1. Introduction: Investing in Industrial Properties
Experts advise investing in the industrial market due to stagnating residential and commercial real estate. The main factors that keep the industrial market afloat are promising rental yields, high-value appreciation, and lengthy lease terms.
Industrial real estate outperforms retail and traditional office space, offering promising investment returns of about 5% and 6%, respectively. However, investments in industrial space have clear advantages due to their low yields, which range from 6.5 percent to 7.5%.
Any commercial property used specifically for industrial purposes is considered industrial property. For instance:
2. The Industrial Real Estate Market:
It refers to the land and structures used by industrial firms for operations, including manufacturing, mechanical production, research and development, construction, transportation, logistics, and warehousing.
The broad industrial real estate category includes all land and buildings used for production, manufacturing, assembly, warehousing, research, storage, and distribution.
To prevent the activity on these sites from disrupting businesses or residences that might have otherwise been placed adjacently, each city has specific areas designated for industrial properties and depicted on a zoning map. These areas describe where these spaces can be constructed and operated.
These zoning laws get even more specific when they say where certain industrial activities can and can't be done. Due to the wide range of properties included in this definition, it is crucial to understand the distinctions between each type of industrial property before deciding which one to invest in. This will allow you to be completely informed of the risks and benefits of each. The industrial sector has many distinct aspects.
3. Characteristics of Industrial Real Estate:
3.1 High returns:
Industrial investments always earn a higher rate of return than residential and commercial properties. The value of industrial property typically rises by 7 to 10 percent annually. Higher yields guarantee an early return on the investment, allowing for a lengthy period of time before profits are realized.
3.2 Lengthy lease terms:
Land and factories are industrial properties leased for 99 years or more. However, even a factory's shortest lease is three years, which is advantageous for the owner.
3.3 Taxes must be paid:
The tenant pays for all major expenses, another major advantage of industrial investment. The tenant is responsible for all taxes and rates, including the council rate, water rate, land tax, and management fee. This makes sure that the investor gets a lot of cash
4. Types of Industrial Investments:
4.1 Buildings for distribution and storage
4.2 Agricultural land
4.3 Flexible buildings
4.4 Production units
4.5 Storage and refrigeration
For early-stage investors, this kind of industrial investment is a great place to start. These properties are referred to as multi-tenant industrial parks, incubator parks, business centers, industrial parks, or you get the idea. The idea is that these properties offer startups and local service businesses multiple small spaces, typically ranging from 1,000 to 5,000 square feet. Projects can range from a single building with 10,000 SF to a larger project with multiple buildings totaling 300,000 SF. These are the industrial real estate asset class's apartment complexes.
Diversification of income streams is made possible by multi-tenant developments. Compare this to the earlier illustration of a single-tenant building where cash flow is either present or absent. A multi-tenant industrial have five to fifty tenants, and no one tenant makes up more than 5 to 10% of the entire project. In exchange for this consistent income, management responsibilities will increase. When managing twenty leases, a property manager, common area maintenance, HVAC maintenance, and improved tenant relations are all required.
Smaller tenants typically have lower levels of sophistication and capital, which is the nature of the situation. Credit crunches, a challenging business environment, and a declining market may impact small businesses more. Due to their lack of future visibility, smaller tenants sign shorter leases than larger, more established tenants. Most of your contracts will be between two and three years long, with a few exceptions. This indicates that you may see 25 to 50 percent of your tenants' leases expire annually. It takes time and money to market smaller spaces, clean and prepares each vacant space, and prospective screen tenants.
However, there is a benefit to this. For example, the market may rise 8% annually for a five-year lease on a larger building, but your contract only includes 3% escalators. As a result, you can better price market increases into your leasing strategy with shorter-term leases.
Industrial real estate is the land and structures industrial firms use for operations, including manufacturing, mechanical production, research and development, construction, transportation, logistics, and warehousing.