While not as attractive as retail space in the downtown of a major city, industrial warehouses may offer a better return on investment. As businesses across the United States continue trending towards e-commerce over traditional retail, warehouses continue to reemerge as one of the necessities that connect businesses to consumers. As more businesses search for the space they need to compete in the digital age, commercial real estate investors should keep this investment on their radar. If executed correctly, warehouses will attract consistent tenants and appreciate thanks to their demand in today’s business world.
Warehouses Support The Growing E-Commerce Industry
As companies like Amazon continue to replace traditional retail vendors, their demand for land and space to hold and distribute their goods increases. Did you know Amazon now has more warehouse space than companies like UPS and FedEx? This alone shows how these types of companies positively impact the industrial warehouse market. Many businesses now opt for this e-commerce model because it helps cut costs associated with traditional retail spaces. They can deliver their products quicker because they move them from warehouse to consumer, rather than to a third-party location along the way.
With increased consumer demand for same-day delivery options, distribution companies are looking for more warehouse space and more locations to meet new shipping expectations. E-commerce business uses approximately three times the amount of warehouse space as a traditional retailer. As more businesses shift towards an online presence, the commercial real estate industry will see a demand for new warehouses skyrocket to fill this void.
Warehouses Serve All Kinds of Business
Warehouses go beyond storage and delivery, and owners who keep their options open are more likely to find the tenants they need. Data farms and internet hosting services need large spaces to maximize their network’s power and efficiency. Most of these digital business search for warehouses, not shops. For example, states that have legalized marijuana have seen a noticeable increase in warehouse demand. As this industry also grows, these people need large spaces to grow the plant and distribute their product. Similarly, traditional businesses have moved into warehouses over commercial retail. Event businesses have also opted for warehouses because they provide the flexibility a wide range of events requires.
As more businesses consult and hire logistics companies to run their distribution chain, warehouses continue to see a surge in popularity. These companies once avoided having warehouses as that meant contributing time, manpower and organization. However, now, logistics companies can make warehouses more feasible for larger business, keeping it a hands-off affair. For warehouse owners, their investment becomes that much more attractive because many of these logistics companies seek out industrial space, whereas traditional retailers tend to avoid it.
Warehouses Offer More Stability Than Other Industries
As more businesses search for warehouses, investors can charge higher rental rates and turn higher profits. Many warehouse owners purchase oversized warehouses for their own business, and then rent out the rest to tenants, helping them increase their profit margins. As nothing has suggested that the warehouse to consumer model will slow down anytime soon, warehouses should consider offering stable tenants and low vacancy rates. As demand has increased, creating additional inventory could help provide consistent returns.
Big Warehouses Over Small Warehouses
When searching for a warehouse, investors should purchase larger properties as the size provides more flexibility. If given the choice between multiple, small warehouses, or one large one, usually the large one will be the best choice. Ten years ago, the industry considered 200,000 square foot warehouses to be quite large. Today, many of the new warehouses appearing on the market approach 800,000 square feet. Larger warehouses allow for even the largest e-commerce companies to do business, increasing the building’s ability to serve the largest possible market.
Along similar lines, investors should keep building height in mind. The taller the building, the more variety of businesses can fit in it. By having more competition, the warehouse will be more marketable, increasing its value and rental rates.
Location and Technology For Warehouses
If searching for a warehouse, keep your market in mind. Will your warehouse offer the necessities that your tenant needs? Are you close enough to your tenant’s target market? Make sure you find a warehouse with the right kinds of docks and access. Many businesses want docks on both sides of the building. For example a small miss during the purchase period could cost you a future tenant. Many mechanical upgrades allow tenants to stack their inventory higher, saving them room and money. Investing in a warehouse that provides such technology will help make the warehouse reach its full potential.
For investors with questions about warehouse investment and the best types of loan to make this purchase fit in your greater financial picture, contact the experts at Hunt Mortgage Group today.