In 2020, the Covid-19 pandemic was disappointing news for retail office buildings. The pandemic brought heavy changes in people’s lifestyles due to the lockdown including the dependence on e-commerce platforms. Hence, this resulted in the rapid downfall of retail spaces. As per CBRE, the rise of demand in warehousing may reach $1.5 trillion during the 2020-2025 time period. Thus a requirement of 1.5 billion square feet of distribution space rises to meet the growth. Hence, retail investors and other commercial real estate investors are now seeing tremendous potential in shifting to distribution centers and warehouse real estate investments.
Why are warehouse real estate investments suddenly in demand?
Warehouses and distribution facilities, according to real estate experts, will be the next big thing in commercial properties for anyone seeking to strike the iron. The pandemic not only created the demand for warehouses and industrial space but also accelerated it. The rapid rise of e-commerce increased demands gave a spark in warehouse demands. To meet both ends retail investors are converting their properties into warehousing amenities.
A warehouse facility is an infrastructure that provides storage, sales, and distribution of goods. Moreover, it reduces the hazards of transit time and supply chain costs. Some investors are keen on investing in industrial real estate, which includes warehouse spaces. Real estate investing allows them to focus their strategy on industrial REITs. It helps in acquiring warehouse real estate as part of their portfolios.
Buying a warehouse as an investment:
First, the most significant benefit of investing in warehouse REITs is that most companies have moved to an online storefront. Since now the customers are not ready to move to the supermarkets physically. Thus the demand rises for such distribution hubs.
Warehouses real estate investments are growing in demand due to it’s low-maintenance. The retailers are adding more inventory in order to meet the e-commerce growth. Therefore, they only emphasize the area’s utility and create their warehouses to allow the maximum amount of storage space. Thus together the pressure on retailers and distributors to reach more customers is driving warehouse investment to a new height. Another advantage of investing in warehouses is that tenants are more likely to sign long-term leases.
How to estimate the value of a Warehouse Space?
The value of a warehouse depends on a number of factors, including its size, position, and what the space can be used for. To figure out the worth of the property just start by comparing it to similar warehouses. Furthermore, the warehouses must be in the same region or city. Since most warehouse space is priced by square foot, you’ll want to take precise measurements of the warehouse. You can contact the local broker to get the average square feet cost of your area.
Before moving ahead, you need to assess the condition of the warehouse as well. You must check the age of the property, vacancy rates, term leases, etc. Furthermore, you must maintain a checklist to supervise the preoccupied renters or the interested tenants. And also extra space storage is a parameter to evaluate the warehouse’s price.
Perfect locations for Warehouse real estate investments:
The capacity to receive/deliver products rapidly is an important criterion for selecting a warehouse location. Warehouses for e-commerce enterprises must be traded easily if it’s near airports, highways, and seaports. The cost of maintaining the supply chains and transporting them out can account for up to 60% of the expenses. Thus, choosing the right location is crucial. Publicly-traded warehouses offer short-term as well as long-term storage.
You can choose a warehouse in any state or city, irrespective of where you reside It usually depends on the lease type – absolute triple-net (NNN), gross modified lease, or gross lease – and tenant. In most scenarios, you can assume the predictable monthly income dividend yield.
Different ways to invest in Warehouse real estate:
In the warehouse business, there are three main methods to invest. Depending on the REIT’s focus you can choose the way to invest in the warehouse sector. The ways are mentioned below;
1. Direct warehouse investment –
Direct warehouse investments are for investors that are comfortable in their warehousing investment. Hence, they may buy warehouse buildings directly and rent them out to other businesses. Most commercial real estate investors have put their money into this sector for a good return.
2. Flipping existing retail spaces into warehouse space –
Commercial real estate investors that have invested in retail spaces and are experiencing defaulting retail tenants should change their business. They should go for a low-cost warehouse facility and in return generate income.
3. Using REITs to invest in warehousing facilities –
If you don’t have time to research your warehousing investment facility on your own then go for investing in warehouse REITs.
The Lilypads Bottomline
Warehouse investment is a strong choice right now for all of the reasons outlined above. And with the surge in the demand for e-commerce, the demand for bigger and more fulfillment centers is on the rise. Hence, make sure to include warehouse investments in your portfolio. However, you must consider the location, the economy, your financial situation, and your risk appetite before sealing the deal.