Open storage yards are vital for various industries, including logistics, construction, and automotive. These properties offer flexible space for storing goods, vehicles, and equipment. This guide will walk you through the steps to buy an open storage yard in the UK, covering market analysis, property selection, financing options, legal considerations, and operational planning.
Understanding the UK Open Storage Market
Before diving into the purchase process, it’s crucial to understand the UK open storage market. The demand for open storage yards has been rising due to several factors:
E-commerce Growth: The increase in online shopping has boosted the need for logistics and distribution centers, including open storage yards for last-mile delivery operations
Infrastructure Projects: Large-scale infrastructure projects, such as HS2 and Crossrail, require extensive storage for materials and equipment, driving demand for open storage sites
Automotive Industry: The automotive sector uses open storage for vehicle storage, distribution, and auctions
Flexibility: Open storage yards offer flexibility for businesses needing temporary or seasonal storage solutions.
Read up more able open storage market dynamics.
Identifying Suitable Properties
Finding the right open storage yard involves several key considerations:
Location: Choose a location that is accessible and close to major transport hubs. Proximity to highways, ports, and railways can enhance the yard’s utility
Size and Layout: Ensure the property is large enough to meet your storage needs. Consider the layout and whether it can accommodate your operations efficiently
Infrastructure: Look for properties with adequate infrastructure, including paved surfaces, drainage systems, and utilities
Security: Security measures such as fencing, surveillance systems, and secure access points are essential to protect stored items
Legal Considerations when Buying a Yard
Navigating legal requirements is crucial when buying an open storage yard in the UK:
Zoning and Planning Permissions: Ensure the property is zoned for commercial use and obtain necessary planning permissions. This will be particularly relevant where newer sheds or buildings have been built.
Environmental Regulations: Conduct environmental assessments to ensure the property complies with regulations and is free from hazardous substances. Lenders can be hot on this, so it’s worth avoiding sides that have previously been exposed to hazardous materials if possible.
Lease Agreements: If leasing the property, review lease agreements carefully to understand terms and conditions
Finance for Open Storage Yards
There are primarily two types of commercial mortgage for buying an open storage yard: owner-occupier mortgages and commercial investment mortgages.
Owner-Occupier Mortgages
An owner-occupier commercial mortgage is designed for businesses that intend to use the yard for their own operational needs. This type of mortgage allows businesses to purchase a yard and pay a mortgage instead of rent. The key advantage here is that mortgage payments contribute to building equity in the property, which can be a valuable asset over time. For an open storage yard lenders typically look at 65% loan to value, sometimes rising to 70% LTV. This is slightly less than what would be available for a warehouse for example and that’s because many lenders typically are not atracted to land as it has limited alternative uses.
Commercial Investment Mortgages
Commercial investment mortgages are suitable for individuals or entities looking to invest in open storage facilities to generate rental income. By becoming a commercial landlord, investors can lease out the yard space to other businesses and enjoy a steady stream of revenue. This type of mortgage is an attractive option for those looking to diversify their investment portfolio with commercial real estate, which is typically higher yielding.
These are both long-term solutions to funding the purchase of a yard. However it’s worth mentioning two further types of funding:
Bridging Loans
A bridging loan is a short term solution to a specific problem, usually one related to property or real estate. It makes cash available quickly to facilitate a purchase while you arrange for either cash to arrive or a commercial mortgage, which will allow you to pay it off. Examples we have seen include the buildings on a yard not having the correct planning permission in place. The yard then needed to be purchased using a short-term bridging loan while the planning issue was rectified. Then with this smoothed over the yard could be refinanced onto a commecial mortgage.
Developement Finance
You can use development finance to fund the build costs of a new project or to fund a combination of both the land purchase and build costs. So if you wanted to purchase a yard and then build storage or buildings on the land, then development finance could be the solution.Â
Firstly, a valuation will need to be undertaken and the valuer will comment on the initial value of the site (Day 1 value). Secondly, they’ll comment on the realism of the build costs, and the expected end value (the Gross Development Value, or GDV for short). Then you’ll be able to borrow a percentage against the Day 1 value, a percentage of build cost, and the total borrowing will need to be below a set percentage of the Gross Development Value.
Eligibility Criteria for Commercial Mortgages
Securing a commercial mortgage for a yard involves meeting certain eligibility criteria. These criteria ensure that the lender’s risk is minimized and that the borrower is capable of fulfilling the mortgage obligations. Here are some common factors considered by lenders:
Business Finances
Lenders will closely examine the financial health of your business. This includes reviewing your profit and loss statements, balance sheets, and cash flow projections. A strong financial track record and stable revenue streams enhance your chances of securing a commercial mortgage.
Credit History
Your business and personal credit history play a significant role in the mortgage approval process. A good credit score demonstrates your reliability in repaying debts and can lead to more favorable mortgage terms. Be prepared to provide credit reports for both your business and any key individuals involved in the application. Where you do have histroric credit issues consult a commercial mortgage broker who should be able to find the right lender to understand your situation.
Location and Condition of the Yard
The location and condition of the yard are critical factors for lenders. Yards in prime locations with high demand and good infrastructure are more likely to be approved for a mortgage. Additionally, the overall condition of the property, including structural integrity and energy efficiency will be considered.
Business Plan
Lenders may require a detailed business plan outlining how you intend to use the yard and how it will contribute to your business’s growth. This plan should include financial projections, market analysis, and strategies for mitigating potential risks.
Benefits of Buying your Open Storage Yard
Buying you own yard offers several benefits for UK business owners. Here are some key advantages:
Asset Ownership
Owning a yard provides businesses with a valuable asset that can appreciate over time. Instead of paying rent to a landlord, mortgage payments contribute to building equity in the asset.
Stability and Control
Having your own open storage space ensures stability and control over your operational needs. You can customize the space to suit your business requirements without worrying about lease expirations or rent increases. You may be able to develop the space in the future to support your growth.
Potential Rental Income
For investors, own open storage opens up opportunities for generating rental income. Leasing out the yard space to other businesses can provide a steady stream of revenue and contribute to long-term financial stability.
Tax Benefits
Mortgage interest payments on commercial properties can often be tax-deductible, providing additional financial benefits for business owners.
Conclusion
Buying an open storage yard in the UK involves careful planning and consideration. By understanding the market, identifying suitable properties, securing financing, navigating legal requirements, and planning operations, you can successfully acquire and manage an open storage yard. This investment can provide flexible storage solutions for various industries and offer significant returns.