What You Need To Know About Industrial Real Estate Investments

The applications for industrial properties are nearly incalculable. For every type of business, there is an industrial counterpart. Boutique shops rely on distribution centers, and shipping companies require truck depots and transfer stations.

• Distribution Centers and Warehouses: These types of properties are a critical link in the greater supply chain for small-batch deliveries (think Amazon). Distribution centers feature vast spaces, high ceilings, loading capabilities, and minimal finishes in a centralized, strategic location.
• Manufacturing Facilities: These properties include uses from product manufacturing and print shops to research labs and data centers. Manufacturing facilities may require more complex infrastructure (machinery, gas, roads, pressurized water, etc.), but are designed to scale easily and be flexible for a wide range of applications.
• Storage Facilities: Storing large items like vehicle fleets, server farms, cold storage, or even self-storage facilities is a low-stakes investment with high flexibility and lower operating costs.
• Fulfillment Centers: These are the big brothers to distribution centers, which can be more strategically located. For large-scale shipments, fulfillment centers must be close to major transportation, such as train depots and airports.
• Industrial Parks: Much like a retail strip mall, an industrial park is a complex of multiple industrial buildings of varying sizes and applications that exist in close proximity. These types of commercial real estate are a powerful investment strategy that allows you to diversify use across multiple industrial properties.
• Truck Terminals and Logistics: Transferring goods from one truck to another can be complex. While this could take place at distribution or fulfillment centers, some large-scale operations require a space wholly dedicated to this process.

Industrial property investments are in high demand, and this is a hot market for accredited investors. The latest census data reveals that e-commerce sales remain in a state of steady growth and account for just under 16% of all sales.[3] With this continued growth, the demand for industrial real estate grows in alignment. Inventory must be created, stored, and shipped from somewhere.

Investing in industrial real estate offers a lower barrier to entry for many projects with a high projected profitability and low operational investment. Other benefits of industrial real estate investments include:

• Cash Flow Stability: Industrial spaces are on the low end of what you can charge per square foot, but they make up for this in the sheer volume of square feet available, generating significant cash flow per rental.
• Long-Term Leases: Most industrial tenants are investing in the long haul and aren’t keen to move manufacturing facilities or warehousing. Low tenant turnover and longer leases are common in the industrial sector, and this is good news for investors.
• Percentage Lease Options: A percentage lease includes a portion of the revenue the tenant generates on the premises as part of their rent obligations.
• Property Adaptability: Most industrial real estate investments aren’t purpose-built spaces and, therefore, offer increased adaptability to suit future tenant needs when relevant.
• Investment Diversity: The industrial sector isn’t tied to the same market upsets, though it’s not untouched by economic downturns. Diversifying your real estate portfolio with industrial properties is a wise investment strategy.
• Tax Benefits: Some common lease agreements for industrial facilities (net lease or triple net lease) place the tax liability on the tenant rather than the owner or operating entity. The owner’s responsibility is simply to keep the property in good condition, and the tenant is responsible for the rest.