The industrial sector of the commercial real estate market has many compelling perks that make it a great place to invest.

While all investments carry some risk, industrial properties tend to maintain a certain level of stability that other sectors don’t always carry. Let’s take a look at some of the reasons why.

But first, let’s answer the question: What is industrial real estate?

WHAT IS INDUSTRIAL REAL ESTATE?

Industrial property refers to any commercial property used specifically for industrial purposes. For example:

• Warehousing
• Manufacturing
• Storage
• Logistics
• Showrooms

Now, let’s discuss eight great reasons to invest in industrial real estate.

GREATER DIVERSITY

Typically, in commercial real estate, a property that falls into a particular category must be used for that specific purpose. Office space, for example, could not be used as a multifamily property any more than a multifamily property could be used as a retail storefront.

With industrial property, however, there are multiple potential uses for it giving it a greater ability to fluctuate with the changing demand of the market. If, for example, demand is low for warehouses in an area but high for storage facilities, industrial property has the flexibility to be advertised as either.

Additionally, one industrial property can have multiple uses, making it appealing to a broader range of businesses. One large warehouse building can be sectioned into separate spaces for storage, production, and office use. 

Read on to see how warehouses are being converted into office space.

HIGH DEMAND

Largely due to the aforementioned adaptability, industrial properties tend to sit vacant for far less time on average than other types of commercial real estate.

In fact, earlier this year we wrote an article detailing the phenomenon of America’s warehouses running out of space.

Demand for these types of properties continues to stay high because every product we encounter has passed through an industrial property in one capacity or another. In other words, these properties are indispensable.

This doesn’t seem to be changing anytime soon, either, as e-commerce continues to flourish, creating an even larger need for larger-scale fulfillment centers.

LONG-TERM INCOME OPPORTUNITIES

A property that remains occupied is a benefit to the investor for multiple reasons, among them the promise of steady, long-term income.

Due to the sheer mass and volume of moving an industrial business from one property to another, industrial leases tend to be on the longer side and tenants are much more likely to renew their lease when the opportunity presents itself as opposed to packing up and relocating.

HIGHER RENTAL YIELDS

While traditional office space shows promising returns of around 5% on investments and retail even larger returns of about 6%, industrial real estate tops them both.

Yields on industrial space fall anywhere between 6 to 7.5%, making these types of commercial property investments a clear choice.

LESS MAINTENANCE

Owning a commercial property does come with its fair share of overhead. There will be upgrades, repairs, and renovations that will be necessary throughout your ownership. These can become both costly and time-consuming.

With industrial real estate, however, the maintenance required is far less than in other sectors. Because most industrial properties are big, open areas with poured concrete floors and high, exposed ceilings, the need for items like flooring, soundproofing, high-end fixtures, and other additional expenses are reduced or eliminated.

GREATER TENANT RESPONSIBILITY

In addition to less maintenance required by the investor, there’s also the bonus of greater tenant responsibility.

As previously mentioned, tenants in the industrial sector typically have a much greater intention of staying put for a longer duration of time. This means they also have much more invested in the property, as it is a representation of their business.

LESS MARKET SATURATION RISK

It’s far less likely that industrial property will face the issue of oversupply—an over-abundance of available properties compared to the market demand—due largely to many of the reasons previously listed.

As long as consumers are still buying products (of any and every kind), there will always be a need for industrial space, making it a much safer investment option.

EASIER TO LIQUIDATE

Lastly, due to consistently high demand for this type of commercial property, you’re much less likely to find yourself in a situation where you can’t sell. 

Industrial properties tend to stay on the market for short periods, making them a much easier way to quickly access cash than other types of real estate investment.

Interested in learning more? Read on to learn about the future of industrial real estate and whether or not it’s a good time to buy a building.

South Florida’s Industrial Market is off its peak – but not by much 

In the past five years, warehouse rents have climbed by as much as 83% 

Not long after the advent of COVID-19, South Florida experienced an unprecedented demand for industrial properties. 

Frank Trelles, executive VP of State Street Realty, said his phone didn’t stop ringing for two years. 

“We were crazy on fire,’’ he said, adding that his phone still rings- but nowhere near as much. 

That clamor for warehouse and distribution space was fueled by an influx of out-of-state companies and high-income households, which sparked a rise in demand for e-commerce and logistics services. International supply chain hiccups only exacerbated the need for storage space. 

Today, South Florida’s industrial properties remain a valuable commodity for landlords and real estate investors as vacancies hover near record lows and rents continue to rise, developers and brokers say. However, with more warehouses being built and businesses less desperate for storage space, the wild days of annual double-digit rent hikes are long gone. “We are going back to normal,” said Tom O’Loughlin, an executive VP at CBRE. “Tenant activity is normalized. We’re not at that supercharged [pace]. 

A slowdown in rent hikes would be a good thing for South Florida warehouse users and consumers, said Jeff Hartsook, managing principal of Cresa South Florida, a brokerage that represents commercial tenants. 

“Year-over-year for the past two years, there have been 30% to 40% increases,” he said. “And what is happening is that all those costs get passed on to consumers.”

But with millions of square feet of new industrial space coming online, could a correction on rent be far behind? 

 

Read the full article in the South Florida Business Journal.