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Now is a great time for the industrial real estate professional. More so than in any other segment of the real estate industry, social distancing a less disruptive factor to industrial operations. And more than others, the industrial sector still has a strong income stream. This is true in a general way, as all properties are not placed on this planet equally. Industrial and manufacturing zoning evolved as a matter of need and, in most cases, prudent planning. The necessary logistical supports, such as highways, interstate access, ports service, airports and rail service, are all part of the value of industrial real estate.
My first position in the world of real estate was leasing and selling industrial properties in downtown Los Angeles. This was back before the Staples Center was built in the late 1990s. In summary, I have practiced this profession long enough to see a major U.S. city change and evolve — it was and is quite a journey. It all goes together; each sector of real estate is in support of the others.
In May 2019, a report by Deloitte claimed that the preceding five years brought strong growth for industrial real estate, even while other sectors of the industry struggled. This was all pre-Covid-19. Can we have a continued upswing or even maintain the recent past historical numbers?
The same Deloitte report from last year, notably, also pointed out that “potential shifts in the marketplace may make sustaining this momentum more challenging going forward. Over the next few years, macroeconomic factors, tenant needs, last-mile delivery, and rapid technology evolution are likely to reshape demand and warehouse space design.” Bring on the industrial automation that will surely be required for such cutting-edge facilities.
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The first thing to do if you wish to explore and make a property purchase is to get into the fundamentals. Understand what is needed of the various types of facilities by the tenants in the market you are looking into.
All industrial properties are not created equal. Some are owned by the people who use them and perhaps built their building for a somewhat unique purpose. That’s great if a community needs that type of installment, but not so much if not. The properties themselves are pretty simple, actually. There are big boxes and small boxes. How large or small is a subjective matter.
If you wish to invest in industrial property, it’s pretty straightforward. You need to buy a facility that will not become aged-out and nonfunctional. You need to know if the industrial zoned property affords tenants any long-term planned use, unless you are buying the property with the goal of repositioning it.
Industrial real estate requires demand, and the consumer retail sector is the front end of that. Now that retail is jeopardized due to the pandemic, how can industrial continue to prosper? Nonindustrial property houses businesses that collectively employed millions. If those sectors don’t get proper attention soon, the industrial sector will start to stall. We can expect that reshoring is coming, but where to?
Perhaps reshoring will create jobs, but not enough to fill the nonskilled retail and restaurant sectors’ employment losses throughout the pandemic. So the thing that needs to be considered is who will purchase all of the goods made and stored in industrial facilities?
I love industrial real estate, and the rest, too; it is all connected. If you are entering the industrial property sector, you need to know the forward-going value of your site. Research is key. Live in the planning and building and safety departments for a while. Change is coming, and you don’t want to end up on the wrong side of the interstate.
Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?