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Construction, Refurbishment

The Property Sector Post COVID. Where to Invest and Develop?

The Property Sector Post COVID. Where to Invest and Develop

With COVID-19 fuelling much on the conversation as to what state the UK office market is currently in, Aztec are still seeing a strong demand for adaptions, refurbishment and fit-out requirements in the commercial sector as well as a push on industrial new build and refurbishments. At the beginning of lockdown Aztec allocated some time to speak to our clients and assess what they really need from us as a company and what support we can offer their property needs during a period of uncertainty and choppy trading conditions. Having received this information as well as accessing UK Governments macro-economic objectives our advice is this …

Aztec have reviewed the information provided by the Office of National Statistics, which indicates there is a continued high level of online retail activity in the UK and this is a sector that is performing strongly and is continuing to grow. At the start of the decade, growth was close to 20% a year. As of 2018 there has been lower levels of speculative development meaning NOW is the time to ensure that your industrial units are in the best possible condition so they can be quickly occupied, at the right rental level. As well as this it will remove possible barriers that would slow down the transaction process for the lease to be agreed.

Due to the lower levels of speculative build, there will be a short fall in the very near future in desirable locations. So, if you don’t mind your returns being over a slightly longer period or trading out as part of a portfolio then this would be a great time to invest in building new.  One of the major advantages to building new is that industrial units can be built in a relatively short period of time compared to office blocks and their simplicity to build. Even with the current COVID situation industrial demand is still outstripping supply, this presents the perfect opportunity to focus on investing in both refurbishing existing stock and building new.

How can Aztec help developers?

When considering any type of construction, it is crucial to consider procurement strategy. Aztec understand that one of the key drivers for a developer is commercial return, combined with the duration of construction as the developers needs to be certain of cost and time – which is one of the  strong points of design and build procurement. The traditional competitive method of procurement is still used on a number of projects, but Aztec strongly believe this isn’t usually the path to take. The reason being is that by engaging with Aztec, Aztec can provide you with both technical and cost advice removing many layers of appointments and providing you with a single point of contact from start to finish. So for both developers and end users, Aztec can offer you concise costs, full control of delivery process thanks to in house resource and the piece of mind that each aspect of the project has been methodically managed and controlled on your behalf by a heavily experienced team.

When developing industrial units, these units don’t need to be mega units used by the likes of Amazon or Hermes. Businesses of all shapes and sizes need industrial space as well as their auxiliary services (suppliers).  The development of small industrial units is mainly aimed at the speculative end of the market. Smaller companies are more cautious in agreeing to purchase or lease developments; they tend to wait till they can see what they are getting before committing to purchase or let the properties.

SIPPs for individuals or small self-administered schemes (SSASs) for groups have been used by smaller companies to invest in small industrial units. The investor needs to cover purchase costs, legal costs and disbursements, such as Land Registry fees. Management fees for the pension fund run at about 1.4%. The purchase and all rent must be at market values, the benefit is that all rent paid is treated as business expenses for tax purposes and the pension fund is exempt from income tax and capital gains.

Design considerations

Aztec can work with you at the planning stage. Understanding the size of your requirement is vital as smaller warehouses are highly comparable in all aspects from design to material specification: they use a portal frame with cladding. However, they are typically 6–8m high to the underside of the eaves, instead of 10–13m high. They usually have a 4m high loading door.

Design issues include:

Major cost drivers: ground conditions and structural steel frame. Over the past two years, the cost of frames has increased substantially as steel prices have risen. For smaller spans, glulam portal frames could be an option?

External works: these account for 15–25% of the total cost. Planning constraints and time taken to obtain permission. These may be onerous where:

  1. Restrictions are placed on the type of planning permission that will be granted. The proposed industrial site is close to residential zones. There is a need for ample parking spaces, especially for distribution units where working shifts may overlap. The spaces may be excess of local planning guidelines
  2. Location of the site: small units are usually located in established industrial areas in town or edge-of-town locations. These should have access to existing infrastructure
  3. Size of warehouses: smaller schemes often offer a number of units of different sizes. The shell and services design might allow for units to be subdivided to meet tenants’ needs
  4. Layout constraints: the site requires good access, parking and loading facilities. The alternative of using dock levellers adds a premium cost that is not commensurate with the size of the unit
  5. Security: this is seen as an important factor and many of the parks come with gated access and CCTV coverage. Intruder alarms are provided in the units
  6. Building and fire regulations: while the escape distance may not be an issue, the division of the units will require adequate fire resistance provision:
  7. Boundary walls next to the site edge may be required to prevent fire spread. Sprinkler installations should be considered in the fit-out because of the potential use of units for storage or manufacture of inflammable goods.
  8. Amendments to Part L in 2006 have introduced measures to reduce CO2 emissions by 28% in mechanically ventilated or air-conditioned buildings and 23.5% in naturally ventilated buildings.

If you have an industrial unit and are interested in exploring either refurbishment or adaption or would you like to discuss the process of new build development, simply contact our pre-contracts team who can help you navigate the pitfalls on Tel: 0151 255 0850 or directly via E-mail @ paul.ashmore@aztec-limited.co.uk.

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