Landlords cash in on lack of industrial space

Landlords are exploiting a shortage in industrial space in Scotland to push up rents and get tenants to agree to more onerous lease terms, according to property experts.

Businesses in smaller industrial units  from 2,500 sq ft to 10,000 sq ft  have been particularly affected.

Tightening supply of space and limited speculative development has led to a dramatic rise in rental costs for industrial stock in parts of Scotland over the past year. Businesses in smaller industrial units – from 2,500 sq ft to 10,000 sq ft – have been particularly affected.

Ann Kay, head of lease advisory for LSH in Scotland, said that in Edinburgh rents have been increasing by between 5 and 10 per cent, but some prime units within established trade parks have seen increases of more than 20 per cent.

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The picture of rising rents is similar across Scotland’s other main cities and Kay said landlords were “understandably” trying to capitalise on the shortage of industrial space by seeking longer lease terms and higher rents.

But she said it was important that tenants looked at their options before agreeing to terms which could put additional pressure on their businesses. Steps include looking at what deals have been agreed on other properties in the area, including any incentives offered to tenants.

“Unfortunately, many businesses just agree to the rent hikes imposed by landlords because they are unaware that other options are available to them. They subsequently accept terms that are detrimental to and compromise the long-term future of their business,” she said.

Kay pointed out that there was a balance to be struck between the interests of tenants and landlords. “If tenants are happy with the premises they are in they won’t want the costs and disruption of moving if they don’t agree to the landlord’s demands, but equally landlords won’t want to lose a good tenant and the cost of having to find a new one.”

The latest bi-annual property review from Ryden highlighted a squeeze on supply of industrial property in Scotland with availability trending downwards since late 2011 and asking rents rising since the middle of 2013.

Changes introduced by the Scottish Government in April have significantly reduced the amount of rates relief on empty industrial and commercial property, a factor blamed for reducing speculative industrial development which would ease the shortage.

Before April vacant industrial property received 100 per cent rates relief. This now only applies for the first six months when it reduces to just 10 per cent. “Until new development proceeds, existing industrial landlords should continue to enjoy good performance on their assets, with low vacancy levels, steady occupier demand and pressure on rents becoming the norm across prime Central Belt locations,” the Ryden review said.