Logistics & Industrial property: A comprehensive leasing guide
Gain valuable insights to navigate your leasing journey with ease, with the help of our partners at JLL.
Leasing a logistics & industrial facility
Successfully navigating the leasing process for your logistics and industrial facility calls for meticulous
attention to detail and consideration of various factors.
To start off on the right foot, it is crucial to stay updated on the latest market data, trends, and insights. This knowledge will empower you to make informed, futureproof real estate decisions that unlock the full potential of your logistics and industrial operations.
Key factors to prioritise when selecting a suitable location for your new facility include proximity to major
transportation routes and the ability of the facility to effectively optimise space utilisation. In addition, it is
important to ensure that the chosen location aligns with the specific operational requirements of your business.
When it comes to negotiations, engaging a real estate advisor allows you to leverage well-established relationships with landlords to discuss favourable lease terms, while avoiding potential pitfalls or hidden expenses in the process.
Different types of leases explained
When it comes to leasing your new facility, be it a basic warehouse or a specialised industrial facility, there are three lease options to consider.
Leases of ready-built logistics and industrial facilities
These leases are for facilities that are currently on the market, which are recently developed or are previously occupied by other tenants. Second-hand facilities tend to be more affordable, although the price may vary depending on factors like the building’s specifications, location, as well as market supply and competition.
For occupiers seeking a cost-effective, time-efficient option, a ready-built facility is the ideal lease choice.
Assuming there is suitable space available, a lease can be negotiated and agreed upon within a few months. Furthermore, occupiers typically only need to commit for a maximum of three years, making it a flexible option.
Pre-leases for new developments
Pre-leases are leasing agreements involving developments that are either still in the planning stage, or are nearing completion, where the developer has built the facility speculatively without any tenants confirmed.
For such facilities, occupiers have the opportunity to secure a pre-lease before completion if they are satisfied with the location. By committing early, occupiers may enjoy additional benefits such as improved incentives including lower rent, longer rent-free periods, or the ability to request specifications that align with their operational requirements.
Leases for build-to-suit facilities
This option caters to occupiers with precise requirements and flexibility on timelines. These occupiers often require a custom-built facility that perfectly aligns with their specific needs and cannot be easily replicated elsewhere.
However, this customised process comes with a significant investment of time and cost, as the completion timeline for the facility could be years away. Typically, the lease commitment for a build-to-suit facility will be a minimum of 10 to 15 years, and often at a higher rent.
Six steps to negotiate your next lease
To kick-start your leasing journey, follow these six key steps for a smooth, and effective negotiation process:
- Capture your detailed requirements
- Research and provide all potential options currently available in the market and any off-market
opportunities
- Inspect all shortlisted options
- Analyse options, form tailored strategy, and agree next steps
- Engage and negotiate with shortlisted landlords
- Review commercial terms in formal documentation
When should you start negotiating your next lease?
Now that you’re aware of the steps involved, it’s necessary to plan ahead and account for the timeline needed in the negotiation process. This can vary depending on the size and type of space, but it typically takes a few months to secure ready-built space. If you opt for a pre-lease or build-to-suit option, it may take longer.
Understanding the fine print: Standard terms & conditions
The lease is basically a written agreement outlining the rights and responsibilities of both the tenant and the landlord. To ensure that all parties are well-informed and protected, having a clear understanding of every aspect, down to the fine print, is essential before putting pen to paper.
Below are some of the important terms and conditions (T&Cs) to watch for:
- Lease terms
- Rent
- Security deposit
- Utilities service
- Insurance
- Fit-out period and rent-free period
- Sub-letting, alienation and early termination rights
- Management fee
- Reinstatement provisions
- Sale or redevelopment clause
- Option to renew
- Rent reviews
- Fit-out subsidies
Associated costs
Space occupiers should be aware of and prepared for additional costs. It is important to have all the necessary information beforehand, so here is a list of the associated costs that you should be aware of and budget for in advance:
- Fit-out costs
- Legal fees
- Reinstatement
- Goods and Services Tax (GST)
- Fit-out insurance
- Agency fees
Still unsure about the leasing process?
Connect with one of uTenant's warehousing experts for a chat, or to get started on your leasing journey today.
Published: 9 September 2024.
Originally published by the Logistics & Industrial Research Team at JLL on 2 April, 2024. Download the .pdf version of the original article here.