Industrial landlords have been converting swathes of secondary space to leisure use to boost rental income as a wide array of new occupiers enter the market, write Amber Rolt and James Child.
According to EG data, almost a third of all change-of-use applications submitted over the past two years in the industrial sector has been for change of use to D2 for leisure purposes. This equates to around 4m sq ft of space .
Not only does this give landlords the ability to let otherwise empty space, but in many instances landlords could command almost double the rent from a leisure occupier than they could from an industrial tenant.
This in turn offers leisure occupiers cheaper rents and lease flexibility than they may find in a traditional leisure park. This is particularly appealing for new entrants.
David Stalker, chief executive and founder of trampoline parks Oxygen Freejumping, chose a former industrial unit in Acton, W3, owned by BA Pension Fund for its debut site. Stalker pays around £12.50 per sq ft for the 27,000 sq ft site.
He says: “In a good light industrial site you are going to pick up at least a 30% lower rental level and the landlord will still be quids in on what they would be getting
from an industrial rent.”
Landlords can apply for change of use for sites that are sitting empty on their estate ahead of being approached by an occupier. Graham Barker, head of asset management for light industrial at Barings Real Estate Advisers, decided to apply for change of use for Monthspath Business Park in Solihull, near Birmingham, when the park had a significantly high void. He managed to secure around £7.50 per sq ft instead of £5 per sq ft for new tenants including a trampoline park and a gym.
“We identified the units suitable for leisure use and then proactively secured the planning consent prior to marketing, thus avoiding a long period of uncertainty while planning was secured,” he says.
EG planning data reveals that the majority of these change-of-use applications are happening in the North West and South East in light industrial parks in smaller towns. They are also happening on city fringes, with former industrial space on the outskirts of larger cities including Manchester and London as a favourite for leisure occupiers looking to test the market for their concepts.
John Nimmons is using a former storage facility in Whitechapel, E1, for his Canadian axe-throwing activity Whistle Punks Urban Axe Throwing, which he co-founded. He took a 1,000 sq ft unit on a rolling lease, and the venture has so far been a success.
He says: “It is really difficult to find good D2 space in central London and we are doing something very new, which needed to be tested. This you can’t do with a traditional site with long leases.”
Nimmons now has a second site, also in a former industrial unit, in Manchester and a third planned for Birmingham. He plans to open five by the end of 2017, and will is looking for sites between 1,000 and 2,000 sq ft as close to large cities as possible.
“I am looking for former industrial sites, but the main thing is that they are in the right location and that they are as close to the city centre as possible. If you are a bit out on a limb then it doesn’t work,” he adds.
As well as determining whether or not they have stock in the right locations, landlords need to consider the overall logistics of having a leisure attraction on an industrial site.
William Rose, director of industrial and logistics in Savills’ Peterborough office, has acquired industrial sites on behalf of leisure operators. He says: “Parking is the number-one concern, and landlords need to be aware of conflicts with other tenants as well as safety concerns such as having children in the same place as HGV vehicles.”
Rose recommends looking for a self-contained unit within business parks to avoid any conflicts and have access to enough parking.
Stalker adds: “The landlords need to be much more robust in their due diligence of leisure tenants. They need to look carefully at the covenant, customer profile and safety just as a leisure landlord would. They need to act and think like a leisure landlord.”
While the space works well for leisure start-ups, Ashley Blake, chief executive of Otium Real Estate, suggests that the simplicity of industrial sites may not be suitable once the businesses have an established brand and are looking to expand.
“They provide cheap accommodation, large spaces and often high ceilings,” he says. “What they don’t offer is surrounding restaurants, great parking and other leisure anchors such as cinemas. For this reason, when operators start to grow, they look to expand in mainstream retail and leisure locations.”
| Occupier | Activity | Sites |
|---|---|---|
| Whistle Punks Urban Axe Throwing | Group tournaments of competive axe throwing led by an instructor | Whitechapel, Great Northen Warehouse Manchester and Birmingham with plans for five more by the year end |
| Oxygen Freejumping | Trampolining for groups and familities in sites ranging from 25,000 sq ft | Launched in Acton and now has seven sites across the UK |
| Total Ninja | The UK’s first Ninja Park with fitness training and endurance tests | Has one site in a former warehouse in Trafford Park, Manchester |
| Room Escape | Escape game when trapped in a room with a zombie | Trial concept in the same warehouse space as Whistle Punks in Whitechapel |
To send feedback, e-mail amber.rolt@egi.co.uk or tweet @AmberRoltEG or @estatesgazette
To send feedback e-mail james.child@egi.co.uk or tweet @jamesChildEG or @estatesgazette
