Astute Real Estate investors are keen on Industrial Real Estate. Here are 7 Reasons why you should be investing:
Real Estate Markets are evolving
1. Fundamentals may be changing. The jury is still out on this, but there are signs that it is becoming increasingly difficult for investors to extract value from traditional asset classes. Office product is in oversupply in several major markets. There is a flight to quality on the part of office tenants. Owners of B class assets are increasingly faced with significant retro-fit expenses to remain competitive. Or they are considering wholesale change of use (condo conversions are but one example). Multi-family residential real estate owners are not immune either. Low cap rates make acquisition costly. Cash flow is often slim. Rent controls continue in many markets as well, limiting rental upside. Industrial real estate by comparison, is seen as a solid market performing asset.
2. eCommerce is taking a bite too! Retail real estate is undergoing pressure from on-line retailers. Not only is a significant amount of retail trade on-line, traditional store traffic may also be diminishing. Consumers often just view the product only to make the purchase transaction from their laptop or PC. Retail property cap rates are beginning to reflect this phenomenon. Industrial real estate is often tenanted by businesses less reliant on and subject to the disruptive effects of eCommerce. Industrial real estate is consequently considered a more stable asset.
3. New retailing models require distribution facilities. eCommerce retailers don’t necessarily need store front presence. Rather, they need distribution facilities in major markets. Industrial real estate, able to serve this purpose, is in high demand. In fact, these so-called “fulfillment” centres are the top asset class choice of real estate professionals considering either an investment or development opportunity, according to the PwC report entitled Emerging Trends in Real Estate 2017.
Demand drivers are shifting as well
4. Work Patterns are shifting. In many North American markets, there is a renewed interest in living and working in the core. Lengthy commuting is a huge time suck. Increasingly evidence is suggesting its bad for our health as well. Younger workers in particular, are drawn to non-traditional work environments, such as converted industrial facilities which offer open and collaborative space. Exposed brick and beam construction, with visible conduits, exposed HVAC ducting , and suspended lighting. Tech, design and creative class tenants are leading the charge. Industrial building owners are benefiting.
5.Industrial buildings offer flexibility. Significant under steel ceiling heights and open bay construction, offer tremendous flexibility for design and layout variance. It’s often a “clean slate”, and less costly to fit-up for new tenancy or convert for an alternate use, than traditional office space environments.
Lenders and Investors are enthusiastic
6. Investors are keen. REITS, focused on financial performance and unit holder returns, have been busy acquiring assets. In fact industrial property REITS were top performers in 2016.
7. Lenders are as well! In the recently released CBRE 2016 Canadian Real Estate Lenders’ Report, the 2017 budget intentions for all major active lenders was surveyed. The lenders identified industrial real estate as the asset class to see increased funding allocations. Fully 45% of lenders indicated planned increases in industrial funding. Compare that to office property. Only 24% of lenders plan increased lending in the office real estate class.
Considering a jump into industrial real estate? Expect to see a smile on your lenders’ face!