We are in the midst of a big change in the multi-let industrial (MLI) sector, and not for the first time.
Before the global financial crisis, a lot of the MLI stock was held by listed property companies with permanent capital, such as Slough Estates (now SEGRO), Brixton and J Saville Gordon.
Since then, mostly due to over-leverage, but sometimes out of choice, these assets have largely ended up in the hands of private equity firms.
No doubt the smart individuals behind these organisations came to appreciate the strength and resilience of the sector in difficult times and some of the opportunities it provides, but the very nature of private equity means that everything is always for sale and the approach taken towards asset management and operations has reflected this. Now they have made their money, the private equity firms are ready to sell the assets back to those with a longer-term view, which provides a great opportunity.
MLI isn’t like other sectors where the relationships can mostly be described as B2B. You aren’t dealing with tenants; you are dealing with customers, and often they view letting property and the admin that comes with it as a necessary evil and distraction from their day job.
“To access the MLI market you need a vision, an operating platform and a long-term mentality”
Once you understand this, you can see how MLI is ripe for a renaissance of the magnitude witnessed in the serviced office sector over the past 20 years. Businesses such as Regus and WeWork weren’t built on bricks and mortar; they were built on customer service and tailoring their offer to be far more expansive than just selling square footage.
To access the MLI market you need a vision, an operating platform and a long-term mentality. This is where companies with permanent capital can pick up the baton and run with it, and it’s what has been lacking in the sector for the last decade.
In the sector, we are not servicing our customers particularly well. We are largely offering just one product, which is square footage. That said, it has been difficult up to now to offer much more because the technology has not been there to facilitate additional services.
And MLI is different to serviced offices in that it is more geographically diverse and commands relatively low asset values. In the serviced office sector, you can have a £30m asset with permanent onsite staff to facilitate the needs of customers without having to rely on technology.
But with the technology now good enough, we can start providing a much higher-quality service to our customers even with our geographical spread and diverse tenant base.
We can offer customers greater leasing flexibility so they can choose terms that work for them rather than the landlord, and offer a menu of optional extras such as contents insurance, telephones, internet and furniture. Taking serviced offices as a benchmark, it is clear that customers are willing (and able) to pay for that flexibility and service.
As an investment opportunity, MLI has rarely looked so compelling.
Julian Carey is executive property director at Stenprop
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