5 Reasons Why The Industrial Real Estate Outlook is So Damn Good
(for 2022 and Beyond)
Historically, industrial commercial real estate has never been viewed as a particularly “sexy” investment.
It’s not flashy like a beautiful new apartment complex or retail property, and there aren’t usually big name brands associated with these industrial deals.
But make no mistake, industrial commercial real estate has become the “quiet darling” over the last economic cycle with the rise in eCommerce.
In short: online stores need space to store and ship their inventory from. In more and more cases, the success of these online retailers has forced them from their garages to an industrial space.
According to research from CBRE, there has been 1.25 Million Sq. Ft. of industrial space demand from each $1.0 Billion in eCommerce sales. Wow!
Below is not a complete list of all of the reasons that the industrial commercial real estate outlook is strong, but they are the most compelling reasons in my mind.
Here they are, my five reasons why industrial real estate will prove to be a strong investment for years to come...
1. Online Sales Will Continue to Grow
As bad as the pandemic has been, COVID has definitely accelerated the growth of eCommerce and online ordering in the past two years.
Yes, larger industrial spaces are (and always will be) taken by the Amazons of the world, but many underestimate the need that much smaller online retailers have out there right now.
The demand for last-mile delivery and regional distribution is exploding, and that means the need for access to smaller industrial spaces is exploding. These folks need space to store their inventory!
But it’s not only product retailers, concepts like “ghost kitchens” are rapidly growing as well, to meet the demand for restaurant delivery. Ghost kitchens often reside in industrial properties, since rents are much cheaper and the nature of their business dictates that they don’t need a front-facing retail presence.
Online retail (and other business models that don’t require retail space) is booming… and there doesn’t seem to be an end to that trend. This is one of the best reasons why the future of industrial commercial real estate is bright.
2. The Supply of Industrial Properties is NOT Growing Rapidly
On the other side of the coin, in my opinion, the supply of industrial space has not (and likely will not) keep up with demand in the next decade.
The main issue here is that it’s tough to find enough strategically located land to build industrial parks on.
The area needs to be affordable enough to support industrial use, which is difficult to do, because there’s typically a higher and better use for that land in play (high-end retail, condos, etc.).
And speaking of the highest and best use of land... much of the industrial real estate around the urban core (or even core adjacent) is already being redeveloped into retail, multifamily, office, and/or mixed-use properties. Why? These types of assets bring in higher rents and therefore higher values than industrial ever could.
So what does this mean for someone looking to invest in industrial commercial real estate?
It means there’s a big opportunity to acquire any industrial asset near urban cores right now. Since you likely won’t have any new industrial properties built in those areas, you’ll likely won’t have any competition!
Now, while the supply of industrial properties (and land) are decreasing, demand certainly isn’t. As we’ve already covered above, there’s an abundance of online retail and service-based businesses that need smaller flex space… and they want it in the downtown core.
The lack of supply in the face of serious demand is always a unique opportunity for an investor.
3. Less Turnover
For commercial real estate investors, tenant turnover is one of those headaches that just never goes away.
However, the rate of that turnover completely depends on the type of asset you’ve invested in.
For instance, the most likely highest rate of turnover is going to occur in single tenant leasing. It’s a pretty simple concept, you have one tenant living in that property, so if they up and leave, you’re immediately on the hook.
Compare that with any kind of multi-tenant property and you’ll see what I mean. If four (or forty) tenants are leasing from a single property you own, if one leaves, you’ve got some breathing room.
Industrial commercial properties, though in a different way than multi-tenant, offer a bit of a hedge against turnover as well.
For one thing, with a lower supply of properties to move to, there are fewer opportunities for your tenant to do so..
Industrial tenants are likely to grow within industrial opportunities rather than to outgrow them and move into a different asset type.
Different goals, use, mindset, and opportunity for the industrial tenant can make them nearly ideal in terms of low turnover, especially when compared to other product types.
4. Focus on the South/Southeast
Commercial real estate markets like Nashville, Atlanta, and Charlotte are benefitting from a serious boom right now, driven largely by both COVID flight and the ease of accessibility to the majority of consumers in the United States.
Similarly, states like Texas, Tennessee, and Florida have no state income tax, so they’ve become very attractive for investors.
These markets are much more affordable and therefore have a lower barrier of entry than the traditionally more attractive markets like Chicago, Los Angeles, and New York.
It’s happening down here again, the country (and the world) is taking notice of our southern states once more, as the place to invest in commercial real estate in the coming decades.
You might think I’m biased for saying that, since I’m writing you from the great Nashville, TN… and you might be right! But one thing I’ve never been accused of is not doing my homework. Rest assured, I’ve done it, and these numbers don’t lie.
I’d love to welcome you to our (booming) corner of the world.
5. Simplicity
When you say the words “industrial real estate,” most people don’t think of the word elegant. I get it, but I honestly can’t think of a better word to describe the experience of investing in industrial properties.
OK, maybe I’ll go one more… elegant simplicity.
Why? There are two main reasons that I can think of off the top of my head.
1. Industrial is LOW Maintenance
If you’re invested in other types of commercial real estate products, you’ll instantly find this to be an attractive quality.
For instance, your biggest capital expenditure is likely the roofing on your building. Yes, you’ve got basic plumbing and electrical, but nothing like the demands in other asset types.
Think about it, in most cases, you’re renting an empty box!
It’s also very easy to predict what your expenses will be for the foreseeable future, since the buildings are relatively simple compared to apartment complexes, office buildings, and the like.
Lastly, and similarly, tenant improvements are also often much lower, because your tenants don’t need to stage an extravagant build out.
2. Industrial Requires Minimal Landlord Responsibilities
Again, compared to other commercial real estate product types, industrial landlording can be incredibly easy and low stress.
You’ll find that tenant leases for industrial properties are often structured in ways that minimize landlord responsibilities.
You usually won’t have the landscaping bill that apartment complex or retail buildings demand.
And that list can go on and on… interior and exterior paint (not as often, at least), flooring, store fronts, and anything else that needs to be of a certain higher quality in other asset types.
Now don’t get me wrong, you want to invest in and maintain excellent buildings in excellent shape, but with industrial, you won’t find the laundry list of “must haves” that you do otherwise.
Is industrial starting to look attractive to you?
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So yes, in my opinion, the industrial commercial real estate market is looking damn good for the foreseeable future.
Do you have $100,000 or more to invest and are you wondering how you can be a part of this profitable moment, without months of research, paperwork, and hassle?
Me and my team are always available to chat, with no pressure.
We’ve run a commercial real estate syndication (that includes industrial properties) in greater Nashville, TN for over 3 years.
If you’ve never heard the term “syndication,” don’t worry. It’s essentially the easy button of commercial real estate investing. We do all the work on your behalf.
If the idea of an opportunity to build long-term, generational wealth while taking advantage of truly passive income is interesting to you, we’d love to talk.
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