Addressing the risk of rising vacancies for industrial and logistics properties

In the UK, vacancy rates among industrial and logistics properties are expected to rise as further supply hits the market. While owners can take action to maintain value and provide an attractive option for current and prospective tenants, the risks faced by rising unoccupancy is a considerable exposure.

Why vacancy rates are rising

Vacancy rates are, in part, rising because of subdued demand and an increase in available stock, providing tenants with more options to relocate to more suitable properties.

In Manchester, for example, the vacancy rate rose by almost 2% by the end of 2023 to 3.4%, according to property specialist Cluttons (opens a new window). It is expected to rise due to the 2.5 million square feet under construction – half of which has no end user. Elsewhere, in London, the current vacancy rate is already above the national average at 4.8%.

How owners are retaining and attracting tenants

While increased supply may mean greater vacancy, we are seeing many ways in which owners continue to make their properties attractive to current and prospective tenants, such as:

  • Utilising mezzanine space – with many properties not utilising their high ceilings, a mezzanine floor allows owners to store significantly more in the same space.

  • Property maintenance – a well-kept industrial or logistics property continues to prove attractive to prospective tenants. This requires constant maintenance, such as routinely checking for roof leaks, ensuring fire and emergency equipment is up to date and much more.

  • Prioritise efficiency – owners could seek a Leadership in Energy and Environmental Design (LEED) certification or consider photovoltaic (PV) panels or electric vehicle (EV) charge points. Not only will this provide a positive outlook on the building and bring in environmentally conscious tenants, but a more energy efficient building will also spend less on water and electric bills. While the environmental benefits are plentiful, it's important to consider the impact on the building's overall resilience. For example, consider locating the EV chargers away from the building and avoid installing PV systems on combustible roofs.

Mitigating the risk in unoccupied buildings

Although keeping properties occupied is always preferable, sometimes an unoccupied period is unavoidable, wiping out rental income and leaving the cost of maintenance the owner’s responsibility. These vacant properties present potential dangers such as water ingress damage and squatters. Here are some measures property owners can take to mitigate the risks of unoccupied industrial buildings and avoid scrutiny from insurers:

  • Regular building inspections – to ensure the security of the building and keep track of its condition, inspections must be taken and recorded regularly in intervals no more than seven days, according to AXA (opens a new window).

  • Perimeter security & building protection – although 24-hour security can prove expensive, measures should be taken to prevent against risks such as vandalism. Security features such as a boundary fence, security gates, and CCTV are particularly useful.

  • Block vehicle/intruder access – with the threat of fly tipping, property owners could block vehicle access using a road blocker, for example. For intruders, consider closing off any access to points such as ventilation ducts or delivery shutters.

  • Fire detection/prevention – a fire detection system should be connected to an alarm receiving centre (ARC). This should be in use in conjunction with a sprinkler system.

  • Water control – all the water tanks, pipes, and apparatus – except for those used to fight fire – should be isolated and drained down.

  • Limit liability – although there is an inherent risk of injury to squatters and other third parties, ensuring the property as far as possible is clear of threats to injury and records are maintained of inspections and risk management activities will help protect against third party liability claims.

  • Keep up ‘occupied’ appearances – to ward off intruders, owners can take extra measures such as cutting back on vegetation surrounding the building and timed external lighting facing away from the building.

For more information, please visit our Real Estate and Construction (opens a new window) page.

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