Everyone knows that in real estate, it's about 'location, location, location', but what else? However when it comes to industrial property investments, there are many factors that come into play to make one location better than another. When you choose to purchase industrial property, you may have to decide whether to locate in the same city as your head office or move your operations to a more economically attractive city.
The best location depends on the industry
Generally speaking, industrial real estate is located in what are often considered to be undesirable locations - areas that are heavily industrialised, rundown, have high traffic and noise levels, or are off the beaten track. Homeowners do not want to be situated near airports, motorways or railway tracks, but for industrial property those railway tracks could become part of your multimodal distribution network. Flight paths mean you are closer to a hub that can make last minute shipments easier. Clearly 'the best location' depends on the type of property you are investing in. While industrial property investors aren't turned off by high traffic, zoning issues can present a problem. When searching for ndustrial property that can be revamped for mixed-use, being next to a railway is one thing, but being near a utility plant is quite another! When considering a mixed-use property that could be oriented towards a residential slant, it's important to take into account the amenities in the surrounding area such as cafes, parks and access to public transport.
What to look for when locating industrial property for investment
Industrial property is a hot ticket item these days, particularly warehouses and distribution centres. The first step in choosing the best location for your industrial property investment is to know what your motivation is. Are you going to use this property for industrial purposes or are you thinking outside of the box? Zoning laws can help or hinder that decision. Then there are other factors that can be applied to choosing the best location for industrial properties across the board.
1. Retailers look to the cities
Online retail will continue to grow here and abroad for the foreseeable future. Keeping industrial assets located within city limits allows for easier local distribution and delivery.
2. Choose properties with low operating and investment costs
Industrial properties, though often large, are actually cheaper than commercial properties of comparable size. You can find excellent industrial properties with very little cost to upgrade and maintain which will increase your return on investment.
3. Search for industrial properties with tenants needing long term leases
Long term leases are evaporating in the office sector. In industrial, your goal should be to invest in the type of industrial properties that will attract tenants that require long term leases such as ecommerce distributors and logistics companies.
4. Look for flexible industrial space
Industrial space is going through ongoing change when it comes to design, layout, size and shape. Today's investor should look for industrial space that can be re-zoned and re-used for multiple purposes, staying as flexible as possible and able to adapt to changes in the industry.
5. Industrial markets with low vacancy rates are best
The economy is slowing but we're still seeing industrial vacancy rates at historic lows in the USA, and across most New Zealand industrial markets, with returns hovering around 5%. Locations with low vacancy rates (typically port cities) are ideal locations for industrial property investment. California has one of the lowest vacancy rates (just over 1 % in Los Angeles) and so do New Jersey, Seattle, and Atlanta. Similar patterns are evident here in New Zealand in locations such as Auckland, Hamilton, Wellington and Christchurch.
NAI Harcourts acknowledges the contribution to this article from the head office of NA/ Global in New York, USA.
By Jay Olshonsky, President & CEO, NAI Global
This article featured in NAI Harcourts' Key Assets magazine issue 2, 2019.
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