What is industrial Real Estate and what does it entail?
The industrial real estate sector is a little bit more sophisticated as compared to other sectors for example residential and commercial sectors. The kind of sophistication that is required to get into this space most of the time comes about because developers have the financial muscle to fund industrial estates and they go in all-cash making it very competitive. If you are looking at securing loans to purchase any type of industrial property or land (manufacturing plant, warehouse, assembly buildings, production properties, storage, and distribution) then you need to find a good funding rate in order to keep your business/ businesses afloat.
What options do investors have for financing industrial properties?
Investors have an option of using leverage (using borrowed capital as a funding source) and this would be about 60%- 70% financed by borrowed capital. This represents a significant interest payment cost. The balance of around 30%- 40% would typically be financed by equity.
Is the Industrial Real Estate sector appropriate for risk-averse investors?
The industrial real estate space is an amazing niche to explore for investors who are comfortable using leverage. That said, this sector is definitely not for risk-averse investors. It requires a lot of dedication and building relationships with lenders in order to get started.
What is the future of the industrial space?
The good news is, there seems to be a growing demand in warehouse space which is driven by the growth of the e-commerce sector. Industrial real estate demand is expected to increase by 850 million square feet to 14.8 billion square feet by 2023. Investors in the industrial sector can therefore expect more development opportunities in the coming years.
