If you're looking for a solid investment, you may want to consider industrial land. With over $12.6 billion in sales in 2015 and a lower vacancy rate than any other sector accepting multi-family, it's proving to be a silent winner.
In fact, a survey conducted by the Urban Land Institute and Pricewaterhouse and Coopers revealed that the industrial real estate sector is a top choice. So if you're thinking about purchase, development, or rehabbing of industrial space, now is the time to act.
There's a belief that overseas manufacturing and online purchasing has led to a reduced demand for industrial spaces. But stats show that not only is there still a demand for industrial properties by traditional sectors, but that online entrepreneurs are increasingly establishing an offline presence to fulfill on-demand services. A notable example is Amazon.
As a commercial property investor, you can take advantage of the many benefits that come with this type of investment. Commercial properties offer steady returns, long leases, and 6-7% returns, making them a great addition to any portfolio. By diversifying your portfolio with commercial properties, you can maximize your profits while minimizing your risks.
Types of Industrial Land
Industrial real estate properties can generally fall into one of many categories. These categories are based on both the physical aspects of the building and how it is utilized. Different buildings will have different category combinations, and it's important to be aware of the various possibilities when looking at industrial real estate options.
When it comes to industrial real estate property, there are a few key characteristics that all buildings must have. However, it's important to note that there can be differences between each type of industrial property - even within the same category.
For example, all telecom centers must be located next to major communications trunk lines. However, not every telecom center will have high ceilings. There are two types of features that differentiate industrial buildings from one another: core differentiating features and ancillary differentiating characteristics.
Core differentiating features are exterior and interior features that are typical of an industrial property category. Ancillary differentiating characteristics, on the other hand, are characteristics that may or may not be present in any individual building.
Warehouse
Warehouse industrial properties are pretty common. In fact, they make up over 55% of all industrial properties. As the largest category, warehouse properties can go by many names, like bulk warehouse, office warehouse, and Big Box.
Each one is designed for a specific purpose and has a corresponding dominant feature, which is reflected in its name. Distribution warehouses come in all shapes and sizes, but they all have similar features. These include ceiling height, loading capabilities, and general building design.
Most importantly, they need to be big enough to store all the boxes of products (between 3,000 to 15,000 sq ft per dock). Plus, the ceiling needs to be tall enough so that people can move around easily and people can stack things high (between 16 ft to 80 ft).
Flex Buildings
Flex buildings are pretty neat- they can be used for a bunch of different things! They're especially popular among tech companies, research and development teams, start-ups, light manufacturers, or other businesses that need both office and manufacturing space in one building.
Flex industrial buildings are a great option for businesses looking for an upgrade from the average industrial property. With superior exterior and interior finishes, as well as professional landscaping, flex buildings give tenants the ability to adjust the amount of office to warehouse space - making it easy to find the perfect layout for your business needs.
Multi-Tenant
Multi-tenant industrial properties are a type of property that is typically not categorized separately. They are smaller facilities that have more than one tenant. This type of property is particularly suited to adjusting to the growing needs of small to mid-size businesses. These businesses can "add-on" space by incorporating space in the same building.
What to Consider
After you've decided to buy some raw land - whether for investment or development - there are a few legal issues you'll want to understand about using that property. For example, land-use restrictions may limit how the owner can use the land, land easements may grant access to part of the property to someone else, and conveying mineral rights may give someone else the permission to extract and sell minerals from the land.
When you're looking at land deeds, there's a lot of legal language that can be tough to decipher. Basically, it's important to know what kind of access you have to the land and any waterways nearby, as well as whether the land is in a flood plain. This can all impact how you're able to use the land. If you have questions about what the deed says, you can ask your real estate agent or a lawyer for help.
Small investors should consider a few things before investing in land. For example, utilities like electricity or telecommunications. Additionally, property taxes, trespassing potential, and how remote the land is from the nearest community are all factors to look into.
Benefits and Risk
Industrial real estate generally yields around 8%, which might not seem as high as other options, but it's more stable since it's less subject to market fluctuations. The value of industrial real estate comes from the number of square meters available to rent, and rental income usually increases each year by an amount linked to CPI. If you're looking to reduce your risks, investing in industrial property is a good option.
Industrial leases are usually net leases, which means that tenants not only agree to lease for a longer time, but also agree to pay for most big expenses, like maintenance and repairs. This can be a lot for tenants to handle, which is why it's important to understand all of the terms of the lease agreement before signing anything.
Industrial properties come in all sorts of shapes and sizes, and each one has different requirements. Some industries need very specific layouts and equipment connections, while others can be reconfigured to accommodate different types of tenants.
However, industrial properties may cost less than a comparable property in a prime area. They are usually located outside of the city, in industrial zones, or in parts of the city with less demand. This is offset by the increasing trend of either renovating older buildings or turning them into mixed-use properties.
Industrial properties can face some unique environmental challenges. For example, tenants might need to dispose of hazardous waste or deal with asbestos-containing materials. Other common issues include underground storage tanks and vehicle refueling. By understanding these potential problems, property owners can be better prepared to deal with them if they come up.
Key Takeaway
Industrial land is a great option for anyone looking for stability and a decent return. It's important to remember that all industrial properties are different, so it's crucial that you do your research to figure out which one is the right fit for you.
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