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Why Warehouses Should Be at the Top of Your List in 2022

Published: 11-22-21 Category: Investing

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.

New year, new real estate trends. Of course, when it comes to commercial real estate, sometimes everything old is new again. For instance, warehouses that used to be seen as the "edge of town" type of building are now highly fashionable commercial real estate for sale, with plenty of investors lining up to purchase warehouses.

But what’s driving that trend, and why should warehouses be at the top of your list in 2022?

You see, more investors are looking to diversify their real estate portfolios than ever before. If there’s one thing that we learned during the pandemic era, it was to stay on your toes. We couldn’t just settle for office space or just settle on retail space. Today’s investor has to think about how to transform any space they purchase.

Warehouses Are More Than Just Industrial Storage

Warehouses make sense under these circumstances. They can pull in tenants looking for pure storage space, tenants that are looking to run a shipping business feeding their e-commerce ventures, or you can have tenants inside the warehouse that have more traditional-looking businesses like a coffee shop. Converting warehouses into trendy apartment spaces is trickier but still doable, depending on the area.

One interesting example in the news is TikTok stepping into the ghost kitchen game. It wouldn’t take much to modify many warehouses into a space for something like a ghost kitchen, making this a creative way to change things up.

Ghost kitchens became a staple during the pandemic, as they allowed for virtual dining options that were extra flexible, made use of smaller spaces, and gave companies a chance to get into the restaurant game without having the typical overhead found in most restaurants. It’s this creative energy that will truly change the game for commercial property investors in 2022.

Advantages of Warehouses

So let’s get down to business and cover the advantages of warehouses. After all, if you’re going to get excited about an asset type, you might as well get all the details. Here’s what you need to know first:

Flexibility. A warehouse space is like tofu: it will take on the flavors you throw at it. You can leave it the way it is, change it up, occupy the space yourself, or get a tenant in there.
Bargains. Not all warehouses are created equal. You can find a motivated seller that just wants to get the property off their books. That’s a bonus for folks newer to the CRE world.
Stable. Warehouses tend not to change much unless you change them, giving you a piece of your portfolio that truly feels passive.
Simple. Warehouses are easy to understand, making them a great idea for folks newer to the CRE industry as well.

While this doesn’t mean that warehouses are right for everyone, the benefits really do add up. Naturally, we can’t just cover the advantages. In order to make sure that we’re being balanced and fair, we have to tell you about the other side of warehouses as well.

Disadvantages of Warehouses

We aren’t pessimists, but we do have to cover the disadvantages of warehouses. After all, there is no perfect type of property in the real estate game. Here’s what you need to know:

Isolation. Some cities still have a ring of warehouses in the "industrial" district only, which may or may not have good traffic.
Zoning. Zoning isn’t equal across the board, and ignoring local zoning restrictions can turn your dreams into dust pretty quickly. Don’t hesitate to talk to your local zoning team about what you want to do with the property.
Renovation scope creep. Fixing up a warehouse may uncover more to fix than you first anticipated. Inspections do make a difference. Don’t spend every penny on a warehouse; you may need more renovation work than meets the eye.

Of course, we can’t speak on every single warehouse across the country, so you’ll still need to do your research. Don’t let these advantages keep you from a dream property, but you also don’t want to just throw caution to the wind and get the first warehouse you see. If you know you tend to get too excited, pull in a real estate investing buddy to help keep you focused.

Top Tip: Look for "Helper" Properties

If you’re going to join the warehouse purchase revolution this year, the best thing that you can do for yourself is to take time to research the other properties around your future warehouse. Are you around other buildings that are also designed for profit? If you’re the only warehouse and most of the buildings are abandoned, this does not lend itself well to the conversion trend within warehouses, as most buildings tend to "feed" off each other.

As you are conducting your natural due diligence, keeping location in mind at every level is becoming exceedingly important.

Pull up the map and look on StreetView. Think about traffic patterns within the area of your choice. Are there really going to be people coming and going through that area? Is it easy to get trucks down to the warehouse? If you plan on attracting future tenants in the shipping and receiving business, that becomes a critical question.

Make 2022 the Year of Discovery

Every year, investors look back on past performance, which isn’t a bad thing. However, we strongly suggest that you look at the hopes you have this year and follow it up with discipline. While motivation is the trendier topic, the truth is that discipline is what separates the good investors from the truly great ones. The best property owners understand that while we can’t predict anything a hundred percent, we can take steps to move our objectives forward every single day.

We will continue watching commercial real estate news and reporting on the trends, but don’t just read this year. Make 2022 the year of discovery and discipline, and then let us know at the end of the year how you did and what you’d continue to work on in the future.

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