We have taken notice of the increased investment in industrial properties. Industrial seems to be a fairly broad asset class in that it has two major subsets in manufacturing and distribution. We are interested in potentially investing in industrial properties but would like to narrow our search. Is there better value in industrial property investments that involve manufacturing or distribution? Why does one subset offer better investment value?
Answers
At this point in time, industrial is one of the targets of investors in the US. The reasons for this include companies like Amazon and Walmart among others needing facilities for storage in locations that make it easy to distribute goods. Industrial properties can also be used for data storage. Manufacturing properties which are industrial are in demand for particular uses. To determine value, you need to look at markets where there is no oversaturation, and where the types of companies you desire as tenants are expanding or likely to expand. I always look for properties that can easily be converted to other uses, as markets and "hot" property types change from time to time.
There is an enormous difference and the distinction is extremely important. Manufacturing facilities are leased to companies that manufacture there and are often specialized buildings with customized, specific fixtures and equipment, which can be very expensive. Adaptation and reuse of a manufacturing facility if a lease expires or a tenant defaults can be very problematic, because of the specific nature of the building, and often manufacturing properties are located where they are for convenience to the owners of the business or employees operating there, and if that business is gone, it may have little value to others. Distribution type industrial is really what all the rage has been about the last few years. The property can be used or occupied by almost any type of tenant as long as it has the right specification (floor load capacity, ceiling heights, freedom from columns, etc.) and is usually convenient to transportation by rail, highway or ships. These properties are of enormous appeal to any industry and have become in much greater demand due to the explosion of eCommerce where distribution centers located near transportation facilities are in great demand, with insufficient supply, and the needs still expanding. So, distribution type facilities with the right characteristics are a great asset class for investment and, except in unusual circumstances, manufacturing is much less desirable or stable.