When partnerships, investment companies and their participants look at investments in commercial real estate, many tend to look at properties that have charm and glamour in marketing materials. An attractive office building, shopping center or condo project tends to have a more acceptable “status” as an investment property. One would be proud to drive by these properties and point them out as “their investment.”
Traditionally, any property designated as a “warehouse” would be located in a business park or area zoned for industrial use. There is not nearly as much appeal in a sprawling bulky warehouse building. The physical attractiveness is not there in glossy color brochures or photographs. However, as profitability goes, these bulky buildings can be money makers as a real estate investment.
Particularly in the east Twin Cities metro area, warehouse space is often hard to come by with limited availability. Finding the right space can be especially challenging for businesses with specific needs. A recent check in one area showed a vacancy rate in distribution warehouses of 4% to 6%, while office buildings had almost an 11% vacancy level. The vacancy rate for warehouses remains low in good times and bad. If there is a slump in demand for real estate, commercial real estate should not be as severely affected . The demand for space in warehouses remains somewhat stable.
When choosing the site for construction of a new facility, think first of the customers who will be your tenants. Does the potential warehouse location have easy access from major highways or an interstate? Will the driveways and parking areas accommodate large trucks? Is the facility very close to any houses or residential areas that will complain about the noisy trucks coming and going?
Expenses and Features
The normal costs of operating any rental property are utilities, insurance, property taxes, management and maintenance.
Access and parking are important. There should be direct access to each unit by a vehicle with multiple trailers. There should be room for these vehicles to turn around or be passed by another car or truck. Loading docks and drive-in doors are provided at most commercial-oriented warehouses. Temperature controlled warehouse space, refrigeration, back-up generators, sprinkler systems, water or power needs and security are often factors for potential tenants when choosing a warehouse location for their business.