A Mini Guide to the Commercial Industrial Warehouse Market
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
This article was updated on 7/20/2023.
The industrial property real estate market is booming as more businesses implement eCommerce and seek to store inventory closer to consumers. These trends, which were in motion well before the onset of the COVID-19 pandemic, have continued to gain traction.
The Coronavirus Pandemic taught us that companies can operate without a physical office space; employees are working remotely and still able to meet consumer needs. This shift has created a great demand for off-site inventory storage and fulfillment centers.
Online shopping has also contributed to the demand for industrial property. Large brick-and-mortar stores, like Sears and JCPenney, are closing locations and focusing on their online presence, creating even more demand for warehouses to store inventory and handle shipping and returns.
The demand will continue to increase as more companies downsize and close locations. Here, we'll go over current trends in commercial warehouse property and the advantages of investing in this area of commercial real estate.
2021–2023 Commercial Warehouse Trends So Far
Businesses are continuously looking to store more products closer to their consumers since the COVID-19 expedited the growing popularity of online shopping. So far, in 2021, experts are noticing some commercial warehouse trends that they expect will continue into 2023's commercial real estate market and beyond.
- eCommerce Growth: Companies that were already focused on eCommerce before the pandemic continue to thrive. As their sales continue to increase, so do their needs for warehouse space.
- Online Shopping: Well before the pandemic, retail brick-and-mortar stores were starting to close their physical locations to focus on their eCommerce departments. Then, when COVID-19 hit, people started shopping online even more. Companies now need more warehouse space to hold their product.
- Downsizing: As companies continue to downsize their office space, we'll see a more significant demand for commercial warehouses. The companies that were holding their inventory on-site and are now moving to a remote work model need space to hold their product.
- Demand for Quick Delivery: Amazon started the demand for quick delivery options with their two-day shipping option. Small and large companies are trying to compete by acquiring more warehouse property around the U.S. and hiring more people to fulfill orders.
All these factors contribute to the growth we saw in the commercial warehouse property market between 2021 and 2023.
Key Things to Consider When Investing in Warehouses
The key components of investing in a warehouse for sale are location, cost contingencies, valuation, and the overall real estate market.
- Location, Location, Location: The right location is crucial when you invest in warehouse property. You want to find the right market, one that's growing and in a convenient location for shipping and fulfillment. Warehouse space near shipping hubs (i.e., FedEx and UPS) is especially in demand right now.
- Consider Having Cost Contingencies: All commercial investment involves risk, especially when the property is a new construction project. When construction needs to happen, the risks grow. Planning for this with cost contingencies can help if unexpected costs arise.
- Value of the Property: There are a few different methods for determining the value of a property. It's crucial to get an accurate valuation because it can affect the listing price, the amount of rent you can charge, the taxes you pay, and more.
- Overall Commercial Real Estate Market: Trends in the overall commercial real estate market can help dictate whether a sale is good or not. Look to see what other commercial tenants are doing in the market in which you plan to purchase. You should also look at available inventory, foreclosures, and home prices in your desired market. It pays to stay informed.
It's important to consider all factors when thinking about purchasing a warehouse in today's commercial real estate market. It's a lot of work to own an industrial property but can end up being an excellent investment in the long run.
Advantages of Commercial Industrial Warehouses
When you consider buying a commercial industrial property, you should also think about the advantages. There are many financial benefits to owning a warehouse that you should be aware of, and buying the right property in the right location will provide you with plenty of future opportunities for that property.
- Demand: The current demand in the commercial real estate market for warehouses is high for several reasons, most of them listed above. Regardless of the reason for the demand, simply put: Now is a great time to buy a warehouse for sale. Companies need the extra storage space and are willing to lease it from property owners.
- Expansion: Buying a warehouse for sale gives you the space to grow and expand as a business. Whether that means more space for inventory or production, a warehouse gives you that opportunity in a way that traditional office space does not.
- Storage: Businesses needing more storage space in today's market is another great reason to buy a warehouse for sale. Start by pinpointing a market with a high demand for storage space, and then start your search for the right property.
- Income: If you decide to lease out all or some of your warehouses, you can make some nice residual income. Many companies are looking for extra space to store their product and fulfill orders but don't have the money to purchase a warehouse for sale. These companies are looking to get into a lease agreement, which creates an opportunity for those who own warehouses.
These are just a few of the significant advantages of owning a commercial industrial warehouse. With a booming market and a promising outlook, industrial property is well worth your focus.
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