Why Industrial Properties are Attractive

One of the most attractive segments of the U.S. real estate market today is the industrial area. General-purpose industrial warehouses may not have all of the glamour that is attached to other parts of the market, but from an investment viewpoint a very strong case can be made for this type of property.

1. 1. The basic fundamentals of the industrial market are different from other real estate classes and in some respects are more favorable to investors.
2. 2. The industrial market should show considerable improvement as the U.S. economy continues its recovery.
3. 3. More investment opportunities exist in industrials today — particularly in well-located, multi-tenant properties — than in other real estate asset classes.
4. 4. Historically, the industrial market is the least likely to be overbuilt, since speculative builders are usually drawn to offices and apartments.

In the opinion of Falcon Real Estate, investors seeking a secure, long-term investment in the U.S. real estate market at the present time should be able to find many interesting opportunities in the industrial warehouse market.

top

Fundamentals of the Industrial Market:

The strength of the industrial warehouse market in the United States is directly correlated with the level of economic activity in the country. Every sector of the U.S. economy requires a nationwide distribution base, and such a distribution base can only be composed of industrial warehouses located in key geographic markets across the country. Arguments can be made that the need for office space will decline as computers and advanced telecommunication devices permit people to work from home. It can also be argued that the need for retail space will decline as consumers can shop on-line through the Internet. But there is no new technological advance that can replace industrial warehouses. As the economy grows, the quantity of goods changing hands will continue to grow, and therefore the demand for warehouse space will increase correspondingly.

While most industrial warehouses are essentially big boxes with little or no internal improvements, there are certain criteria that distinguish the better properties in this category. A newer and more desirable warehouse will have a clear internal height of at least 30 feet as opposed to the 20 or 25 feet that were usual several years ago. With advanced material handling equipment, merchandise can efficiently be stacked at higher levels today than was customary in the past. The older properties, however, continue to be quite functional and demand for them remains strong. Another important characteristic is the number of docks and other facilities for loading and unloading trucks. Having a sufficient number of truck docks, with appropriate equipment for adjusting dock height, together with large enough truck courts to facilitate ease of maneuverability of the trucks are both important factors in determining the desirability of a warehouse.

Warehouses have not only grown in height, but the size of newly constructed buildings has also increased significantly. Fifteen or twenty years ago an industrial warehouse of 250,000 square feet (23,250 square meters) would have been considered a “large” warehouse. Today, however, newly constructed warehouses frequently run in size from 750,000 square feet (69,750 square meters) up to 1,000,000 square feet (93,000 square meters). Corporations seem to prefer to concentrate their warehousing activities in fewer locations to control costs better, and modern material handling equipment provides efficiencies in the larger facilities.

The final consideration in selecting an industrial warehouse investment, and perhaps one of the most important, is location. A number of geographical markets have developed as prime warehouse areas for two main reasons: one, their closeness to major forms of transportation and two, their location close to major population centers. Some of the most important industrial warehouse markets include Chicago, Atlanta, Dallas and Los Angeles since they are important population centers in their own right and since each of those cities has one of the top airports in the country. Los Angeles even has a separate airport that is primarily used for airfreight —Ontario Airport — and a similar airfreight field is being planned for the Dallas area. But there are also a number of other cities that have developed a very strong reputation as being important distribution points. Two examples are Memphis, Tennessee, and Indianapolis, Indiana. Memphis is located in the center of the country, is the home to Federal Express and has become an important hub for airfreight. Indianapolis is the center of a strong network of interstate highways, and has developed as a major truck distribution center.

top