Why Invest in Industrial Property?
Industrial real estate is a category of commercial real estate that delivers efficient and practical space which comes in many shapes and sizes. There are many uses for industrial property which include manufacturing, storing goods, logistics and distributions, R&D, labs, showrooms and telecom buildings.
While industrial property investment may not be the most glamorous looking investment option in real estate, it comprises a unique part of the commercial real estate industry which can be exceptionally lucrative for a smart investor. Just look at some of the advantages it offers:
nvesting in industrial property is becoming quite popular amongst investors. Industrial property withstands market downturns better than most commercial properties. Due to demand for properties to be fulfilment properties such as Amazon or big box warehouses and storage facilities.
Industrial tenants generally sign longer leases compared to residential tenants. Leases can range from three to even 10 years. Generally speaking, the longer the lease the more stable the investment.
Industrial properties are generally low maintenance, therefore, have lower costs.
When comparing this with the 3 to 3.5 percent return from residential properties this clearly demonstrates which investment option leads to higher profits.
What to look for in a good Industrial Property
- Great location - employees need to get here, so access to roads and shops is a must.
- Parking – If an industrial property is in the outer suburbs or a remote location, on-site parking will be vital for staff and visitors.
- Access - Entrances to a warehouse should be higher and the driveway not located on a steep slope for large trucks.
- Staff amenities - This includes facilities such as toilets, kitchen and air conditioning.
- Flexibility – The premises should include added facilities such as offices, meeting rooms and showrooms.
- High ceilings - Many tenants tend to use modern racking for storage, displaying and storing goods vertically.
Things to consider
There are many benefits to investing in industrial property, with many considerations to make before committing to a purchase. Industrial property investments can be expensive, requiring a bigger deposit with higher interest rates.
What’s more, there is the added risk of experiencing a vacancy for a prolonged period due to the market risks or a tenant moving on. This can leave you out of pocket and under substantial pressure to lease quickly to get the return on your investment.
For example, smaller companies will require 25-50 percent of the building as office space.
Industrial properties are always evolving and innovating. As such buildings can quickly become obsolete. If the clearance height is too low, access limited, or floor space is unsuited to modern machines, you might find yourself with unwanted additional costs.
The location can become undesirable if road tolls are introduced close by, or alternative options become available with better logistic connections. Always be aware of your competitive landscape.
Expensive to invest
Banks consider industrial property to be a higher risk investment than residential property, therefore the costs of borrowing tend to run significantly higher. Banks will require a higher deposit (usually around 30 percent) and interest rates will also be higher than for residential investments. Ensure that the difference you make in rental yield makes up for the higher costs, interests and potential risk of not having a tenant for a prolonged period of time.
All industrial investments should be handled with strategic insight and careful planning.