government to brace themselves for the possibility of total economic collapse of the Italian, Spanish and Greek states.

Its only money.

 

[thetiger2015]

Its only money.

Even worse...it's not even money anymore. It's just electronic digits that don't mean anything. They just keep adding zeroes and writing IOU sticky notes.

The interest repayments (and those holding that piece of paper) are the only reason they don't delete everything and start at zero. We're passed the point of no return for international debt.

 

[Deleted member 59730]

We're passed the point of no return for international debt.

William Cobbett will be turning in his grave

 

[CVRO]

'Industrial Sheds' will become 'Residential Accommodation' in the near future!

Probably, office buildings will go the same way if one is to believe the CEO of Barclays Bank is right when he said that having 7,000 people in one building will be a thing of the past.

 

[MikeCC]

Probably, office buildings will go the same way if one is to believe the CEO of Barclays Bank is right when he said that having 7,000 people in one building will be a thing of the past.

Plenty of places already where office blocks have been converted to residential. Often rabbit hutch studios. Big warehouses a bit more tricky to get daylight in.

 

[Bob Morgan]

Plenty of places already where office blocks have been converted to residential. Often rabbit hutch studios. Big warehouses a bit more tricky to get daylight in.

Who will need 'Daylight' after the Plandemic?