Is Industrial Property a Good Investment?
Thinking about expanding your portfolio to include industrial property? In Las Vegas, the sector is growing for the first time since the 2008 financial crisis, with around ten million square feet of space added since 2017 (according to Nevada Business Magazine), and demand continues to grow. In 2018, the industrial real estate sales hit a whopping 16 billion dollars in sales nationwide. The smart, savvy investors will take the time to figure out if they too can be a part of this lucrative industry.
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Is Industrial Property a Good Investment?
Investing in any type of real estate presents risks, but industrial properties are currently in high-demand and can offer long-term gains.
Benefits of Investing in Industrial Real Estate and Commercial Warehouses
Here are some of the many benefits that come from owning and leasing out industrial properties:
Higher Yields
Industrial properties are often big spaces home to fulfillment centers (e.g. Amazon), big-box warehouses, and self-storage facilities. More square footage is needed for this to be done successfully, in turn allowing for a higher asking price for rent. In Las Vegas, there is a growing demand for investment properties, spurring much new construction in recent years.
Long-Term Tenants
Speaking of people who rent from you, compared to other types of real estate, industrial property tends to have tenants who decide to stay for longer periods of time. This is usually because industrial properties have longer leases, ranging from 3 to 10 years. This alleviates some of the burden of having to find new tenants, which is often a problem with residential investments.
Low Maintenance
Compared to other types of commercial property, taking care of industrial properties can be relatively simple. Most of the problems that arise can easily be fixed or taken care of directly by the tenant on their own. This can be helpful if you are an investor with multiple properties, and no property manager to handle it for you. These properties are typically less management intensive.
Drawbacks of Investing in Industrial Over Other Kinds of Commercial Property
As mentioned before, investments do pose some risks. It’s better to know about these things up front before making any big financial leap. By being educated on the matter, you’re able to distinctly see the pros and cons regarding investing in industrial property. Some are as follows:
Cost
It is no secret that investing in property comes at some high costs. Unlike small apartments, the square footage of industrial real estate spaces are much larger. This leads to a higher initial investment for the buyer than they would pay for residential properties.
Higher Safety/Liability Risks
Industrial properties, outside of distribution centers, have heavier uses that can include the use of hazardous material. Hazardous materials are a serious issue that must be addressed with strong language in the lease document to provide the Owner protection. Management needs to ensure the Tenant stays current on all environmental regulations, inspections and reports.
Staying Up to Date
The needs of a tenant can change very rapidly, especially if they are part of the technology sector, where the demands of the space may need to be altered. You may have to put in money for renovations in order for the tenant to want to renew their lease. If you buy a spec property, or one built for a particular business, you may have trouble selling it.
Related: Is Commercial Real Estate a Good Investment in Las Vegas?
If you’re considering investing in industrial property, be sure to conduct research before making a commitment. Study the location of the property you’re investing in, talk with people in the specific industry, and decide if making this investment is the right decision for you. And remember, with great risk, often comes great reward.
