REAL ESTATE NEWS

Many CRE firms are hopeful that 2025 will be the year that just about everything across the board booms after dozens of months of turbulence. For his part, Michael Thom, attorney in the business and finance department at Obermayer, has zeroed in specifically on the industrial sector.

Industrial has many attributes that make it an attractive investment. One of them Thom points to is key fundamentals.

BOOMING RENTS

"Rents are going up for these spaces, which make them good investments for commercial landlords, they have low vacancy rates, unlike a lot of other industries," he said, who focuses on real estate deals and the legal side of the industry.

The latest report from CommercialEdge found that national industrial rents in November were up three cents from the previous month and 6.9 percent year-over-year at $8.25 per square foot.

STABILITY AND LOWER COSTS

Also, Thom noted that warehouse operational costs aren't as high compared with other real estate asset classes. This is especially true for suburban areas, where rents will be typically lower and tenant improvement requirements will be in less demand.

"There are not many tenant improvements [for industrial properties needed]," said Thom.

"You can use a warehouse space for a sports facility, where your whole tenant improvement is laying out turf and you're done."

Another factor is the stability of the industrial assets today compared with other real estate categories. For example, Thom calls the office sector "scary" due to the remote work trend that's picked up since the pandemic. And while it has been recovering and some think it has bottomed out, the asset class still faces uncertainties and occupancy is still down significantly from pre-pandemic levels. The same volatility won't apply to the industrial sector.

"Office staff can probably do some [work remotely] but people who are doing the day-to-day [in the warehouse sector] and the actual industrial work, there aren't people doing that from home. You're not driving a pallet from your couch, at least not yet."

Thom says there are also opportunities in the multifamily sector because of how unaffordable housing has become. As a result, more people are turning to renting.

"Multifamily apartment units, buildings that are coming up, they're getting the demand, and have the need. And if you have the ability to come in and acquire some sort of multifamily property, whether it's 30 units or five units — you're going to fill them up," he said.

But Thom is particularly bullish about the opportunities sitting in the industrial sector because you may only need one or two tenants to fully occupy the space, and the risk is lower compared with some other asset classes.

"If you have a good industrial space that's got a good location, [and] good access, people are going to want that space," he emphasized.

"And there are ways where landlords can be creative with tenant improvements and rents to attract good, high-quality credit tenants."

BUYERS NEED TO BE PATIENT

With interest rates coming down, but still high, Thom advises buyers to stay patient. Now might be the time to score "value deals" — but the process shouldn't be rushed either.

"You want to find a good deal that you're going to be able to hold and resell for value a few years from now," he explained.

"You can find space where there might be some issues, and if you have a good team of brokers in place and a good team of other professionals in place, you might be able to quickly add that value and make a good profit on it."

Source: GlobeSt/ALM