Why Industrial Real Estate Is Booming – And How You Can Profit From It

The industrial real estate market has undergone huge growth in the last few decades because of factors such as the expansion of e-commerce, supply chain innovations, and enhanced demand for warehouse and distribution centres. For investors who want to expand their portfolio or make an entry into a new segment of the real estate market, industrial real estate provides the best opportunities.

What is industrial real estate?

Industrial real estate refers to those properties that are used for industrial purposes like manufacturing, warehousing, production, and distribution. It involves several kinds of properties, which include factories and distribution centres along with research and development facilities. These properties are important in the supply chain as they serve as major hubs for storage, production, and transportation of goods.

It is not like residential or commercial properties; industrial real estate is rented to large-scale businesses such as manufacturers, retailers, etc., which increases the demand for those properties.

Different types of industrial properties

Industrial real estate can be categorised into many subcategories, and each of them serves a different purpose within the supply chain. Investors must familiarise themselves with such kinds to make the right decisions:

Warehouses and distribution centres: Warehouses and distribution centres are mainly used for the storage of goods, primarily for big retailers or e-commerce businesses. These facilities possess high ceilings. Loading docks and big floors for accommodating varied products. With increasing online shopping, the demand for warehouse space is also increasing, which makes it one of the attractive investment options.

Manufacturing facilities: These facilities are utilised for the production of goods and range from small-scale operations to large facilities. But here investors should remain aware of various factors like zoning regulations, nearness to transportation hubs and industry-specific needs.

Flex spaces: Flex spaces mainly combine office space and industrial space, facilitating businesses to carry out light manufacturing, research, or distribution while maintaining office facilities. These spaces are often small compared to industrial buildings, but provide good flexibility in how they can be used.

Facilities for cold storage: With increasing demand for perishable goods, mainly in the food and pharma industries, cold storage facilities have gained substantial traction. These properties need special infrastructure, such as refrigeration systems, which makes them a niche but profitable option for investment.

Research and development facilities: These are special properties utilised for scientific research, technological development, and testing of products. Those facilities might cater to technology, pharma, and biotech industries and mostly have special needs.

Important factors affecting industrial real estate investments

Investment in industrial real estate needs a proper understanding of several factors that can affect the value of property, rental income, and profits on a long-term basis. Here are some important considerations:

Location: Like other real estate investments, location is important in industrial real estate. Closeness to transportation hubs like highways, railroads, and ports is important, as it ensures there is effective movement of goods. Industrial properties close to major cities or the ports tend to appeal to high demand, while properties in remote areas might offer low purchase prices but might lack logistical benefits.

Trends of supply chain: The global supply chain has been rapidly evolving, primarily with the rise of e-commerce. Warehouses and distribution centres near major centres of population or transportation networks are in high demand. The change towards on-demand delivery and stocking of inventory in urban areas has resulted in enhanced demand for last-mile delivery centres. Investors must track these trends to spot opportunities.

Lease structures and stability of tenants: The lease structure in industrial real estate is mainly in the long term, and tenants are generally big and established companies. A proper understanding of the lease terms, which also includes escalation of rent clauses and maintenance liabilities, is required for investors.

Demand in the market and vacancy rates: Industrial real estate markets mostly have low vacancy rates as compared to other kinds of property, but conditions of the local market might vary. A proper understanding of the dynamics of supply and demand in the target market is important. Check vacancy rates, new connection projects and upcoming developments for gauging the existing and upcoming market trends. High demand and low rates of vacancy are signs of a healthy market.

Capital expenses and maintenance: While industrial properties often need less maintenance as compared to residential or commercial properties, they still have their own set of expenses.  Investors must take into consideration these potential costs while analysing the whole profitability of any investment.

Economic and regulatory factors: The economic state has a direct impact on industrial real estate. During economic growth periods, the manufacturing and logistics sectors tend to expand, causing an increase in demand for industrial space. However, economic downturns can cause less demand and vacant properties.

Advantages of investment in industrial real estate

• A steady flow of cash: Industrial properties are mainly leased to stable, long-term tenants, which makes them one of the best sources of income. Tenants often go for signing multiple-year leases, which offer investors with good, steady flow of cash.
• High yield potential: Because of the special nature of industrial real estate, investors might be able to attain high rental yields as compared to other commercial real estate sectors. This is primarily true in markets with high demand and limited supply.
• Low costs of maintenance: Industrial properties in general need less day-to-day management when compared with residential properties. The tenants are primarily liable for maintenance, and the properties themselves are not prone to wear and tear.
• Capital increase: Like other real estate assets, the industrial properties can increase in value with time. In case the property is in an area that is experiencing growth or is high in demand, then investors might see substantial capital gains.

Conclusion

Investment in industrial real estate is one of the best ways to diversify a portfolio and benefit from the growth of e-commerce, manufacturing sectors, and logistics. Whether you’re new to the sector or a seasoned investor, Auction Dunia brings you curated opportunities in industrial real estate to help you make the most of this dynamic market.