Industrial Commercial Real Estate:
What You Need to Know
What You Need to Know
It’s no secret that Industrial Real Estate has been thriving with a serious rise in demand over recent years and shows no signs of stopping. Let’s take a look at some of the key factors driving demand for this asset type.
Growing Online Sales
The last 2 years have sparked many businesses to open online storefronts in addition to their brick-and-mortar locations. From clothing and cosmetics to groceries and pharmaceuticals, just about everything can and is being ordered online. The uptick in eCommerce and online ordering is immense, not just for the Amazons of the world but for smaller online retailers as well. “Last Mile” facilities for regional distribution are in high demand. With this move to online transactions, businesses require small warehouse/flex space for inventory so they can deliver it more efficiently.
With heavy demand for this space, comes the rush by developers to deliver new space, but that’s no easy task. Finding enough land, in the right place, for the right price, is extremely difficult. Property in centralized locations usually have a higher and better use. These properties tend to be developed as office, retail, and multifamily. These types of properties are seen as having more value than industrial property because they warrant higher rents per square foot.
Buying well-located industrial property isn’t going to get easier any time soon. For investors and owner/users, being able to acquire this asset type now, means they will likely have limited competition in the future. With service-based businesses like landscapers, carpenters, pet care, and brewers being joined by the flourishing eCommerce industry, demand will continue to climb making this an extraordinary window of opportunity.
Owners of commercial property know that tenants come and go, that’s par for the course. Tenants’ needs shift as their businesses change over time. When a tenant leaves it can result in a loss of income for a period before a new tenant moves in. In today’s market, tenant turnover is lessened a bit in industrial spaces, in comparison to other types of properties. With inventory low and demand high, tenants are likely to sign longer initial term leases or exercise their renewal rights under existing leases.
While all commercial property comes with the need for property maintenance, industrial properties tend to be more basic in nature. Compared to office, multi-family, or retail, with their obligations for common area amenities and features designed to appeal to tenants and visiting clientele industrial tenants have very simple fit-out needs.
The use of only basic construction material in building industrial / flex space provides for longevity in the lifespan of these structures. While the majority of lease structures will put the cost of property maintenance on the tenant, this lower maintenance cost exposure allows for a lease rate structure that is attractive to prospective tenants, compared to more high-end properties with mixed-use aspects inclusive of flex and quasi-industrial space.