Types of industrial development funded
Industrial development finance ranges from small multi-let estates through to large single-occupier distribution warehouses. Build-to-suit schemes with a committed occupier are the most lender-friendly structure in the sector.
- New-build light industrial units - typically 1,000-10,000 sq ft per unit, multi-let estates of 5-25 units, B2/B8 use class
- New-build distribution warehouses - single or multi-unit logistics facilities, 20,000-200,000+ sq ft, typically let to single occupiers on long leases
- Trade park development - retail-adjacent commercial space for trade counters, builders merchants, motor trade; strong occupier demand in most markets
- Build-to-suit industrial - a committed occupier with a pre-let agreement in place; the most lender-friendly structure in industrial development finance
- Business park development - mixed B1/B2 development for professional services, R&D, and light manufacturing
Industrial GDV calculation
Industrial GDV is assessed on an investment yield basis: Net Rent x (100 / Yield). The key inputs are: estimated market rent per square foot (ranging from £8 psf in secondary markets to £25+ psf in prime South East locations), estimated yield (ranging from 5% in prime logistics locations to 8-9% for secondary multi-let estates), and vacancy allowance (typically 10-15% on completion). An independent RICS Red Book valuation is required, typically in the format of an investment valuation of the completed and let scheme.
Worked example - a 10-unit trade park, 25,000 sq ft total. Market rent: £12 psf = £300,000 pa. Estimated yield: 7%. GDV: £300,000 / 7% = £4,285,714.
A 10-unit trade park totalling 25,000 sq ft at a market rent of £12 psf generates £300,000 pa. Capitalised at a 7% yield, that produces a GDV of £4,285,714.
Lender criteria for industrial development finance
Five factors drive an industrial development application. Pre-lets and planning class are the biggest levers on both leverage and rate, and build cost varies widely between basic units and high-bay logistics.
LTGDV: 60-65% for speculative industrial development (no pre-lets). 65-70% for build-to-suit schemes with pre-let agreements from creditworthy tenants.
Pre-lets: pre-lets (tenants contracted before practical completion) significantly strengthen the application. A single strong-covenant pre-let covering 30%+ of the scheme can open access to higher LTGDV and lower rates.
Planning class: B2 (light industrial) and B8 (storage and distribution) are the most straightforward for development finance lenders. E-class (commercial, business, service) conversion to B8 may require specific planning evidence of accepted change of use.
Build cost: industrial build costs are typically £500-£900 psf for speculative single-storey units, rising to £1,200-£1,800 psf for high-bay logistics with dock levellers, sprinklers, and HGV yard specification.
Location: prime South East, Midlands Golden Triangle, and major distribution hubs attract the widest lender panel. Secondary markets require experienced developers with local track records.
Case study: 6-unit trade park, Yorkshire
A Yorkshire developer with three prior residential schemes extended into commercial with a 6-unit trade park. Two pre-lets were agreed with national trade counter operators before development finance was drawn. Doulton arranged £1.092m at 65% LTGDV. The 2 pre-lets reduced effective leasing risk.
All 6 units were tenanted by Month 18. A commercial investment mortgage arranged by Doulton at Month 18 cleared the development facility.
- Scheme: 6-unit trade park, 12,000 sq ft total, South Yorkshire
- GDV: £1,680,000 (£168,000 pa rent / 10% yield - secondary Yorkshire market)
- Build cost: £960,000 (£80 psf)
- Development facility: £1,092,000 (65% LTGDV)
- Term: 14 months
- Pre-lets: 2 of 6 units pre-let to plumbers merchant and electrical trade counter
- Exit: commercial investment mortgage on practical completion, all 6 units tenanted by Month 18