When considering real estate investments, a wide array of asset classes awaits discerning investors. While multi-family, retail, and self-storage typically dominate the conversation, an often overlooked and yet increasingly attractive option emerges: multi-tenant industrial real estate. This asset class offers many benefits for investors seeking to diversify their portfolios, generate steady income streams, achieve capital appreciation, protect against inflation, and optimize risk-reward parameters.
Multi-tenant industrial properties, which are typically comprised of wide, single-story concrete buildings with roll-up doors and a combination of front-office and warehouse space, boast a remarkably diverse tenant base, including e-commerce enterprises, last-mile distribution centers, retail fulfillment hubs, robotics assembly, light manufacturing firms, the construction trades, tech startups, and food preparation facilities.
Below, we present 10 compelling reasons that we believe make the inclusion of multi-tenant industrial real estate into your investment portfolio a prudent decision:
1. Attractive Risk/Return Profile: While lacking the glamour of soaring glass towers or modern mixed-use developments, our experience is that industrial real estate historically exhibits fewer volatile market value swings during economic downturns when compared to other property types.
2. Streamlined Management: Industrial real estate leases often operate on a triple net basis, with tenants responsible for property operating expenses and a significant portion of interior maintenance costs. Additionally, janitorial services and maintenance of common areas are typically minimal, simplifying property management and lower operating costs.
3. Lower Ownership Costs: Re-tenanting industrial properties tends to incur lower costs compared to other commercial property types. For instance, our experience finds that tenant improvements for multi-tenant industrial properties are up to five times less costly per square foot than re-tenanting office spaces.
4. Flexibility of Use: Industrial properties offer diverse configurations, allowing for flexible adaptation to tenant needs. These spaces can range from warehouses with minimal office space to those with a significant office component for distribution purposes. Moreover, with appropriate zoning, industrial real estate possesses greater flexibility compared to other commercial property types.
5. Diminishing Supply: A growing urbanization trend in the United States has led to the conversion of older industrial buildings into trendy nightclubs, chic lofts, apartments, and collaborative office spaces. Simultaneously, new industrial construction in urban and suburban areas remains limited. As former industrial zones are rezoned, space availability for suppliers and distributors decreases, potentially driving up the value of industrial properties in these areas as businesses prefer proximity to urban centers.
6. High Replacement Costs and Barriers to Entry: Developing new industrial projects incurs substantial expenses, primarily due to the high costs associated with land acquisition and entitlement. Although industrial properties are typically single-story and relatively cost-effective to build, they require significantly larger land areas compared to vertical projects like offices, multi-family residences, and hotels. Consequently, municipalities may not perceive the same tax revenue potential from industrial development, potentially exerting upward pressure on rental rates and appreciation of existing industrial properties acquired below replacement cost.
7. Evolving Employment Landscape: According to the SBA, small businesses with fewer than 50 employees currently drive 40% to 50% of job growth in the United States, a trend expected to persist in the foreseeable future. Many of these enterprises are likely to seek expansion within multi-tenant industrial projects and business parks.
8. Surge in Internet Retail: E-commerce, a rapidly expanding segment of the economy, now accounts for 30% to 40% of industrial real estate demand, according to the National Association of Industrial and Office Park Owners. With e-commerce projected to represent one-third of all retail sales within 15 years, traditional brick-and-mortar stores will increasingly shift operations to industrial properties, primarily warehouses, and e-commerce fulfillment centers.
9. The 3D Printing Revolution: As the business world eagerly anticipates the transformative potential of 3D printing, reputable publications such as Forbes Magazine and The Economist are hailing it as “The Next Industrial Revolution.” This burgeoning technology, expected to extend far beyond personal applications, is set to drive explosive growth in the industrial sector over the next decade. As a result, industrial properties are primed to house the flourishing 3D printing industry. Moreover, the impending surge in industrial robotic manufacturing and assembly, widely reported by industry experts, will directly impact the landscape of industrial real estate.
10. Home Building and Construction: The construction industry, a key tenant segment of industrial properties, stands to play a vital role in their continued success. Avistone, LLC (“Avistone”), a prominent industry player, recognizes the potential for expanded activities in crucial sectors such as new residential construction, alternative energy infrastructure, and the renovation of aging roads, bridges, and utilities. These developments are poised to generate a positive ripple effect, bolstering the value and demand for industrial properties. With a strategic focus on regional markets exhibiting these robust economic drivers, Avistone positions itself to capitalize on these promising opportunities.
For the investor looking to get into industrial real estate investments, consider going with Avistone. We are a growing real estate investment firm specializing in capturing opportunities in the multi-tenant industrial market. Our executive management team has years of experience in the business and is well-versed in everything from acquisitions to asset and portfolio management.
Over the past decade, Avistone has completed full-cycle investments on 24 industrial projects encompassing 4 million square feet, surpassing industry performance benchmarks such as the NCREIF Property Index for Industrial Properties. Avistone’s previous multi-tenant industrial fund delivered a commendable 20.24% Internal Rate of Return (IRR) and 9.15% cash distribution yield over a 3.01-year holding period. *
Avistone LLC has also recently launched its latest offering, Avistone Industrial Parks III, LLC.
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