Investing in industrial real estate can seem daunting at first. And if you’re unfamiliar with what to look for when purchasing industrial property, it can seem scarier still. However, with the right investment property advisor working with you, you can reap a long list of benefits. In this article, we’ll cover the top five reasons to consider industrial property investment in Denver.
But first, let’s ensure you have a strong understanding of what defines industrial real estate.
What qualifies as industrial real estate?
Industrial real estate is a type of commercial property that typically includes warehouses, factories, logistics and distribution centers, manufacturers, depots, and industrial businesses. Industrial real estate is often considered to be one of the lowest-risk and most appealing asset classes because it can provide a more consistent cash flow than other types of real estate investments, such as office with gross leases or ‘non-essential’ retail. However, just like all types of investing, it’s important to do your research.
Why invest in industrial real estate
E-commerce in America is booming. In fact, as many as 75% of people in the United States shop online at least once a month, and the vast majority of those consumers shop online more frequently. The number of online shoppers is only expected to increase in the coming years. Fast delivery of those online purchases to the consumer is necessary and well-located industrial distribution facilities help make same-day delivery possible. All that’s to say, real estate investors are quickly realizing that industrial real estate can be a profitable place to invest. Here are five reasons why.
1. Hassle-free passive income
One of the biggest benefits of investing in commercial real estate is that it’s a hassle-free way to earn passive income. Compared to multi-family (apartments), hospitality (hotels), office and multi-tenant retail investments, industrial investment properties require far less maintenance due to NNN lease structures, have lower upfront costs as it relates to tenant improvements and real estate commissions/fees and it typically has lower vacancy rates (depending on the market), which ensures a more steady stream of rental income.
2. Higher yields
Historically, industrial real estate investments offer some of the highest yields of any real estate sector. On average, industrial properties generate a cash-on-cash yield of 6%-7% on average, compared to 5%-6% for stand-alone retail & apartment complexes. The yield difference between 5% and 7% is not 2% as you might think...it is a 40% higher yield. A 5% yield will take 14.4 years to double your money. A 7% yield will only take 10.3 years (using the Rule of 72).
3. Fast and easy to build
On average, industrial properties are built in a year or less. Thanks to the relatively simple design, tilt-wall construction and lower-density submarkets (with less ‘neighborhood approvals’ required), industrial buildings are often built faster and can quickly be occupied once finished. The same cannot be said for office buildings, apartment complexes, or retail spaces. And with e-commerce taking up more market share with each passing year, it’s easy to see why investors opt for industrial investments.
4. Easier to liquidate
At one point or another, you’ll want to exit your industrial investment. The good news is, with increasing demand for online shopping, there’s always going to be a retail business (tenant) that wants to lease a well-located industrial space. With high tenant demand, industrial real estate properties can lease quickly, sell fast with a large pool of investors interested, giving you a strong incentive to invest.
5. Affordable re-leasing costs
One of the least attractive parts about investing in real estate is preparing the space for a new tenant. But let’s face the facts: people’s destructive habits are often more expensive to repair compared to items like machinery and equipment. When a lease ends at an apartment complex, office building, or retail space, there’s a lot that needs to be done to get the vacant space ready for the replacement tenant. Between leases, you may have to replace carpets, tear-down, rebuild and repaint walls, attend to mechanical systems that may need upgrades or replacement, and complete other costly and time-consuming steps to get the space ready for a new tenant.
But with industrial properties, the maintenance needs between leases are much more basic and the new tenants typically pay for part of, or all of, the required upgrades. Since industrial spaces generally are occupied by a lower-density workforce and less visitors, the releasing costs are less expensive.
Learn more about industrial property investment in Denver
If you’re ready to take the next step and seek an investment property advisor, reach out to us at Fountainhead Commercial. We offer industrial real estate investment property representation for both investors and owners/occupants who are considering buying or selling industrial real estate.
Contact us today to learn more about industrial property investment.