PepsiCo, a global food and beverage leader, leased a 212,833-square-foot high bay warehouse which was utilized as a National Distribution Center. PepsiCo retained Studley (now Savills Studley) to review the existing industrial real estate lease which still had approximately 10 years remaining, a tenant break (termination) option in 2012, and an open market review pending. As the landlord was proposing a rent increase, from the existing rent of £4.65 per square foot to £5.50 per square foot, PepsiCo leveraged Studley’s advisory services to evaluate its lease options.
Since PepsiCo considered the facility a core asset to its distribution network, it wished to retain the space in the medium to long-term. The landlord’s pending rent review was problematic as the market lacked comparable buildings. Due to the shortage of equivalent leases, the original lease stated that rent reviews would be based on 60,000-square-foot buildings, an unfair comparison for PepsiCo. In an effort to mitigate an open increase at review, Studley worked closely with the landlord to negotiate new lease terms. While representing PepsiCo, Studley indicated that the client would likely exercise its termination option in 2012, which would result in an incentive package in lieu of terminating the lease, as well as the ability to settle the outstanding rent review.
Based on Studley’s tireless negotiations, Studley proposed that PepsiCo extend the lease and extensively renovate the premises. Under the newly executed lease terms, a new rental rate of £4.85 per square foot was agreed upon in conjunction with a rent-free period valued at a £250,000 savings for the client, while PepsiCo agreed to surrender the termination option. Ultimately, the new lease produced a total five-year savings of more than £941,000 and PepsiCo was granted a lease extension with consent to renovate its facility.