Over-Spec of Farm Buildings

Are You Spending Money Where it Matters?

Diversifying into commercial lets can be an excellent way for farmers and landowners to generate additional income from underutilised assets.

Across the country, former livestock buildings, machinery sheds and general-purpose agricultural buildings are being repurposed for everything from storage and workshops to small businesses, trades, leisure operators and ecommerce companies.

For many farms, it provides a valuable income stream without moving too far away from the core business. However, one mistake we regularly see is spending significant sums of money on improvements before understanding what a future tenant actually needs. Putting planning and EPC matters to one side the comments below focus purely on practicalities of refurbishment and the demand from tenants on those capital works.

The Temptation to Create The ‘Perfect’ Unit

A redundant farm building often presents a blank canvas. Once the decision has been made to pursue a commercial let, it can be tempting to start upgrading immediately. Additional power supplies, three-phase electricity, office space, insulation, upgraded lighting, kitchens and toilet facilities can quickly find their way onto the wish list before the market has been tested.

While some investment is often necessary, there is a risk of creating a building that costs far more than the market requires.

The question shouldn’t be “What improvements can we make?”, it should be “What improvements will my potential tenant actually pay for?”

We’ve seen examples where a landowner has considered spending thousands of pounds installing a new floor when the eventual occupier simply wanted dry storage. In another case, extensive electrical upgrades were being discussed before any prospective tenant had expressed a need for them.

One recent project involved a farm building being let to a bouncy castle company. Their requirements were remarkably straightforward: secure storage, weatherproof accommodation, easy vehicle access and basic electricity. Completing any other installations would have meant unnecessary costs for the landlord without increasing the rent achievable.

What the Industry Says…

This isn’t simply our opinion. Farmers Weekly has previously highlighted the importance of understanding occupier demand before investing heavily in commercial units, advising landlords against carrying out costly improvements until a tenant has been secured. The publication notes that many workshop and storage occupiers require little more than a practical building with suitable access and basic services.

The reality is that tenants rarely pay a premium simply because a landlord has installed features they do not need. An expensive specification only adds value if it solves a genuine requirement for the occupier. That is why understanding the local market should always come before significant capital expenditure.

Focus on what really matters

In our experience, it is easy for landowners to underestimate the value of practical considerations while overestimating the importance of specification.

For many tenants, the key questions are:

• Can lorries and delivery vehicles access the site?
• Is there sufficient turning and loading space?
• Is the building secure and what is the security on the farm?
• Is it dry and weatherproof?
• Are there any restrictions on access hours?

These factors can have a far greater impact on rental demand than an internal fit-out.

Start with a Blank Canvas

Before spending money, it is worth considering who is realistically going to occupy the building. A storage tenant will have very different requirements from a light industrial business. A local tradesperson will have different priorities to an online retailer. A workshop user may need three-phase electricity, whereas other occupiers may never use it.

Some of the most successful rural lets are surprisingly simple. A dry building with good access and secure boundaries can often attract strong demand without extensive investment. It’s better to start simple and then alter to what a tenant may want.

Recently we’ve been involved with the letting of a general purpose storage building where the landowner had installed a Bank of 13 amp plug sockets all the way along the far wall. When a potential tenant had been found by us they actually wanted to put pallet racking on that wall meaning the surface mounted 13 amp cables and plugs had to be removed.

Spend strategically, not emotionally

The most successful commercial lets are usually those where investment has been carefully targeted.

That might mean:

• Repairing roofs and cladding
• Installing security measures
• Ensuring electrics are safe and comply with legislation
• Improving lighting on site 
• Creating clear separation between commercial and farming activities (clean yard)

These improvements often provide a better return than spending heavily on features that may never be used.

It is often preferable to wait until a tenant has been identified to do anything more. In some cases, the occupier may be willing to contribute towards specialist works or undertake their own fit-out as part of the lease agreement.

Get advice before opening the cheque book (or banking app!)

Building lets continue to represent one of the strongest diversification opportunities available to farmers and landowners. The income potential is clear and the demand for well-located rural commercial space remains strong in many areas.

However, successful diversification isn’t necessarily about spending more money on a building. The best results are usually achieved when investment is proportionate, commercially justified and driven by tenant demand.

At Howie, Kent & Co, we regularly help clients assess commercial opportunities, understand likely occupier demand and avoid unnecessary expenditure before a building reaches the market. After all, diversification should improve profitability.