Industrial real estate is generally sorted into six main categories based on physical characteristics and use. From an investment standpoints, it’s typically associated with long leases, higher yields, and steady returns. If you’re considering investing in industrial real estate, here’s what you should understand about the advantages and disadvantages.
The Benefits of Investing in Industrial Real Estate
There are several compelling advantages that can make investing in industrial real estate a very attractive decision.
- Higher yields – The value of industrial real estate in a given market comes from the number of square meters available to be rented. That means higher rental income. Normal fluctuations in the market also tend to have less of an impact on industrial real estate, which is important for those seeking low-risk options.
- Net leases – The majority of industrial leases are net, which means longer lease agreements. Tenants are also responsible for many of the larger expenses.
- Tenant responsibility – As the building’s occupant, your tenant is motivated to maintain things like aesthetics and to make repairs quickly. After all, the setting is a reflection on the company, not the landlord.
- Lower turnover – Industrial properties usually have lower turnover rates than other commercial investment properties, which means a big savings.
- Facility flexibility – With so many sizes, shapes, and building requirements, many existing facilities can be reconfigured to accommodate different tenants and their respective needs.
The Drawbacks of Investing in Industrial Real Estate
Investments of any kind pose an inherent risks, and that’s true of industrial real estate investments too. Here are the potential drawbacks to this kind of investment.
- Cost – Industrial real estate facilities are large, and the square footage alone means a higher initial investment. Location will also play a role in price. Fortunately, many industrial buildings are located outside the city or in industrial areas, so they tend to cost less than comparable buildings in more desirable areas.
- Staying relevant – Individual tenant needs, particularly in the technology sector, can change very quickly. A building that was acceptable just a few years ago may need major renovations to stay current and desirable. Location can likewise be a variable, if newer complexes are built in other areas or communication centers move.
- Environmental considerations – Industrial properties can be at greater risk of environmental problems and issues, particularly relating to tenant use. This is where an environmental consultant can prove highly useful.
If you’re considering investing in industrial real estate, northern Nevada is a market worth your consideration. Let the professionals here at Miller Industrial Properties answer your questions. Contact us today.