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Buying Warehouses for Sale: What Investors Should Know

Published: 10-04-23 Category: Buying

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.

Warehouse real estate plays a critical role in our modern, heavily e-commerce-dependent economy, serving as distribution and storage hubs of goods and services, manufacturing facilities for large and small retailers, flex space that provides both office and industrial areas, and more.

The heavy reliance that the modern-day supply chain places on warehousing makes industrial property both a safe and fast-growing asset class for commercial real estate investors. If you're looking to balance out your real estate portfolio with a strong investment, warehouses can be a great choice.

Here, we'll cover what investors need to know about buying warehouses for sale. We'll discuss warehouse costs, profitability, and how warehouses typically perform as a real estate asset.

Let's get started.

How Much Does a Warehouse for Sale Cost?

It depends heavily on the location and complexity of the warehouse. You could feasibly buy a small, 5,000-square-foot warehouse in rural Iowa for as little as $100,000, but a larger, 20,000-square-foot warehouse in Houston will most likely run you more than $1 million.

The Small Business Administration (SBA) doesn't provide loans for commercial property investments, so you'll likely have to rely on a bank or private lender when buying warehouses for sale. Another option for commercial real estate financing is peer-to-peer (P2P) networks that connect borrowers directly with individual lenders.

Costs to Build a Warehouse

Construction costs for warehouses depend on the size, complexity, and type of materials used, but will most likely run anywhere between $20 to $60 per square foot. Given an average warehouse size of 50,000 square feet, you're looking at around $1 million at least to build a typical warehouse.

Note that this figure simply accounts for construction and does not include land acquisition, permitting, and other costs associated with building new commercial property.

Finding Warehouse Tenants

Buying Warehouses for Sale: What Investors Should Know

Buying warehouses for sale is just half of the process: You also need to find commercial tenants to rent the space out to. The simplest method for finding tenants is creating an online listing on a commercial real estate listing website. Listing websites let you connect directly with potential renters, and our listing service right here on MyEListing.com is completely free to use.

You can also find warehouse tenants by hiring a commercial real estate broker. Brokers can market your property, manage tenant showings, and take the lead on lease negotiations. A broker on your investment team can also help with the nitty-gritty of property acquisition.

How Much Does It Cost to Run a Large Warehouse?

According to data from Statista, the average cost to run a warehouse was about $7.91 per square foot per year as of 2021. Average operating costs for warehouses have increased about 20% since 2017 due to a combination of factors such as wage growth, supply chain issues, and increased production costs.

Excluding utilities and property insurance, warehouses have three main operating costs:

Labor makes up the bulk of operating expenses. The average warehouse worker makes about $17 an hour. Most warehouses have at least 10 workers on staff, which comes out to about $350,000 in staff wages per year, excluding benefits.
Storage costs include the costs of moving, maintaining, and securing goods. Storage costs may also include any equipment costs, like forklifts, and storage maintenance and upkeep costs.
Order fulfillment costs refer to all costs related to fulfilling an order, like moving goods, packaging, and shipping.

Automation and equipment streamlining are two methods the modern commercial warehouse market has adopted to reduce costs and boost revenue.

How Profitable Is Owning a Warehouse?

Owning and leasing a warehouse can be profitable and provide an extremely stable source of income. Average cap rates for the net lease warehousing market were 4.5% in 2022—lower than other main categories of commercial property but still well within the bounds of a “good” cap rate. Lower industrial cap rates signal that industrial property tends to be a less risky investment.

The average monthly rent for special-purpose industrial property was about $0.95 in 2022. For a small, 5,000-square-foot warehouse, that comes out to a little over $4,700 in rental income every month. Rent growth remains strong in 2023 even as demand starts to cool off.

Can I Live in My Own Warehouse?

Generally speaking, yes, you can live in your own warehouse, with some exceptions and limitations. Some mixed-use properties may have both warehouse and residential units. You can buy a mixed-use development building and live in one of the units while you rent out the others.

If you want to live in a non-mixed-use warehouse, you need to make sure it's zoned for residential in addition to commercial use. You may also have to acquire certain permits, such as a certificate of occupancy.

The exact laws governing warehouse residency will differ depending on the state, so make sure you understand local zoning and occupancy rules first.

Is Buying a Warehouse a Good Idea?

Yes, buying warehouses for sale can be a great idea from the perspective of commercial real estate investing. Warehouses can produce regular monthly income, are highly flexible in their usage, and are relatively easy to manage because they often feature straightforward design and construction. These benefits make warehouses a decent choice for first-time commercial real estate investors.

Moreover, warehouse demand has exploded in recent years as consumer demand for e-commerce has grown. Industrial property vacancy rates are at historic lows; as a result, there's plenty of competition in the industrial lease market.

Although warehouse demand has slowed in 2023, warehouse financials are often strong and vacancies are still below pre-pandemic levels.

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