What are the risks involved in investing in Industrial Real Estate?

Industrial real estate is backbone of any state or country. So while investing in it, It’s important to understand the risks involved with investing in industrial property. Here are a few of the key risks you need to consider before investing in industrial real estate.

Vacancy risks

Industrial properties are much more vulnerable to market conditions than residential property, so the risk of vacancy is higher. If a business closes and economic conditions are grim, it can take a long time to find a new client. Investors should be prepared for long periods of vacancy.

Expensive to invest

Banks view industrial real estate as a riskier investment than residential, so the cost of borrowing is higher. Banks interest rates will often be higher than for a loan for residential property.

Obsolescence

The industrial sector is constantly evolving and innovating. This means industrial buildings can quickly become obsolete if the clearance height is too low, access is limited or the floor space unsuitable for modern machines.

Even the location can become undesirable if road tolls are introduced nearby or better located logistics spaces open up.

Tenant risk

Many industrial buildings only house a single tenant. If that tenant runs into financial trouble and can’t pay rent, it will impact the investor’s ability to meet their debt obligations.

Long-term vacancy risk

If a tenant vacates a built to suit industrial facility, such as a manufacturing building, it won’t be easy to find a new tenant. The owner might need to invest a significant amount of capital to make the property suitable for other tenants.

Oversupply risk

Given anticipated future demand for warehouse space, real estate investors are building many properties on speculation. If they construct too many and the market softens, it could significantly impact occupancy and rental rates while reducing property values.

Conclusion

Any real estate investment is involved high risk, but compare to industrial and commercial, residential real estate is less risky. So while investing in industrial properties keep these points in mind. The key here is flexibility and location. The more flexible and better located the space, the more attractive it will be to businesses. you can find lots of industrial properties for sale or pre leased industrial properties which are less risky on IndustrialPlot.com.