The Cheltenham Fail

Most of you will be old enough to remember these terms and phrases. Some of you may still have nightmares about them. Lots of you will have lost sleep because of them. If you’re not old enough, then these were the words we heard every day from 2008 and for years afterwards. It meant that the business world was in hard reverse.

In the world of commercial property this meant tenant failures, falling rents, softening yields, long voids, huge lease incentives and significantly reduced levels of transactions across the board. There was no certainty. Vacancy rates on industrial units had just been introduced. These were ultra-hard recessionary conditions. To put this into context, 5 year leases typically commanded between 18 – 24 months’ rent free. Landlords were taking views on the need for deposits. Any sensible tenant of any description was considered. All the things you immediately discount today were on the table.

The aftershocks from this rippled out for years, so in June 2010 when we were appointed on the Cheltenham Trade Park, we had work to do.
This was a 42 unit industrial estate in a ‘not very industrial’ location with a strong 1980’s theme to it. The tenancy schedule showed it was reasonably well let but many of the tenants were not in occupation and running down long leases -25 year ones, remember those? So, whilst it was well let it was poorly occupied. The occupation rate was very low, sub 50% meaning the estate had a strong ‘tumbleweed’ feel about it. The AWULT was 2.45 years and the increasing fear was that the estate, virtually all 144,447 sq.ft of it, would be vacant in 2.45 years.

The management of this estate prior to our appointment was classically institutional with a building surveyor, an agent, an L&T surveyor, a property manager and a client based in London who never went to site because the institutional process meant he had to rely on his team; but only the agent was local to the site. It just wasn’t working. Landlord & Tenant relations were broken purely because of the reliance on ‘hard process’ and the inability for tenants to speak to anyone sensibly about their issues. There were long standing disputes around dilapidations, rent reviews and renewals – key matters which simply didn’t progress. Consequently, the estate presented as tired, unloved and not really a place you’d relish visiting.

9 months later we’d completed 10 asset management transactions and 2 lettings over 33% of the estate. The void rate dropped 3% and the AWULT rose to over 3 years. Celebrating a 3% fall in void rate seems silly these days but at the time, this was spectacular, as was getting a tenant to sign a 5 year lease. What we did here is as relevant now as it was then and these deserve restating:

• We were the single point of contact for the client in relation to all surveying disciplines – property management, facilities management, industrial / office agency, building surveying, rating and asset management.
• We were the single point of contact for the tenants.
• We completed an intensive review of the estates presentation and how it functions day to day
• We installed a programme of repair, maintenance and estate rebranding
• The marketing of the estate was re-invigorated. The quoting terms were amended to reflect the changing market and the estate aggressively marketed.
• Many deals involved the rebuilding of landlord and tenant relations and / or the resolution of long standing disputes with tenants.
• The property management of the estate was closely monitored by joining it with the asset management process to deliver a ‘holistic’ approach.
• The common areas were significantly improved and the service charge regime was reviewed to ensure that the occupiers saw an immediate response to their concerns.

Today the market is at the other end of the scale. It has been for 4 or 5 years, but I still see estates with many of the challenges Cheltenham had in 2010. They just don’t feature in conversation so much because the market has been red hot – everyone renews and voids let! Cheltenham simply wasn’t positioned to cope with a weakening market and I see many estates today that are set up for a ‘Cheltenham fail’ if the landlord doesn’t act. The industrial market isn’t as hot as it was. Voids are beginning to creep up and clients are frustrated that they aren’t letting things instantly; and tenants always remember how ‘good’ you were as a landlord in the good times and will not forget if they’ve had a bad experience.

It’s never too late to act.