Industrial Property Investments

If you haven’t considered industrial properties as an investment vehicle, it may be time to take a look. Warehouse and distribution (W&D) properties are of interest because their standard layout suits a wide range of users, in contrast to specialized manufacturing facilities. Industrial properties look good for the following reasons:

•  The market for industrial property is doing well with vacancy rates nationwide below those of other commercial buildings.

•  There is a shift in the location and nature of demand, caused by changing technology and trade patterns, that will present investment opportunities.

•  Institutional investors who have portfolios that are light in industrial assets are acquiring warehouse and distribution properties for diversification.

With any kind of investment, of course, there are always risks. The most significant is the potential for rapid functional or geographic obsolescence. Because of this, investors must carefully analyze factors such as location, construction, ceiling height, and the number and location of docks, as well as other factors.

The Healthy Property

The turndown in real estate did not affect industrial property as much as other properties because this property did not encourage speculative building; as much as 30% of the cost of W&D properties is in nondepreciable land, so they held limited appeal for tax-motivated investors. Foreign investors have largely avoided the warehouse and distribution sector because it lacks the “trophy quality” that makes offices, hotels, and resorts attractive. As a result, warehouse development was driven more by demand than by capital seeking an outlet. Also the size of the properties discouraged many institutional investors who prefer to invest in larger properties than the typical $1 million to $10 million W&D property.

Choosing The Investment

Choosing the right property may be a little more difficult. Certain factors may be driving the warehouse and distribution market toward greater efficiency, changing how and where business will be done:

•  Inventory control systems. Computerization and techniques such as bar coding can insure faster and more reliable deliveries from shipper to destination. Combined with just-in-time systems, it reduces inventory and space requirements.

•  Automated space. Using robots in W&D facilities will grow over time, encouraging more efficient use of space.

•  Regulations. With the trend toward deregulation during the past decades, there has been a reduction in delivery costs by trucks and planes, causing a shift away from rail and water. This widens the possible locations for warehouse and distribution facilities. Since trucks and planes speed deliveries, the amount of inventory stored and the space needed can be reduced.

Investment in warehouse and distribution facilities must be very carefully thought out because of the conflicting needs for greater demand for space while using existing space more efficiently.