﻿4 Reasons Why The Industrial Real Estate Outlook Is So Damn Good
(For 2022 And Beyond) ________________
Industrial real estate has exploded over the last cycle and doesn’t seem to be slowing down
any time soon. Let’s dive into 5 reasons why the industrial outlook is so damn good.
1. Online Sales Will Continue To Grow ________________
As bad as the pandemic has been, COVID has definitely accelerated the growth of eCommerce
and online ordering in the past two years. Yes, larger industrial spaces are (and always
will be) taken by the Amazons of the world, but many underestimate the need that much smaller
online retailers have out there right now. The demand for last-mile delivery and regional
distribution is exploding, and that means the need for access to smaller industrial spaces
is also exploding. Businesses need more space to store their inventory!
But it’s not only product retailers - concepts like “ghost kitchens” are rapidly growing as well,
to meet the demand for restaurant delivery. Ghost kitchens often reside in industrial properties,
since rents are much cheaper and the nature of their business dictates that
they don’t need a front-facing retail presence. Check out this video here for
everything you need to know on ghost kitchens. Online retail (and other business models that
don’t require retail space) is booming… and there doesn’t seem to be an end to that trend.
This is one of the best reasons why the future of industrial
commercial real estate is bright. 2. The Supply Of Industrial Properties Is
NOT Growing Rapidly ________________
On the flip side of the coin, in my opinion, the supply of industrial space has not (and likely
will not) keep up with demand in the next decade. The main issue here is that it’s tough to find
enough strategically located land to build industrial parks on.
The area needs to be affordable enough to support industrial use and in an easily accessible area,
which is difficult to do since there’s typically a higher and better use for that land,
like high-end retail or condos. And speaking of the highest and best
use of land... much of the industrial real estate around the urban core
(or even core adjacent) is already being redeveloped into retail, multifamily,
office, and/or mixed-use properties. Why? These types of assets bring in higher rents
and therefore higher values than industrial ever could.
So, what does this mean for someone looking to invest in industrial commercial real estate?
It means there’s a big opportunity to acquire any industrial asset near urban cores right now.
Since you likely won’t have any new industrial properties built in those areas,
you’ll likely won’t have any competition! But you should definitely start buying before
pricing gets too far out of reach. Now, while the supply of industrial
properties (and land) are decreasing, demand certainly isn’t. As I’ve said, there’s an
abundance of online retail and service-based businesses that need smaller flex space…
and they want it in the downtown core. The lack of supply in the face of
serious demand is always a unique opportunity for an investor.
rrrrrrrr 3. Less Turnover
________________ For commercial real estate investors,
tenant turnover is one of those facts of life that you’ll always have to deal with.
Industrial commercial properties, though, can offer a bit of a hedge
against dealing with potential tenant loss and, therefore, loss of income.
For one thing, with a lower supply of properties to move to, there are
fewer opportunities for your tenant to do so. Industrial tenants are likely to grow within
industrial opportunities rather than to outgrow them and move into a different asset type or
property – depending on their operations it can be incredibly expensive and difficult to move.
Different goals, use, mindset, and opportunity for the industrial tenant can make them nearly
ideal in terms of low turnover, especially when compared to other product types.
4. Simplicity ________________
1. Industrial Is LOW Maintenance If you’re invested in other types
of commercial real estate products, you’ll instantly find this to be an attractive quality.
For instance, your biggest capital expenditure is likely the roofing on your building. Yes,
you’ve got basic plumbing and electrical, but nothing like the demands in other asset types.
Think about it, in most cases, you’re renting an empty box!
It’s also fairly easy to predict what your expenses will be for the foreseeable future,
since the buildings are relatively simple compared to apartment complexes,
office buildings, and the like. Lastly, and similarly, tenant improvements are
also often much lower, because your tenants don’t need to stage an extravagant build out – the space
just needs to work for their operations. 2. Industrial Requires Minimal
Landlord Responsibilities Again, compared to other commercial real
estate product types, industrial landlording can be incredibly easy and less intense.
Leases for industrial properties are often structured in ways that minimize landlord
responsibilities – better for the landlord and the tenant, who likely doesn’t want you
interfering with their business anyway. You usually won’t have the landscaping bill
that apartment complexes may have with the drama of overparking neighbors that
you can find in shopping centers. And that list can go on and on…
Now don’t get me wrong, you want to invest in and maintain excellent buildings in excellent shape,
but with industrial, you won’t find the laundry list of “must haves” that you do otherwise.
This asset class can actually be a great starter investment
for the newcomer to commercial real estate. Is industrial starting to look attractive to you?
Check out this video here on Everything You Need to Know about Industrial Real Estate.