Industrial Real Estate Investments
What is Industrial Real Estate Investments?
Industrial real estate falls under the umbrella of commercial real estate and is primarily used for manufacturing, wholesaling, and warehousing. Like residential real estate, zoning plays a significant role in determining exact locations for industrial properties like factories, storage units, and distribution centers.
A typical tenant of an industrial real estate property would be a manufacturer or distribution branch of a larger ecommerce based business. This type of tenant would have a main goal of mass producing as quickly and efficiently as possible. For this reason, key features of a property have the potential to improve the bottom line, and are therefore more valuable than say for instance, the location because the property doesn’t serve as the face of the business.
Industrial real estate is considered a safe asset class to invest in. With growing online businesses that require shipping, there is a demand for industrial space and amenities. So long as there is continued growth in ecommerce, industrial real estate will be a valuable stream for those looking to invest in real estate.
Industrial Real Estate Example
You can locate available industrial real estate properties over the web, in newspapers, magazines and in even in storefronts. A typical listing for an industrial real estate property will include:
- Property type: this describes the intended use of the property.
- Tenancy: this refers to how many tenants can occupy a property, either single or multi-tenancy.
- Capitalization rate: is the rate of return on an industrial real estate property based on the income that the property is expected to generate. To calculate the capitalization rate, you can divide the net operating income by the current property value.
- Year Last Renovated: this represents the year of the last renovation completed on the property.
- Permitted Zoning Requirements: this refers to the municipality responsible for property zoning.
- Parking Space: this refers to the available space intended for parking usage, and is typically measured by 1,000 feet per unit in industrial real estate property.
- Lease Type: this refers to the type of commercial lease the tenant and real estate owner agree to. Different commercial leases include the following: single net, double net, triple net, and gross leases.
- Square footage: is the size of the property by the square foot measurement.
- NOI (Net Operating Income): is a calculation of income used to analyze a real estate investment. To calculate net operating income, subtract all reasonable operating expenses from all revenue.
- Number of Stories: is the number of floors in the property.
- Lot Size (sq ft): this refers to the size of a plot of land that makes up a property, typically measured by acres.
- APN (Assessor’s Parcel Number): this refers to a number assigned by the tax assessor of that jurisdiction for record keeping and identification purposes for that specific property.
Like residential and specific types of commercial real estate, industrial real estate has specific zoning requirements which is mainly due to the intended use of the property. Unlike residential and some commercial real estate, location is not a driving factor in an industrial real estate transaction. A key feature like a loading dock or station can help produce more product and improve the bottom line which makes it more valuable to a tenant who mass receives and ships product. If you are thinking of investing in industrial real estate, be sure to do your research. While it is considered a safer asset class to invest in, all investments carry their own level of risk.