Industrial real estate is quickly growing into one of CRE’s most popular outlets. Demands for this type of real estate hit record highs in 2018 and popularity is expected to continue through 2019 and on. Below, SIOR discusses the 4 must-haves in any industrial property lease.
Industrial real estate is quickly becoming one of CRE’s most popular outlets. This sector attracts a wide range of buyers, but is supremely coveted by e-commerce players and brick and mortar brands looking to expand into the online platform. Demands for industrial real estate hit record highs in 2018, and experts are expecting the surge of popularity to continue through 2019 and beyond.
From an investor’s standpoint, the high profit margins promised by industrial properties is worth looking into. According to Scott Bennett, an adviser with the Wells Fargo Private Bank Real Estate Management Group, “industrial properties are relatively less expensive to own and operate, which lets investors acquire and maintain larger assets with lower ongoing capital costs”.
Whether you’re a company looking to lease out a warehouse, or a commercial investor looking to acquire new properties, anyone engaging in industrial real estate needs to be familiar with the dynamic leasing options.
Here are 4 fundamental considerations to make before signing the lease on an industrial property:
1. Net Leases
Compared to most commercial lease types, industrial leases are typically set for longer periods of time. These long-term net leases are easy to manage for landlords since the responsibility to cover major expenses such as maintenance, operational costs, and insurance is placed on the tenant.
2. Expansion Rights
As industrial properties are mainly used as a business headquarters or warehouse, tenants should consider future space requirements before signing the lease. Businesses interested in expanding should consider including expansion rights into the contract. With expansion rights, the tenant is given priority if they’re interested in leasing out more space.
As with any commercial lease, parking is a necessary component to include. In commercial deals, parking is quoted as the ratio of available spaces per each 1,000 square feet. On average, industrial occupants require less parking spots since they usually have fewer employees. The ratio is still calculated to determine how many spaces the tenant can use, however that ratio is usually low.
4. Due Diligence Period
When it comes to industrial properties, each tenant will have their own unique requirements. As there is an incredibly diverse set of operations that can take place in warehouses, every deal will be founded upon the building’s anticipated function.
With that being said, it’s important that the tenant or buyer is given plenty of time to perform due diligence before signing the lease. It’s ideal to negotiate at least 30 days after reaching a stable agreement before finalizing the deal. During this time, the interested party should schedule any necessary inspections and deeply analyze their potential space. Although this does extend the processing time, it provides valuable flexibility to all those involved with the deal.
Before signing any lease, it’s imperative to ensure every detail is reasonable, comprehensible, and agreeable. When it comes to industrial leases, don’t hesitate to cover all of your bases—it’s always better to be safe than sorry. Know all there is to know about the deal to ensure it’s the right move for you.
SOURCE: SIOR HQ (23 April 2019) “4 Must-Haves in an Industrial Property Lease” (Web Blog Post). Retrieved from https://blog.sior.com/4-must-haves-in-an-industrial-property-lease