With the growth in the sector, we felt it was time to shine the Spotlight on Distribution Centres and update our work on service charge and insurance rates payable by occupiers of warehouses and distribution centres.

Our research covered 132 locations across the UK.

The findings allow us to benchmark costs and then quantify the significant scope for potential savings, showing a simple method for determining if you are being charged above market rates.

Our initial analysis shows insurance rates were similar across different sized units, service charge rates vary significantly based on size. As a result, we made a distinction between large (above 50,000 sq ft) and small (less than 50,000 sq ft) units for service charge only. The high-level findings are summarised below:

On the face of it, these rates might not appear high relative to other property types but when you compare the Average to a real example, you can quickly identify the potential scope for Savings due to the size of the properties in this sector.

What should we be paying?

Example 1: Typical Median (or ‘Average’) Costs for a large UK Distribution Centre (400,000 sq ft)

Service Charge (£0.07 psf) plus Insurance (£0.12 psf) = Aggregate Cost £0.19psf
Size of Unit: 400,000 sq ft @ £0.19 = £76,000 per annum

We know some are being charged aggregate costs exceeding £1.15 psf. For the 400,000 sq ft unit, this equates to £460,000.

Potential Saving: £384,000

Example 2: Typical Median (or ‘Average’) Costs for UK Warehouse/ Small Distribution Centre (20,000 sq ft)

Service Charge (£0.38 psf) plus Insurance (£0.12 psf) = Aggregate Cost £0.50psf
Size of Unit: 20,000 sq ft @ £0.50 = £10,000 per annum

We know some are being charged aggregate costs exceeding £1.40 psf. For the 20,000 sq ft unit this equates to £28,000.

Potential Saving: £18,000

These are isolated cases with significant potential savings. When applied across a portfolio, the potential is far greater.

Why are we paying more?

The most significant element of the service charge is Security. It often accounts for between 40-50% of the total charge. Here there are issues related to economies of scale. For example, you may need two overnight guards irrespective of the size of the park, this affects the rates payable. Also, the challenges of one Park may be significantly different from another. That doesn’t mean there are no opportunities for Savings especially with technological advances and improved remote monitoring systems.

Insurance rates may vary based on risks related to occupancy/use of building, cladding, flooding, sprinklers etc.

However, significant variances remain between properties that have similar characteristics. So, perhaps you shouldn’t be paying more.

What can we do about it?

Often the management structure of these Parks allow the plot owners (as shareholders) to influence spend through voting rights. Also, the lease terms can provide opportunities to control spend through a focused audit. In the absence of a contractual argument, if there is a strong case for change (for either service charge and/or insurance), a well-supported case should be put to the owner and/or management company.

To find out more about this research and how we can help drive down your occupancy costs, please contact Lesley Fulton, Business and Client Relations Manager.