What To Know Before Investing in Industrial CRE
December 15, 2022
Industrial real estate has several avenues and buying an industrial property can be one of the most profitable ways to invest. If you compare it with the residential market, you will notice that industrial properties are not only easier to find but are also less of a hassle to deal with. The demand for industrial real estate has skyrocketed during this economic cycle.
Technology has also played a crucial role in influencing the way consumers make purchases and the surge of online shopping has shifted consumer preferences while ensuring that the supply chain adapts to the latest and quicker logistical methods so as to meet the changing demands of consumers. This has led to a rise in the demand for distribution and last-mile delivery and has impacted the industrial real estate market. This is why investing in industrial real estate is a hot trend right now.
We take you through everything you should know before you invest in Industrial CRE.
Benefits of Owning Industrial Commercial Real Estate
The first and biggest benefit of investing in industrial CRE is the high rental yield. You can earn as high as 10% pa when you invest in industrial property.
The maintenance of the property will fall on the tenant. This is not the case in a residential property. Since an industrial commercial property is used by the tenant, it will be in their interest to maintain and take care of the property. The expenses are also limited as compared to those incurred in a residential real estate property. About 5% of the commercial property rent and close to 30% of the residential property rent go towards expenses.
Lastly, industrial CRE properties have an objective price as compared to all the other property types. You can set the price of the property simply by asking for the current owner’s income statement. This is not the case in residential real estate since it is prone to emotional pricing and any private or small problems could lead to a delay in rent.
Different Types of Industrial CRE Properties
It’s important to understand the different types of industrial CRE properties in the market. There is a class grade attached to every commercial building- Class A, Class B, Class C and it helps to consider which class makes the most sense for your investment.
The properties under Class A are the newest and have top-quality structures. They are made from high-quality materials and have top amenities like utility systems, tall ceilings, and best-line mechanical. The assets are priced high and they carry a low risk for investors. Ideally a great option for someone to preserve capital.
Next are class B properties which are older buildings and could also be new buildings but without whistles and bells. The rent income is lower than the rates that Class A property owners see but the buildings are usually well-maintained and can be converted to A through improvements. Such assets are ideal for those who seek immediate cash flow and can wait for the asset to appreciate, provided it is in a desirable location.
The last category is Class C properties which are close to 20 or more years old and have several maintenance issues. They are usually located in less-desirable regions and bring the lowest rental rates in the market. If you can put the time and money into the property, you can convert it into a higher-value asset with the necessary updates and renovations.
There are both pros and cons of industrial real estate investing but if it is the right time and it is suitable to your portfolio, do not be afraid to leap. Industrial CRE can strengthen your investment portfolio.