When it comes to investing in real estate, there are several different types of properties to consider. Industrial real estate has been one popular investment option over the past year. That said, there’s a lot to discuss when thinking about an industrial real estate investment. Is it worth it? Let’s go over the types of industrial real estate investment properties, their demand, and the pros and cons of this investment type.
What are Industrial Real Estate Investment Properties?
Industrial real estate investment properties are essentially commercial buildings used for industrial purposes. Some examples include warehouses, storage centers, manufacturing facilities, showroom buildings, and more. The use of industrial property varies, ranging from car dealerships to scientific research buildings.
Additionally, industrial properties are larger than other commercial properties, like office buildings or retail spaces. In fact, many industrial properties exceed 100,000 square feet. Furthermore, these buildings are generally located in areas with easy access to transportation routes.
Next, let’s go over the main types of industrial real estate properties and how they’re used.
Main Types of Industrial Properties
Generally, there are three main types of industrial real estate properties–manufacturing facilities, storage and distribution centers, and flex spaces. However, you’ll often see various kinds of industrial buildings that fall under these three categories.
Read along as we discuss the different types of industrial real estate properties.
- Manufacturing Facilities
- Storage and Distribution Centers
- Flex Space
Manufacturing Facilities
One primary type of industrial building is a manufacturing facility. This may include heavy manufacturing or light manufacturing. Heavy manufacturing requires a larger space, generally over tens of thousands of square feet. On the other hand, light manufacturing buildings don’t need that much space and are more flexible.
Storage and Distribution Centers
Storage and distribution centers are always needed since online shopping is always expanding and adapting. That said, everything people buy online needs a place to sit until it’s shipped off to the customer. Additionally, many companies need buildings for their equipment, vehicles, or parts.
Flex Space
A flex space is a building with multiple functions–like a warehouse with an office space. Generally, the office portion of these buildings takes up around a third of the property, and the rest of the building is flexible, used for many things. Some examples of flex spaces may include:
- Data Centers
- Car Dealerships
- Research Bases
Why is There a Demand for Industrial Space?
There’s a great demand for industrial real estate space, especially within the past couple of years, because of a change in how people live. For instance, online shopping is more popular now than ever. So to accommodate the way people live, industrial buildings are necessary.
Industrial real estate demand is driven by e-commerce growth and the need for large commercial spaces. For instance, e-commerce growth created a demand for high-tech facilities in large, populated cities that can handle next-day or same-day shipments.
Additionally, non-e-commerce sales are up, which means there’s a demand for industrial buildings for manufacturing, cars, tires, parts, medical industries, materials, construction, and more.
Next, let’s dive into the advantages and drawbacks of industrial real estate investments for curious property owners.
Top Markets for Industrial Rent Growth
Vacant industrial properties are hard to come by these days–especially in certain markets. That said, since 2021, industrial rents have continued to rise. Some of the top markets for industrial rent growth are:
- Nashville, TN
- Boston, MA
- Atlanta, GA
- Seattle, WA
- Philadelphia, PA
- Baltimore, MD
- Kansas City, MO
- St. Louis, MO
As you may notice, many of these cities are highly populated, making the demand for industrial buildings higher than in smaller towns.
If you need more information about your next investment, contact your local rental property management company in Northern Virginia. Your management professionals can give you more information about properties, help you manage your investments, and help guide you on future investments.
Advantages and Drawbacks for Investors
Like any investment strategy, there are some advantages and drawbacks to consider while buying industrial real estate. Before making any investment decision, it’s important to look into the pros and cons. That said, here are some considerations for industrial real estate investment properties.
Pros of Industrial Real Estate Investments
- High Rental Income– Generally, in an industrial building, the tenant is responsible for paying taxes, insurance, maintenance fees, and monthly rent. So, as an owner, you’re only paying the mortgage and possibly some other small expenses, allowing you to earn a higher ROI.
- Lower Maintenance– Industrial buildings often require less maintenance than other commercial building types. As mentioned, the tenant is usually responsible for repairs and improvements.
- Stability– Industrial real estate generally offers longer lease terms than other real estate types. For instance, the average lease term for industrial real estate is around 3 to 5 years or longer.
- Growing Market– People love online shopping more now than ever. As such, distribution companies are busy and need large properties to store goods and ship products. With consistent demand, the industrial real estate market isn’t slowing down any time soon.
Cons of Industrial Real Estate Investments
- High-Interest Rates on Loans– Industrial real estate investment properties usually have high-interest rates when loaned from a bank. After all, they’re at higher risk, and interest rates are rising for everything due to inflation.
- Risk of Vacancy– Unfortunately, if you end up with an empty industrial property and nobody to rent it to, it can leave you with a lot of expenses and no income.
- Expert Assistance May be Necessary- Investing in industrial real estate isn’t always as straightforward as other investment types. As such, you may need some professional advice since you’ll be working with lots of rules and regulations.
Are Industrial Real Estate Investment Properties Worth It?
Investing in industrial real estate can be a lucrative decision for anyone willing to put in the time and work to do so. But ultimately, the investment is only worth it if you maximize efforts, resulting in higher profitability. Any industrial property will take maintenance, marketing, and management to thrive.
If you need help managing your rental property, whether it’s a commercial property or a single-family home, contact your professional property managers in Northern Virginia. PPM can help you manage your rental business–stress-free!
Contact PPM today if you’re looking for comprehensive management services in Northern Virginia.
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