The Value of Warehousing in CRE Investments
Warehouse assets are a great commercial real estate investment. Understand how it can help you create a great portfolio.
Commercial real estate is undoubtedly one of the best means of investing, if you are looking for long tenures and consistent growth with low risk. The reason why commercial real estate had been away from the reach of the individual/retail investor is the ticket size involved. Generally speaking, retail investors would not suddenly be able to invest in commercial properties all at once - to the tune of multiple crores. Here REITs and fractional ownership step in to ease the burden and provide an easier way for retail investors to get into the game. When speaking of commercial real estate, will all kinds of properties be equally profitable, if their age and grade remains the same? Different properties can garner different returns, based on the location, demand and supply of the region, and type of the property in question. Based on if the property is an office space, warehouse, retail, or hospitality, the benefits of investing in them can vary slightly.
Warehousing is considered the backbone of supply chain and logistics. For business in manufacturing and retail, warehousing is one of the pivotal functions and requires a space that can be accommodating, and easily accessible, as well as being somewhat versatile when it comes to addressing storage and distribution of goods. Just like Grade A offices, warehouses can also be available in similar grades. Based upon the amenities they provide, the recency of the construction and the flexibility of the space, warehouses can serve as good investment assets. To add to it, the recent spread of the pandemic made it very clear for companies that supply chain and logistics need to be much more reliable, which is why e-commerce and 3PL are the sectors that have had the major share in warehouse leasing in the recent past, with a forecast 98 million sq ft (Knight Frank) in transactions across 2022-26. That amounts to a whopping 165% change from the years of 2017 through 2021.
The Make In India movement has been gaining impetus and due to the same reason, the demand for warehouses, industrial spaces and workfloors will keep rising. Warehouses are considered hubs of the supply chain, thus, well-placed warehouses will almost always have their leases renewed or attract better tenants. Here, it is imperative for the investor to understand what contributes to a good investment in warehousing. Make sure to keep these points in mind -
- The asset should be well-connected to major roads and transport routes
- The surrounding area, if populated with other warehouses and/or industrial properties, will prove beneficial
- The lease terms should be for 5 years or more
- The asset should not be older than 2 years or should have undergone major renovation work to make it compliant to the contemporary standards
- The maintenance of the asset is undertaken by the tenant or by a reputed property management firm
Adding a warehouse or two to your commercial real estate (CRE) portfolio should provide you with a good variation. Typically, warehouses are considered for shorter tenures for investment, unless they have been specifically designed for a particular tenant. If it is the latter, your warehouse investment will be as good as, if not better, than an office space investment.
If you wish to know more about the different kinds of CRE offered as an investment with Strata, all you have to do is visit us at www.strataprop.com and we would be happy to guide you on your journey into CRE investment.