How to invest in the industrial real estate?

The industrial related sector is arguably least glamorous real estate asset sector. There involve no such elaboration on the architecturally designed feature, high profile addresses or resort a like amenities. Instead, the industrial like real estate is intended to garner an efficient and practical space to the users so that they can prioritize the function over the form. The industrial buildings are way too suitable for the usage varieties like R&D, manufacturing and the distribution and storage of the goods.

Over long run, the industrial properties are considered steady performers that are the reason why inclusion of merit in the real estate investment portfolio is essential. The average annual return for the industrial properties over past twenty years is 10.6 percent which is little bit ahead of average return of about 10.2 percent across the property kinds, in accordance to National Council of Real Estate Investment Fiduciaries or NCREIF index.

In this particular article, we will start with the overview of industrial asset class, vividly discuss regarding the demand drivers for making an informed investment decision.

The asset class overview:

The 3 major categories of the industrial real estate are warehouse, manufacturing and Flex or R&D which are delineated as following by the NAIOP or National Association of Industrial and Office Parks.

Manufacturing: This is a facility utilised for fabrication, conversion and assembly of the partly wrought or raw into goods or products. These are the properties which tend to be less than twenty percent of the office space and can further be classifies for light or heavy industrial usage.

Warehouse: This is a facility that is utilised primarily for the distribution and storage of the materials, merchandise and goods. These are the buildings that tend to have about less than fifteen percent of the office space and contemporary facilities having high clear ceiling heights that enable more space for storage. This is a category that might involve speciality facilities like freezer or cold storage for food genuinely.

Flex or R&D: These kind of industrial buildings are well designed to endow the occupants with flexibility to use the space. Sometimes referred to as tech or flex space, these are office industrial hybrid building which can have thirty to hundred percent of office finish.

As they require great lot of acreage for low density parking, wide building footprints and truck turning, the industrial buildings are never found in CBD. Therefore, this is considered rare to hear them being distinguished in accordance to anything of others than use.

The demand drivers:

There are various factors which can be considered when scrutinizing the industrial investment chances. The chief among the factors are proximity to the workers and customers, location, access to the financial and land incentives, transportation which can effectively offset the cost of the building.

Transportation: The industrial real estate generally depend on the easy to access to main interstates and highways, air freight, intermodal rail, port, as a outcome, that serves as significant driver for the industrial demand. Louisville, for instance, is the home to main shipping hub for the UPS which has assisted to magnetise dozens of e commerce and the retail firms like Columbia, Amazon and Guess as well as manufacturers like GE.

E commerce: The E commerce acts as major substantial demand for the industrial sector related to real estate, generally in larger format of buildings. For instance, in accordance to Costar, since the 2010, about one third of all the industrial leases are above 2 lakh square feet and have been for the purpose of ecommerce.

Incentives: Situating large industrial facilities often times include working close with the local city or the state agencies so as to negotiate the incentives which can influence the location related decisions. Large industrial properties like the distribution centre, manufacturing plant or the data centre have huge tax benefits and the states and cities compete way too aggressively to garner bigger projects which can boost their base for property taxes and jobs. That kind of bidding quarrels involve tax rebate offers, free land and low cost loans which genuinely have a big impact on the project’s cost and rate of interest for the investors of the properties.

Joseph Allaham founded the Allaham Consultancy to meet the growing needs in the real estate sector in the USA..