Are warehouses a good investment?

Warehouses weren't always considered a prime real estate investment opportunity -- but a lot of things of changed in recent decades.

For example, in 2016, the Urban Land Institute named industrial property as the number one commercial real estate investment for its popularity and possibility for growth.

Why the change? Mostly, it has to do with e-commerce. All those items that Amazon and other e-commerce sites sell must be warehoused somewhere, just like at bulk-shopping centers like Costco and Sam's Club. Warehouses are proving to be much more likely to turn a profit for investors than non-warehouses. For example, the vacancy rate for warehouses is hovering between 4%-6%. By comparison, the vacancy for retail shop buildings is right around 13.7%.

So what should you consider before you invest in a warehouse?

  • The height of the warehouse. Companies are typically looking for a floor-to-ceiling height of 30 feet or more -- which is much taller than the 12-24 foot range that was once the norm.

  • Office space is important. A warehouse that has an adjacent office space is much more useful than one that doesn't have that addition. Typically, about 5% to 10% of the total space should be dedicated to office room.

  • Location is always an issue in any investment property. A warehouse that is conveniently located cuts down on fuel costs for shipments and makes it easier to find employees (especially if the warehouse is located on or near the local bus system).

  • Expansion land is also beneficial. Sometimes having that extra land to expand on can save a lot of problems in the future.

If you're thinking about investing in warehouses, talk the issue over with an experienced commercial real estate attorney before you commit to a deal.