What does an industrial void period actually cost a fund?
An industrial void costs a fund the lost rent plus every outgoing the tenant used to pay, the cost of re-letting (agent fees, legals, incentives, refurbishment) and a valuation hit while the asset has no income and a shorter WALE. Most of those lines grow with every month the unit sits empty, so duration sets the bill. Scayled works on duration from the start: as a Full Campaign for US$749 it finds 250 to 350 businesses the unit suits, the person who signs at each, and drafts the approach, ready in about five working days.
- What costs make up an industrial void?
- How do you calculate the monthly cost of a vacant unit?
- What do letting fees and incentives add?
- How does a void affect the asset's valuation?
- Which part of a void's cost can a fund control?
- How does a US$749 campaign compare with the cost of the void?
What costs make up an industrial void?
Five groups of cost. Lost rent. Outgoings the tenant used to cover: property taxes or business rates (in the UK, empty rates apply once any relief period ends), insurance, which may cost more or carry conditions on an unoccupied building, security, utilities and basic maintenance, and any service charge shortfall on a multi-let estate.
Then the cost of getting the unit back and re-let: any shortfall between the make good or dilapidations claim and what is recovered, refurbishment to a lettable standard, agent fees, legal fees on the new lease, and the incentive, such as rent-free months or a fit-out contribution. Finally, the effect on valuation.
How do you calculate the monthly cost of a vacant unit?
Divide the annual rent by twelve, then add the monthly outgoings you now carry. That gives the running cost of each month empty, before any re-letting costs.
As an illustration, a 2,400 square metre unit at an assumed rent of US$100 per square metre a year earns US$240,000 a year, so each month empty costs US$20,000 in rent alone, plus outgoings. Use your own rent and outgoings; the arithmetic is the same at any size or in any currency.
What do letting fees and incentives add?
Letting fees are usually a percentage of rent, on the first year or the lease value depending on the market. If an agreement charges 10 percent of first-year rent, the unit above costs US$24,000 to let, on top of legal fees.
Incentives are the less visible line. A unit that has sat empty for a long time usually needs a larger incentive to secure a tenant, because the landlord is negotiating from a weaker position, so a long void costs twice: once in the months empty and again in the deal that ends it.
How does a void affect the asset's valuation?
A vacant unit has no income to capitalise, so a valuer deducts the expected downtime, letting fees and incentive from its value and prices in the letting risk. Even after it re-lets, the asset has a shorter WALE than a long, secure lease would have given it.
For a fund the effect also reaches investors: lost rent comes off the distribution, and a lower valuation can affect gearing ratios and covenant headroom. On a single-let asset, all of this hits at once.
Which part of a void's cost can a fund control?
Duration, mostly. Rent, outgoings and valuation drag all scale with months empty, and duration depends heavily on when the search starts and how many suitable businesses hear about the unit early. A replacement search that starts while the outgoing tenant is still in occupation removes months from the bill.
Fees and capital spend can also be managed: a direct approach at a fixed fee in place of a commission where no agent is appointed, and refurbishment matched to the businesses that actually fit the unit rather than to a generic specification.
How does a US$749 campaign compare with the cost of the void?
Against the illustration above, one month empty costs about US$20,000 in rent before outgoings, so a campaign that brings the letting forward by even a few days has paid for itself. For that fee Scayled delivers the businesses the unit suits, 250 to 350 of them nearby and across the market, with the person who signs at each, a checked contact and a personal email, and nothing is made public.
That is a Full Scayled Campaign, US$749 paid once, with no commission on the letting; a Focused one for a smaller unit starts from US$449. Either can be sent by the fund's own team or, for US$299 more, by Scayled from a mailbox on the fund's company email. The other ways to cut a void are in how to shorten a commercial vacancy.
Lease The Vacancy In-House, Before You Appoint An Agent.
The Campaign finds the 250 to 350 businesses the building suits, names the person who decides at each and writes every email, ready in about five days. One payment of US$749 per property, no commission and no subscription. A focused 100 to 150 from US$449.