Daniel Shafferman, National Director of Industrial Real Estate Management at Colliers International shares his insights to guide tenants into a better leasing situation during this current climate.
Industrial occupier and investment markets remain well placed to ride out uncertainty caused by COVID-19. However, this doesn’t mean industrial tenants and landlords are immune to the hardships that other property markets are navigating through.
According to a recent Colliers International research report, changing economic conditions will present opportunities for certain industrial and logistics markets and industries as demand is shaken up and businesses look to do things differently.
“As a result of the economic conditions of 2020, there are going to be some business’s that will experience a considerable contraction, but there are others who are experiencing a significant pick-up in business revenue,” said Malcom Tyson, Managing Director, Industrial at Colliers International.
Daniel Shafferman, National Director of Industrial Real Estate Management at Colliers International agrees that the fundamentals for industrial and logistics property remain sound over the long term and the sector is expected to be less impacted than others. However, he says that as we emerge from lockdown restrictions, more long-term leases and opportunities in the industrial space will emerge – but it’s important to focus on navigating relief if you’re an industrial tenant now.
Negotiating industrial property rent has been a major priority for landlords and tenants in the past few months as the impact of coronavirus is felt across the industry and property market. The negotiation of rent while industrial tenants’ incomes are heavily affected will be key for the viability of those businesses moving forward.
Daniel says that there are alternate ways to provide relief to tenants without additional rental rebates, which will be a cost-effective and sustainable approach to maintain a partnership between tenants and landlords.
“It turns out, most of the larger operators in logistics don’t fall under covid conduct rules. This means that many business provisions didn’t apply because of the scale of operation,” he says. However, there has been some leeway. Daniel says major industrial landlords have approached their tenants and discussed rent reduction plans but are instead negotiating lease contracts.
“Landlords are pushing incentives for their occupiers at the forefront. So, businesses can have access to assistance now, just by shuffling around immediate action to unlock rent-free and help secure the business in the premises.”
Care for compliance
Buildings don’t live well without compliance, especially legislative compliance maintenance. Daniel says there are non-negotiable aspects to an industrial property that require constant maintenance, even under current restrictions.
As restrictions ease, especially in New South Wales and Victoria, Daniel says outside contractors will be able to be back in the picture. “We’ve been working with our clients, especially if there is a covid-case on-site, to reassure efficiency and ease despite the road-blocks of restrictions,” he says.
Furthermore, Daniel says a landlord should be using all reliable resources to retain tenants for as long as possible due to ongoing economic challenges. But, what should you be doing if you have an impending vacancy in the current climate?
“If a tenant is reliable and seeking to vacate, we’re working with landlords to try to retain them in the property,” he says. He suggests opening the discussion up around the hidden costs of relocating to provide business security for both parties.
However, some vacates cannot be avoided. This is especially true if a company has out-grown a space or is expanding to a new location. “It honestly all depends on a tenant’s shed. If you have an open space shed with endless capabilities, ensure its left in a desirable condition to grasp attention from future tenants – due to the presentation,” Daniel says.
He suggests following up with sustainability and energy efficiency initiatives following the exit of your current tenant. “You should be considering things like Solar, LED lighting upgrades and power factor correction – not only is their benefit to your incoming tenant but ongoing for your asset as well.”,” Daniel says.
According to Colliers Industrial Research and Forecast report, 2020 was expected to be a record year in terms of demand. In 2019, approximately 3.8 million sqm of industrial space was leased (1,000sqm+), representing the second highest annual total on record.
“While enquiry levels remain healthy in most markets, demand has shifted towards defensive occupiers including food and beverage retailers, e-commerce groups (including fast moving consumer goods), transport and logistics providers, data centres and cold storage occupiers,” Malcom Tyson, Managing Director, Industrial at Colliers International says.
Daniel says although demand is high, landlords must remain competitive and collaborate with trusted advisors to capitalise on an industrial space. “Making sure you’re marketing your space to the right people is essential. We recommend expert agents to provide the right strategy is essential to ensure all prospective occupiers are covered,” he says.
“Trusted advisors manage all the required tasks for your building. It takes it off the tenant to coordinate compliance. At Colliers International we have essential contractors around the country that is a cost-effective move for landlords,” Daniel says. Colliers International are experts in compliance documentation from annual to monthly service requirements.
“All our buildings have a compliance tracker, so when we control it – it’s easy for everyone. It means the tenant and landlord can focus on their business, which is essential during this time to aid cash-flow, minimise repairs and focus on other management.”
Daniel says you should question how far you rely on your tenants to keep your asset “Risk Free”. A dual pronged attack combining base level risk and compliance from the landlord and site/tenant specific protocols and procedures for managing operations on site. “Industrial was always the cousin to office and retail. It now is standing alone in recent years, which has allowed us to really develop a proven system to look after landlords and tenants in this space.”