There are many reasons to invest in industrial real estate. Industrial property vacancy rates tend to be lower than other commercial real estate. This is largely because of the accessibility and adaptability of most industrial properties. Large industrial properties like warehouses attract unique tenants as they can be outfitted for multiple uses.
One industrial property may have multiple uses simultaneously. It’s possible to section one large warehouse building into separate spaces for office use, storage, and production. In addition, industrial properties can be used for various activities, including research laboratories and technology innovation centers. Even if the performance of one asset class is affected by factors like a changed regulatory environment, it can be easily adapted for another activity or use.
In commercial real estate, a property in a particular category can only be used for that specific purpose. For example, office space cannot be used as an office space. Similarly, an office block cannot be used as a retail outlet.
However, an industrial property has multiple potential uses, which gives it greater flexibility to respond to the changing market. For example, if warehouse demand is low in an area but storage facilities are in high demand, industrial property can be marketed as either.
A property that remains occupied for long durations offers the investor long-term, steady income. Due to their volume and sheer mass, tenants do not like the prospect of moving an industrial business frequently. For this reason, tenants may prefer to renew their lease than pack and relocate.
Most industrial real estate property leases are either double or triple-net leases, which results in a totally ‘hands-off’ investment for the landlord. In a double net (NN) lease, the tenant is responsible for most expenses associated with their occupancy, such as property taxes, insurance, and routine maintenance. The exceptions are structural items such as the foundation or roof. In a triple net (NNN) lease, the tenant takes care of everything associated with occupying the building.
A standard commercial property like an office building comes with numerous overhead expenses. The owner has to undertake renovations, repairs, and upgrades throughout the ownership. These are not only time-consuming but costly.
However, the maintenance requirements might be much lower with industrial real estate. Most industrial properties are big, open spaces with concrete floors and exposed high ceilings. They don’t require high-end fixtures, flooring, and other expenses such as soundproofing.
The growth of e-commerce also makes industrial property more attractive as an investment option to investors. E-commerce businesses need more storage facilities and warehouses to keep up with growing customer demand. These companies need additional space for inventory storage and shipping activities.
In addition, industrial real estate is located in less densely populated areas, making them appealing for businesses that ship products. Another plus is that they are often near transportation routes, seaports, airports, and rail terminals.
