Industrial Property - The Simplest Class of Commercial Property Investment

When you are starting out you will find industrial property not only the cheapest of all commercial property investments but also the simplest to understand. This is why it is recommended that industrial be the starting point of your commercial real estate investment journey as there are very few problems associated with this type of investment.

Industrial buildings are usually simple boxes with a small area partitioned off as office space. They are extremely cheap to build and require little or no maintenance.

Generally speaking, an industrial property would include properties used for heavy or a light manufacturing units, or a ware house for storing purposes, factory-office multi-use property and retail-warehouse units; industrial parks; and lastly research and development parks. The area included under the industrial units can range from 1000 square feet to 50000 square feet.

Industrial properties are not location sensitive when compared to other types of commercial real estate such as retail, commercial and hospitality wherein location is the key factor. This is because manufactures can produce and store goods at any street or location as long as it is not too distant for the their workers to commute.

The ratio of office to warehouse or retail to warehouse is extremely important when renting out the property as tenants have varying requirements. There are tenants who have more requirement for warehouse house. There are others who need more office or retail space.

You can increase the returns from your industrial investment if you can increase the portion of retail or office space area in relation to the warehouse space. This is because retail and office areas get higher rent per square meter when compared to warehouse space. However you can not increase these areas beyond a point because it will be difficult to find a tenant to suit the area. It is a safe to have around one third of the area ear marked for office or retail. Increasing areas beyond this ratio will carry a risk for finding a suitable tenant for the property.

You have to be careful when buying an industrial property regarding the ratios discussed above. I have seen investors pay more for a property on capitalization rate basis because over 70% of the property was converted to office space. The problem comes when the existing tenant moves out. It will be very difficult for you to find a replacement tenant with such large requirement of office space in relation to warehouse space. If you are forced to reconvert the space back to warehousing you will lose a lot of value in the property.

It is a good idea to buy well located, high stud industrial property that has 90% or even 100% warehousing space. The present trend is for most people to have a retail outlet in their industrial premises. If you have a well located property you can covert the warehouse area into retail and office space to increase the rents and as a result increase the value of your property.

Remember! Small industrial units have more steady demand as compared to large industrial units. They are also low cost affordable first investment. These units will however have shorter term tenancies and the tenants are normally under capitalized thus making them less secure.

Larger industrial properties on the other hand will have well established long term national tenants. The problem comes when these tenants move out. It is difficult to find another tenant who have a matching space requirement. I have seen investors subdividing these huge industrial properties at considerable costs to accommodate smaller tenancies.

When starting out as a commercial property investor it is good strategy first invest in small industrial units before venturing into mid size or large industrial properties. These investments are also relatively easier to handle when compared to other classes of commercial property such as retail, office space and hospitality.

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