A common worry among commercial real estate investors is the risk of economic downturns or market fluctuations that can negatively affect the demand for real estate properties. Investors should understand the impact of macroeconomic factors such as interest rate changes, trade tensions, and geopolitical instability on the real estate market among other things. We won’t say industrial real estate is recession-proof but with the right expertise (or right Sales Investment Advisor) and strategies in place we are confident to recommend it.
During the 2008 financial crisis, industrial real estate performed relatively well compared to other commercial real estate asset classes. According to data from Real Capital Analytics, industrial property prices fell by only 15% from their peak in 2007 to the bottom in 2010, while office and retail property prices fell by 37% and 43%, respectively.
“Our team has the expertise and market knowledge to help investors navigate these complexities and identify high-quality industrial properties that generate strong returns. Successful industrial commercial real estate investment relies on a deep understanding of supply and demand dynamics, as well as factors such as transportation infrastructure, labor availability, and technological advancements in the industry.”
-Amar Goli, Senior Industrial Investment Sales Advisor of Sands Investment Group
Industrial Real Estate: A Rock-Solid Investment Opportunity
These factors make industrial commercial real estate an attractive choice for investors in normal economic circumstances but when the economy is rocky this asset class holds strong.
- Stable Income Stream: Industrial properties typically have longer lease terms and stable cash flows, making them less volatile during an economic downturn.
- Essential Services: Many industrial tenants provide essential goods and services, such as manufacturing, warehousing, and logistics, that are necessary even during a recession.
- Low Vacancy Rates and Limited New Supply: According to a report by CBRE, the vacancy rate for industrial properties in the United States was only 5.5% in the fourth quarter of 2021, down from 5.9% in the previous quarter, indicating strong demand and limited new supply.
- Portfolio Diversification: Including industrial properties in a portfolio can provide diversification and help mitigate risk during a recession.
- Government Support: During a recession, governments may provide incentives for businesses to invest in industrial properties, providing additional support for the asset class.
Industrial Real Estate: Strategies for Success
Strategy is crucial to a successful industrial commercial real estate investment because it allows investors to identify and capitalize on opportunities in the market. By developing a clear investment strategy, investors can minimize risk, maximize returns, and ensure the long-term success of their industrial investment and real estate portfolio.
- Explore New Technologies: Technology is changing the industrial commercial real estate landscape rapidly. Investing in new technologies such as robotics, automation, and the Internet of Things (IoT) can help you stay competitive, reduce operating costs, and improve efficiency.
- Form Strategic Partnerships: Partnering with other investors, developers, and property management companies can provide access to new markets, capital, and expertise. This can help you grow your portfolio more quickly and efficiently.
- Expand Globally: Consider expanding your operations globally by investing in industrial commercial properties in other countries. This can provide access to new markets and diversify your portfolio.
- Focus on Sustainability: Implementing sustainable practices such as energy-efficient systems, green building certifications, and waste reduction strategies can help you attract tenants who prioritize sustainability. This can improve the long-term value of your properties and help you stay ahead of regulatory requirements.
- Diversify Your Tenant Mix: By having a mix of tenants from different industries, you can minimize the impact of an economic downturn on your property. During the COVID-19 pandemic, demand for e-commerce surged, driving up demand for logistics and warehouse facilities. In fact, according to a report by JLL, e-commerce accounted for 42% of all industrial leasing activity in the United States in 2020.
Industrial Real Estate: How Can Sands Investment Group Help
- Sale-Leaseback Transaction: A large private equity-backed company was looking to free up capital to invest in their core business. They owned several industrial properties across the country and wanted to sell the properties and lease them back for their ongoing operations. Sands Investment Group helped the client structure and negotiate the sale-leaseback transaction, resulting in a successful sale and long-term leaseback arrangement that met the client’s financial goals.
- Portfolio Disposition: A publicly traded REIT was looking to sell a portfolio of industrial properties in secondary and tertiary markets. Sands Investment Group leveraged its extensive network and market expertise to market and sell the properties to a mix of private and institutional buyers. The portfolio sale was completed successfully, achieving the client’s pricing expectations and maximizing the value of the assets.
- Build-to-Suit Development: A logistics company was expanding their operations and needed a new industrial facility. Sands Investment Group helped the client identify a site, negotiate the purchase of the land, and oversee the design and construction of a custom-built facility. The project was completed on time and within budget, allowing the client to grow their business and improve their operational efficiency.
- Equity Recapitalization: A privately held industrial owner wanted to recapitalize their portfolio and bring on a partner to help fund future growth. Sands Investment Group helped the client structure a joint venture partnership with an institutional capital partner, providing the client with the capital needed to expand their portfolio and improve their asset management capabilities.
These are just a few examples of how Sands Investment Group has helped clients in the industrial real estate space. Our experienced team works closely with clients to understand their unique goals and challenges and develop tailored strategies that meet their needs.