industrial property – johnhighman.com

Many property investors are attracted to investing in industrial property because it is easy to understand. The tenant, the lease, and the property are quite straight forward from an investment perspective.

It is also worth noting that many commercial real estate agents ‘cut their teeth’ in the industry by working firstly on industrial property sales and leasing. The basic nature of the property is easy for them to grasp and negotiate on.

Some commercial agents will like the industrial property type so much that they may stay with the segment of the market and become true ‘specialists’ in an area. If that is the case they will usually rise to the higher end of industrial property sales and leasing in both size and value. There are plenty of large companies and industries looking for specialised assets for the business growth of their company.

So here are a few more observations about industrial property today:

Take care when it comes to industrial properties that are created for a specific industrial use and tenant. They will generally have a high liquidity factor and be hard to move when the property is to be sold.
Special purpose or single purpose industrial properties will be difficult to lease (or sell). As a case or example in point, large cold storage industrial properties are so specialised that an investor would (or should) want a high yield and long lease with a ‘blue chip’ tenant before the property was considered a wise purchase.
This property type is usually the first to be impacted when the national economy and business sentiment is under pressure. That being said, industrial property is usually the first to respond when the economy is improving.
The premises and buildings are easy to manage. The leases are basic and straight forward in most circumstances.
The rental structures in industrial premises are usually a type of net rent. The tenant will usually pay most if not all outgoings.
Capital expenditure in an industrial property will be impacted by property use. The property owner should get a depreciation schedule of all capital items so they can plan the larger expenditure of capital items that may arise in the future.
The zoning of the property and premises will have direct impact on use and therefore tenant occupation. Ensure that the zoning offers sufficient flexibility for property occupancy and returns.
Industrial premises are frequently a single tenant and single occupancy issue. The facts are easy to understand and tenant mix is not a problem as it would be by comparison in a retail property.

When you look at overall property performance, consider the growth potential in rental as well as the growth in capital appreciation. The two factors are not always linked and may be impacted by locational factors.

When you work in industrial property sales there is a thing called the ‘liquidity’ factor. It is quite relevant to the property type and has an impact on the marketing campaign that you will need to create and run. A high ‘non-liquidity’ factor could radically change the way you market and sell a property.

Meaning?

So what does ‘liquidity’ and ‘non-liquidity’ mean? It is the ability to move the property and sell it. Depending on the property this may be easy or difficult. A lot depends on the industrial property size and uniqueness.

A property with a high ‘non-liquidity’ factor will be difficult to move and sell. There will be clear reasons why this is so. The property will be so unique in size and type that it will attract only a small number of buyers. The risk that the property presents will limit buyer interest.
A property with a high ‘liquidity’ factor will be easy to sell. This industrial property would be ‘main-stream’ in size and highly flexible in usage. From an investors perspective there will be low risk.

So the more specialised the industrial property in design, size, and usage, the more difficult it will be to sell. This is a common factor in industrial property given the way the property is designed or used.

An example may be a ‘cold store’ industrial property that is leased as an investment to a tenant for a long period of time. Whilst the lease may be attractive to an investor from a cash flow perspective, the uniqueness of the property could scare off many investors if and when the property comes up for sale.

Assessment?

So the ‘liquidity’ factor is something that you assess in setting up the marketing of the property, as well as pricing the property. If the property is likely to be very difficult to sell, it may be better to market the property confidentially and directly to specific companies and investors that have a special interest in that property type or location. A property with a high ‘non-liquidity’ factor will likely be difficult to price, understanding that there will be few comparable properties to establish a pricing benchmark.

Recommendation

As part of establishing a price and marketing plan for the property, do a ‘liquidity assessment’ for the client. It will be a point of difference in your agency service and may even be a trigger for gaining the listing appointment.