Could a shortage of industrial and distribution space in rural locations and an increasing interest from farmers to diversify be a perfect match?
Leasing out farm buildings isn’t anything particularly new. It could be anything from a place to store a friend’s car for the price of bottle of whisky to something more formal with a tenancy agreement.
But one agent in Lancashire has seen a rise in enquiries from farmers looking to convert agricultural buildings for industrial uses or storage.
Robert Pinkus & Co in Preston is marketing 41,000 sq ft of industrial space on the Fylde coast that will be converted from redundant farm buildings.
Having decided to get out of dairy farming, the owners of the farm approached the firm about alternative uses for its assets.
Location, location, location
Senior partner Robert Pinkus says the site – which will be called Bradkirk Business Park – works because of its location about a mile from the M55 motorway but it also benefits from its proximity to Mill Farm, where there is a football stadium for local team AFC Fylde, an Aldi, restaurant, bar and petrol station.
However, without the nearby amenities, he says, the site would have “stood up on its own” given the level of local demand for space.
“Quirkier locations are very popular compared with traditional locations,” he says, adding that the demand profile is similar to more conventional locations.
Planning was secured with separate access required for the farmhouse where the owners still live.
The buildings will be finished to a basic shell and then completed to tenants specification.
Asking rents are £4.50 to £5.50 per sq ft, which is on a par with the wider market.
Pinkus says most occupiers are looking for 2,000 to 3,000 sq ft. And as the assets will stay in family ownership rather than being sold on lease lengths occupierscan be flexible with three years most commonly sought.
More inquiries
“We are getting more enquiries from the agricultural sector which is interested in what is going on and looking to do something similar. The key thing is location. We are lucky on this one as it’s just outside a decent-sized town and in an area where there is already a shortage of space. Not every farm site is going to be as suitable.”
The conversion of farm buildings to industrial use is, of course, not exclusive to the North West.
Harry Torrance, is a partner in Carter Jonas’s Shrewsbury office and has seen similar activity when agricultural buildings become surplus to requirement. But while he agrees that location and local economics are important, there is certainly demand.
“I’ve seen buildings being converted into workshops, craft space, storage and distribution storage for e-commerce,” he says. “It’s almost a case of, ‘If you build it someone will come’.”
Occupier churn
He says that occupier churn can make for intensive management but the initial investment is comparatively low and even with low rents you will get a good return. Yields can be as high as 10% even up 20% in some instances, he says.
In Yorkshire, Strutt & Parker’s associate partner Nick Bramley is also seeing increasing local demand for rural industrial space – anything from very basic storage to something a bit more sophisticated. He has also seen a rise in farmers looking for alternative uses for redundant buildings.
But the same business advice applies. “Better to try not to have the last pound per sq ft out of someone, better to have longer term, reliable tenant paying less,” he says.
These are never going to be headline-grabbing deals but evidence suggests that there is an opportunity to meet a rising localised demand in the less obvious places.
Four key considerations for farmers converting agricultural buildings to industrial uses
Planning
Brian Barrow, managing director of consultancy Acorus, says the potential for permitted development has made it much easier to obtain industrial use permission.
“Class R allows you to change the use of buildings to a variety of uses such as B1 Business and B8 Storage and distribution. It also allows for other use classes.
“The main restriction is a maximum of 500m2 and you must apply in advance as to whether the prior approval of the LPA is required.
However, permitted development doesn’t allow building works, only a change of use, so necessitating a planning application for building works.
Tax
Mark Chatterton, a director of Duncan & Toplis, says such ventures are usually run as part of the main farming business but it is important to cost the venture separately.
He adds that it is important not to miss out on tax allowances for expenditure on the project, so a detailed quote and invoices are essential so that relief can be properly allocated.
Legal
Burges Salmon partner Sian Edmunds advises that as well as checking the planning requirements, landlords need to consider whether any permits or licences are required for specific activities on the site.
For example, waste is an area where regulation is increasing and permits may be needed. Also, are there any licences or consents required from any head landlord?
Insurance
Any farmer diversifying must review insurance – farm policies provide cover only for the business of farming.
Charles Foster, chief executive officer, Lycetts, says it’s important to know what business the tenant is carrying out in your building and for insurers to be informed. Some activities, such as spray-painting vehicles, carry a high fire risk, with implications not only for landlord and tenant but also for other tenants.
This panel is an edited version of a full-length article on the key consideration for farmers published in Farmers Weekly. To read it, click here
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