Industrial property is one of the three main classes of commercial property assets. Most of us are familiar with the residential real estate, and the benefits of property investment, but not everyone knows much about commercial property. Definition of commercial property is the property that is built and used solely for business purposes. There are three main types of commercial property: retail, office, and industry.
Industrial property is used for industrial purposes. It sounds simple, but it comes in all shapes, sizes and covers various types of businesses. Then the property is grouped into three sizes, namely small, large and very large.
Small industrial sites include single or double story buildings that are categorized for industrial use. These often have flexible interior spaces, usually a mixture of warehouse and office space and usually use d by small business such as workshop, research laboratories and start-up business.
Large industrial properties include medium to large warehouses and factories designed to produce or store goods. They include distribution companies such as third-party logistics (3PLs).
Then the last is a very large industrial property. These large industrial spaces are used as logistics and distribution centers that store and then distribute finished goods to shops and/or directly to customers. Types of warehouses such as the Warehouse of Amazon storage and Warehouse E-Commerce.
Benefits of Investing in Industrial Property
Investing in the real estate industry can be a good business for smart investors. Some of the main benefits include:
The interesting aspect of investment in industrial property is the higher income and rent (annual return on investment) they offer. Industrial property is usually valued in terms of the available square meters and can offer 8% greater yield compared to houses which are only 4% -5%.
Another advantage is that most industrial leases include fixed annual price increases, which are often associated with (CPI). Then usually industrial tenants are willing to sign long-term lease agreements (up to 10 years in some instances) that give investors far greater security than ordinary housing rent.
Most industrial leases are net leases. Net leases are defined as tenants paying insurance costs, utilities, maintenance and repairs to a property. Then in general, good tenants will maintain the building to a high standard, because its appearance reflects on their business.
This means that industrial property does not cost a lot of building maintenance because tenants tend to take care of maintenance problems quickly.
Industrial Property Risk
Every business sector has its own risks, as well as industrial property. Here are several risks to consider if you want to invest in Industrial Property:
The first Industrial Property Risks is a time when there are no tenants. Industrial property is far more vulnerable to market conditions than residential property, so the risk of vacancies is higher. If the business is closed and economic conditions are bleak, it takes a long time to find new clients. Investors must be prepared for a long period of emptiness.
Another risk of the Industrial Property Risks is a high investment cost. The bank views industrial real estate as a risky investment rather than housing, so the borrowing costs are higher. Banks usually demand larger deposits (around 30%) and interest rates will be higher than loans for residential property.
The industrial sector continues to grow and innovate. This means that industrial buildings can quickly become outdated if they have low maintenance costs, limited access or floor space not suitable for modern machines. The key here is flexibility and location. More flexible space and strategic location will be more attractive for businesses.
Those are some of the benefits and risks of industrial property. One of the best industrial estate to invest is Karawang New Industrial City (KNIC). As one of the largest industrial zones in West Java, KNIC is an industrial estate that already has a complete infrastructure that is good for industrial property investment.