23 November 2001

Demands still strong for commercial space

By Catherine Paice

DEVELOPMENT of farm buildings to commercial space will remain popular, says FPDSavills.

In good locations, with easy access for tenants and their support staff, demand remains very strong for the end product, says the company.

The availability of grant aid may improve viability, but a careful analysis of potential costs and income is vital to ensure that any development is cash-positive.

"It is amazing how many people set out on barn conversion schemes without any idea of what it will cost them," said Ben Crossman of FPDSavills Rural Business Space team.

Speaking at the opening of new offices created from vernacular stable buildings on the Knepp Castle estate near Horsham in West Sussex, managed by Savills, his checklist included the following:

lConversion costs and rental value. "The relationship between these should drive any decision," said Mr Crossman.

lReturn on capital. "Talk to local agents about supply and demand, and compare what you are looking for with rents for sheds on business parks."

lInternal rate of return (IRR). "Benchmark values by taking out interest, capital and management costs," he said.

lSensitivity analysis. "You are guaranteed not to get the rent you first think of," he warned.

lDo not rely on pre-lets. "My opinion is that pre-letting is very, very difficult," Mr Crossman said. "We have had so many fall through."

Two pre-lets have failed to materialise in the five units at the Pondtail Farm complex at Knepp.

New tenants, however, are paying about £15/sq ft, plus a £2 service charge. Capital investment was about £110/sq ft, totalling £500,000. Initial yield on capital investment is 14%, and payback is expected in 17 years.

That suits Charles Burrell, owner of Knepp Castle, who has young children.

Philip Gready, Wimborne-based head of Savills southern region, says: "An advantage is that you can make over individual buildings like these to the next generation without handing over the whole estate, and by the time they are grown up payback will be complete." &#42