The industrial property offers investors a great opportunity to generate consistent income and grow their portfolios. If you’re looking for a stable and profitable investment, industrial real estate is a great option! In this article, I will go over the top 10 reasons why should invest in industrial property. There’s never been a better time than now to look into industrial real estate investment.
When it comes to real estate investing, there are a variety of options to choose from. One increasingly popular option is industrial real estate. There are many reasons why investors should consider this type of investment. Some of the top reasons include its stability, potential for growth, stable cash flow, and profitability.
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Industrial Real Estate Defined
Industrial real estate refers to any commercial property used specifically for industrial purposes. This can include warehouses, manufacturing plants, storage facilities, logistics centers, and showrooms. Industrial properties are typically larger than other types of commercial real estate, such as an office or retail space. In addition, they are often located in industrial parks or areas with easy access to transportation routes.
Major types of industrial property
Generally, there are three major types of industrial properties:
1. Warehouses
2. Manufacturing plants
3. Storage facilities
There are many different types of industrial properties, but these are the three main categories. Each type of IRE has its unique characteristics and benefits. For more information about the types of industrial spaces available, check out our article detailing the different types of industrial properties.
The Pros – Great Reasons to Invest in Industrial Real Estate
| Benefit | Description |
|---|---|
| Higher Rental Yields | The average rental yield is around 7.5%, higher than residential and office properties |
| Longer Rental Terms | Average lease term 3-10 years, up to 25 years in some cases, providing stable cash flow |
| Lower Maintenance Costs | Triple net leases make tenants responsible for repairs and improvements |
| Business Trends | Growth of e-commerce driving demand for warehouses and storage facilities |
| E-Commerce Friendliness | Located away from city centers, ideal for storing inventory and shipping products |
| Variety/Flexibility | Can be adapted to various uses, more flexible than other commercial properties |
| Investment Stability | Less susceptible to market fluctuations, tend to appreciate over time |
| Easier to Sell | Easier to liquidate than residential properties, always demand for industrial space |
Higher Rental Yields
One of the biggest reasons to invest in industrial real estate is the potential for higher rental yields. IRE tends to provide more passive income than residential real estate. The average rental yield for industrial property in the US is around 7.5%. This is significantly higher than the average for residential and office properties which is closer to 4%.
The higher rental yield is because Industrial real estate(IRE) is typically leased on a triple net basis. This means that the tenant is responsible for paying property taxes, insurance, and maintenance fees in addition to their monthly rent. As the property owner, you are only responsible for the mortgage and any common area maintenance fees (CAM). This arrangement allows you to generate a higher return on your investment.
Longer Rental Terms (Stable Cash Flow)
In addition to higher rental yields, IRE also offers longer lease terms than other types of commercial real estate. The average lease term for industrial space is around 3-10 years. In some cases, the lease agreement can be as long as 25 years. This is significantly longer than the average for residential properties which is usually 1 year in length.
The longer lease terms offer stability and predictability for your investment. You can budget for the future knowing that you will have a consistent income stream for many years to come.
Lower Maintenance Costs
While all property types require some level of upkeep, industrial buildings generally require less maintenance than other commercial types. This is because most leases are triple net, which means that the tenant is responsible for all repairs and improvements. In addition, industrial buildings usually have longer lease terms than other types of industrial real estate properties. As a result, the owner won’t need to renovate as often, since there’s less tenant turnover.
Business Trends
One of the major trends driving the demand for industrial property is the growth of e-commerce. In recent years, there has been a dramatic increase in online shopping. As a result, businesses need more warehouses and storage facilities to keep up with consumer demand. This is not likely to change anytime soon, as the trend toward online shopping is expected to continue to grow in the coming years.
Even food delivery services, such as Blue Apron and Hello Fresh, are driving the demand for warehouses. These companies need space to store their inventory and ship their products to customers.
E-Commerce Friendliness
The growth of e-commerce has also made industrial property more attractive to industrial property investors. IRE is typically located in areas that are away from populated city centers. This makes it ideal for businesses that need to store inventory and ship products. The proximity to transportation routes is also a major perk for businesses that rely on trucks to move their goods.
Additionally, IRE is typically less expensive than other types of commercial real estate. This makes it a more affordable option for businesses that are looking to expand their operations.
Variety / Flexibility
Non-industrial commercial spaces are usually set up for a specific purpose. For example, an office building is designed to be used as office space, and a retail store is designed to be used for retail operations. However, industrial buildings can be easily adaptable to a variety of uses. This flexibility of the industrial commercial property makes it a more attractive option for businesses that may need to change their operations in the future.
Investment Stability
Investment in industrial real estate is often viewed as a safe bet, especially when compared to other property types. These properties are less susceptible to the fluctuations of the market, and they tend to appreciate over time. In addition, the needs of businesses for storage and manufacturing space are constant, so there is always demand for these properties.
Easier to sell Industrial Properties
Commercial buildings are easier to liquidate than residential properties. With a commercial building, you don’t have to go through as many repairs and improvements because there’s always someone looking for a large industrial-use building. Residential properties can be left in dire conditions and it can be tough to find a buyer who’s willing to pay a good price. But with commercial buildings, you’re more likely to get a quick sale for a good price. So if you’re ever thinking of selling your property, keep in mind that commercial buildings are easier to liquidate. Less Market saturation Risk
The Cons – Things You Should Be Are of
There are a lot of benefits to investing in industrial real estate, but as with any type of investment, there are also some risks. Here are a few things you should keep in mind before investing in industrial properties:
Potential for Long-Term Vacancy
While the demand for industrial real estate is growing, there is still a risk of long-term vacancy. This is because businesses can go out of business or relocate to another area. When this happens, it can take a long time to find a new tenant for the property.
Oversupply Risk
The industrial real estate sector is currently experiencing rapid growth. This has led to concerns that there could be an oversupply of warehouses and storage facilities in the future. If this happens, it could lead to a decrease in rents and property values.
Rising Interest Rates
Interest rates have been rising in recent years, and this trend is expected to continue. This could make it more difficult for businesses to afford industrial real estate, and it could also lead to a decrease in demand for these properties.
Less Availability
Lenders are typically more conservative when it comes to financing industrial real estate. This is because these properties can be more difficult to sell if the borrower defaults on the loan. As a result, there is often less availability of leverage when investing in industrial real estate.
How to Invest in Industrial Real Estate
If you would like to get started in industrial investments, here’s what I suggest. You can invest directly in the property or seek the help of an experienced commercial real estate broker. The broker can help you find the right property and negotiate the best price. The process can be complex and time-consuming so it’s best to have someone on your team who knows what they’re doing.
In addition, here are a few tips to increase your odds of success in industrial real estate investing:
- Research the market and find a good location.
- Work with an experienced and reputable broker.
- Get financing from a reliable lender.
- Be prepared for the risks involved.
- Have an exit strategy in place.
The Bottom Line
There are many great reasons to be interested in industrial property investment. This type of real estate investment is less susceptible to market fluctuations, tends to appreciate over time, and provides stable long-term cash flow. Keep in mind that there are some risks involved, so do your research before investing. If you’re looking for help getting started, I suggest working with an experienced broker. And finally, always have an exit strategy in place in case you need to sell the industrial property.
So there you have it, some pros and cons to investing in industrial space. I hope this provided some helpful insights into real estate investing and if you have any questions, feel free to get in touch with me. I have been helping people invest in commercial properties for over 17 years and I would be happy to chat with you about your specific goals.
