Investing in industrial properties may not be as luxurious as purchasing a high-end office building or leasing a fancy retail store, but smart investors can make a healthy profit from them. While not glamorous, industrial properties have provided a steady 10.6 return for the last 20 years. This consistency should make them a staple in any investor’s portfolio.
Investing in Industrial Properties: Asset Classes
Industrial buildings are split into four separate asset classes. As you consider investing in industrial properties, decide if you want to pursue a warehouse, manufacturing or flex/R&D building.
Warehouses:
This asset class is pretty simple and to the point. Warehouses are leased by buisinesses for storage and distribution purposes. These properties generally feature very little office space. They may also be specialized, like freezer buildings.
Manufacturing Buildings:
Manufacturing properties are used for the production of products from raw materials. This asset class can be further broken down into light or heavy industrial use.
Flex/R&D Buildings:
Like the name implies, these buildings give tenants some flexibility in how they use the property. Companies may choose to use a majority of it as an office space and leave little room for anything else. Or go the opposite direction.
Investing in Industrial Properties: Leases and Tenants
Industrial properties’ tenants usually sign multi-year, long-term leases. These contracts can stretch anywhere from three years to ten years. These extended leases with responsible tenants can provide some pro-growth stability over the years. And allow investors plenty of time to plan ahead for when their current tenant makes the decision to move to a different industrial property.
Industrial properties are often highly specialized to the current tenant. Businesses that lease out industrial properties will likely demand the building be tailored to their specific needs. This can make replacing tenants a wildly expensive process. Another reason it’s good to have long leases.
Investing in Industrial Properties: Trends
Industrial real estate is becoming a hot commodity in the age of e-commerce. Large online retailers like Amazon are buying or building warehouses to help with their distribution models. Strategically placed industrial properties can dramatically decrease the time it gets their products into the hands of their customer. As well as shave valuable cents off the cost of doing business.
This is a good time to begin investing in industrial properties.
Interested in investing in commercial real estate, but unsure if industrial properties are for you? Read out articles on investing in retail properties or office buildings.