Vice President at Coastline Equity, serving real estate investors in the Southern California market with property management services.
As the economic impacts of the pandemic linger, investors are looking for more certainty in what has become an increasingly uncertain world. For those interested in expanding their real estate investing portfolio — or getting into real estate investing for the first time — attractive commercial and residential properties might come to mind first.
But from my perspective, I believe it’s worth educating yourself on and considering industrial real estate investing as well. When Joe Biden was running for president in 2020, he campaigned on the promise to invest in our nation’s infrastructure. Now that he has taken office, I believe the likelihood of passing new infrastructure spending has increased. What does this mean for potential real estate investors? Simply put, if you were thinking of investing in industrial real estate, now might be a good time to get started.
However, it’s important to first understand where the market is at, as well as keep a few best practices in mind to help set your investment up for success. As a professional property manager in Southern California, the product types my firm manages include industrial properties and port-adjacent real estate. While growing up in the port town of San Pedro, California, I observed the stacks of metal shipping containers and the cargo ships that brought them into the harbor for years, but I didn’t predict that I would one day manage the properties on which many of these containers were stored. Today, I now fully understand how these types of properties impact our daily lives, and I understand how they play a role in our food supply and in the greater economy of our towns, cities and country.
Port-Adjacent Industrial Real Estate
While no one can predict all of the lasting effects of the Covid-19 pandemic, I believe the shipping industry is in a particularly strong position. While the second quarter of 2021 only saw a 2.7% growth in global container shipping demand compared to 2019, according to estimations by Maersk, there has been a “stimulus-and-savings-driven demand boom in America,” FreightWaves reported. And my own port, the Port of Los Angeles, saw more than 485,000 load imports in August. Many days, observers can watch more than a dozen cargo ships awaiting their turn to unload their cargo.
MORE FOR YOU
I’ve found when the shipping industry thrives, so do investments in port-adjacent properties. I expect much of this growth is due to trends in the way our supply chain is evolving. McKinsey & Company highlighted these trends in a recent report. Consumers are shifting to online shopping in unprecedented numbers — buying habits that are expected to persist. The number of shoppers shifting to online retailers for some high-volume categories, including medicine, groceries, household supplies and personal care products — categories that often rely upon imports — are expected to increase by more than 35%. From my perspective, these trends may point to sustained growth in the shipping industry.
Single-Tenant Industrial Properties
Alternatively, some investors might be more drawn to single-tenant properties. A benefit of these properties is that you can often lock in long-term lease agreements that generate reliable revenue streams and help protect yourself against rising costs with absolute triple-net tenants. Under these agreements, modest yet steady rent increases can help ensure your investments are protected from inflation.
Single-tenant properties also have a hassle-free nature. Rather than managing multiple tenants (and the turnover that ultimately follows), single-tenant properties require little management. In my experience, most agreements stipulate that the tenant pays for everything from common area maintenance fees to insurance themselves, so as the landlord, your role is nearly hands-off.
Before the pandemic, net leases, comprised of industrial, office and retail properties, saw a record year, according to CBRE Group. While I observed this industry took a hit during the pandemic, I expect it to bounce back strongly.
What To Know Before Making An Investment
That being said, as in any real estate investment, you’ll want to consider what type of investment is right for you. You should first consider whether you have the means to purchase such a building and cover the initial expenses and overhead. Many times, industrial buildings and properties are delivered vacant. In this scenario, you’ll need to consider the cost to market the space yourself or the cost of a leasing commission should you decide to hire a professional leasing agent or property manager. You’ll also need to consider the cost to repair the property and maintain it in working order.
As with any investment, you’ll want to consider your individual strategy and approach with trained and licensed professionals. Be sure to speak with a real estate broker or your wealth advisor to determine if this strategy of real estate investing is right for you.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.