Tips for online retailers leasing warehouse space

If you are a growing online retailer, the decision to directly lease warehouse space instead of using a 3PL (third party logistics supplier) requires careful thought and planning.  It’s time-consuming enough to manage the complex logistics of storage, packaging, inventory management, distribution and transportation without being a property expert as well.

This article focuses on leasing warehouse space in and around the Greater Sydney Region from a property perspective.  Although aimed at online retailers, it’s useful for anyone leasing warehouse space for storage or distribution in Sydney. The article assumes a tenant is leasing the whole of a warehouse.

Location, location, location

In a perfect world, you would lease warehouse space in or around South Sydney as it is the most cost-effective from a transportation viewpoint. All the major freight transport links in Sydney converge at the Port Botany and its proximity to the centre of Sydney means delivery times and distances to your customers should be more uniform on average.

But rentals in Botany and South Sydney are the highest for industrial property in Sydney.  Savills’ industrial market research report on Sydney industrial property for the second quarter of 2014 states that face rents (rents before discounting for rental incentives) for prime grade industrial property in South Sydney can reach $150 per square metre.

So it’s more likely you’ll be looking at cheaper, secondary-grade stock which can be leased for upwards of $80 per square metres. These, usually older, industrial properties were not likely built with logistics in mind so you must ensure it has the features you need or can be modified to your needs.

Alternatively, look to West or South-West Sydney where Savills reports that rentals can range from approximately $65 to $120 depending on whether it’s secondary or prime-grade property. These areas have good transport links in the M5 and M7 freeways and rail lines for freight. And if you need a large footprint building then you will most likely be looking in West and South-West Sydney.

Either way, check that the premises are serviced by roads allowing B-double truck access.

Zoning and planning

It is usually obvious that a site is zoned for industrial use but check with the landlord or the council for 24/7 operations both for internal activities and deliveries in and out by heavy goods vehicles.

If the building is old but modified by more recent improvements or structural installations (e.g. a mezzanine floor) then ask the landlord for the relevant development approval for these additions or alterations. If you aren’t confident of what to look for then take along a friendly builder.

Warehouse features

These are features to look out for. You may not need all of them:

• High clearance roller shutter doors and loading docks for trucks and containers.
• Sufficient hardstand for deliveries and storage of pallets.
• Ceiling height – rent is calculated per square metre so the higher you can stack and rack the more cost-effective will be your operations.
• B-double access, drive throughs and turning circles. If you are leasing a warehouse unit in an industrial development or industrial park then check there is sufficient access through the common areas and whether you have sufficient external space without obstructing your neighbours.
• Heavy duty concrete hardstand for loading/unloading areas.
• As little office space as you can get away with. You want to be maximizing your storage space and not paying for redundant offices.
• Three phase power and back-up generators.
• Easy navigation across the floor – are there obstructing internal walls or columns?
• Fire safety systems. Look for sprinklers, extinguishers, hose reels, easily accessible hydrants and back to base monitoring of the fire-alarm. Ask to see the latest essential services certificate. This should list the fire-safety features available in the building. Check the landlord has them tested weekly.
• Security systems:  check there enough intruder sensors. Walk the floor and watch the sensors to check for dead-zones near doors and windows that are not picked up by the sensors. If there are any dead zones then more sensors will need to be installed or existing sensors re-positioned. Make sure there is back-to-base monitoring of the security alarm to a professional security company.

A word on outgoings

A reputable landlord will want to be responsible for fire safety and security to ensure they comply with their building insurance requirements. You will be paying for the cost of repair and maintenance of these systems anyhow through your rent or outgoings payments to the landlord.

If you are paying a net rent plus outgoings then make sure that the lease specifically excludes your liability to make capital expenditure contributions. In particular, the cost of complying with council fire orders or remedying structural repairs can be prohibitive.

Good luck and if you are looking for a lawyer or solicitor to lease industrial property, please give me a call. As well as being a lawyer, I’ve managed a portfolio of industrial property and from my own experience I can point out a lot of potential cost issues for tenants that are often not obvious from the lease document.

Andrew Kleiman, Legal Practitioner Director