Build to Suit Leasing – A solid opportunity if approached in the right manner

Build to Suit is many times perceived as a long term/uncertain matter due to a multitude of reasons such as bad experience in the past, not meeting timelines, property not upto expected quality, etc.

What is seen in the market is that, sometimes there is simply no option that is actually suitable for your operations but you want to lease out something that you can make do with. This involves property search and visits with brokers. Now from a company standpoint, property decisions are usually not taken individually and most large property decisions would need a board approval or maybe an investment committee approval internally. 

With this situation, the search for a suitable site requires multiple rounds of visits and many times consumes a lot of time. Sometimes six months or more you are still searching. Assuming at the end of the sixth month a property is found somewhat suitable, then another 1 month will be spent in negotiations and documentations and another 2 months to fit out this property along with modifications. Overall now the timeline is at 9 months overshooting the target timeline by a flat 6 months.

An alternative to such a situation, when there is a requirement for a specific type of property, not seen in the market, is a build to suit. With the entry of many industrial funds the reliability factor is more or less taken care of. What remains is the timeline and the pricing. 

It is a gradual transition from an under equipped warehouse to standard warehousing for most companies, The under equipped warehousing has had serious cost benefits compared to the compliant and HSE incorporated modern warehousing. The economies of scale and benefits of shared utilities will be realised only over a period of time and not immediately. Hence this move can always be seen as a move to a more expensive place, while it is not conveying the full picture or long term benefits or that of big risk reductions on the inventory.

BTS model makes a strong case now, with many industrial funds setting up shop with industrial land already acquired.. In such a situation it would be far better to go for a build to suit, if your requirement is unique, and start on day zero and maybe finish in 12-14 months instead of a compromised property in 9 months. We can always remember the extra 6 months will serve you well when the lease is probably going to be a minimum of 15 years.