Commercial real estate (CRE) is a complex area of real estate. It can be used for businesses to be able to operate, but also by investors. Added to that is the fact that there are a lot of different categories within CRE, having very specific property types listed within it. Furthermore, these different property types are usually subject to zoning, meaning they can only have certain uses.
One category within CRE is the industrial category, and this can be further broken down to include the flex warehouse and the bulk warehouse. A flex warehouse is a type of property that includes office space and industrial space and that is very easy to convert to suit the needs of the company that currently uses it. A bulk warehouse, by contrast, is incredibly large, usually ranging between 50,000 and 1,000,000 square feet. In most cases, these properties are used for distribution, which means they are close to highway systems and have easily accessible areas for trucks.
Warehouse Real Estate for Sale
One option you have if you are interested in warehouses is to purchase it. This has a number of specific benefits in choosing a warehouse real estate for sale, including the fact that you don’t have to use it solely for storage. In fact, you can convert it to a retail space or even a club. Lots of manufacturers have started by buying a warehouse, and have then converted it into a production unit. As such, these spaces are incredibly versatile and this also makes for an interesting investment. There are a number of other key benefits to owning a warehouse, be that for business operations or as an investment.
Benefits of Owning a Warehouse
- Low Risk Profit Source. If you don’t have to use some of the space that is available to you, you can rent it out to another small business. In fact, you could buy an entire warehouse and rent it out. As such, you don’t have to run a business in order for a warehouse to help you make a profit. The National Research Council has even stated that warehouses are particularly interesting for buyers because the risk of financial loss is small, and the potential to sell at a profit later is large.
- Savings on Costs. When you own a warehouse space as a business, you could save money because you no longer have to pay to rent a storage facility. While those rents are usually quite manageable, they do add up over time. Plus, your monthly rental price could be as high as your mortgage payments. While you do have to make a sizeable down payment if you want to buy a warehouse, it could still work out a lot cheaper over time.
- Storage. At its heart, a warehouse is designed to store items that cannot be kept on a shop floor. Businesses, particularly retail businesses, have to be able to access new stock very quickly, which can be achieved through a warehouse.
- Ability to Expand. Because warehouses are large by definition, they can enable your business to grow as well. You can divide a warehouse in sections, such as offices and inventory, and increase one part as and when needed. You could even expand the building itself, so long as planning permission is available for that.
- Mitigated risk. Investing is always risky, but investing in CRE brings some interesting financial incentives, including tax benefits. Furthermore, you can rent the property out so that you can make sure that your financial responsibilities are always met. If, for instance, you want to sell your warehouse but the market price is lower than you expected, you could rent it out until the market improves. Plus, a warehouse is an excellent collateral, meaning you can put it up against other investments or loans if you want to change your business.
Warehouse Property for Lease
If you run a business that requires a warehouse, you can also consider renting or leasing it instead of buying it.
Benefits of Leasing a Warehouse
- Flexibility. As your business grows, you won’t be burdened by having ownership of a property that is no longer fit for your purpose. This means that you will need to find a buyer first before you can move on. With a warehouse property for lease, you can come to an agreement with your landlord, including having a break clause in your contract.
- Leverage. You can have all the terms and conditions of your lease negotiated in such a way that they are right for you. You can even renegotiate as your needs change.
- Lower costs. The upfront costs you have to pay for a lease is generally quite affordable, particularly compared to a purchase. You may have to provide a deposit, which can be quite high, but you will tie up less capital overall if you rent. This means you have more money to actually invest in your business as a whole. Another interesting financial benefit is that you don’t have to worry about interest rate rises. Your rent will likely rise if the interest rates do, but this will be agreed upon in your lease agreement, meaning it will most likely be capped as well. Plus, if the value of the property as a whole drops, this will not affect you in any way. Lastly, you don’t have to worry about capital gains tax.
- Easy maintenance. While the amount of maintenance you have to do will depend on your contract, it will almost always be less than if you were to purchase your property. A lot of the maintenance and repairs will be the responsibility of your landlord, which means you are also less likely to experience downtime if something does go wrong.
Warehouse Property for Rent – The Benefits for Small Businesses
When you think of a warehouse, you probably think of a huge store with millions of dollars worth of inventory. There is the belief that a warehouse has no benefit for small businesses, but that is actually a mistake. In fact, even small start-ups can benefit from owning or renting a warehouse. Some of these benefits include:
- Increased storage, which is the most obvious one. You no longer have to clog up your business premises with inventory, spare furniture, and more. In fact, you may even get hold of a warehouse that you can use as an office space as well. Overall, it will give you a much more professional look.
- Security, as warehouses tend to be more secure
- Opportunity to expand. If your business starts to grow, you can start thinking about reaching out to different avenues of business, expanding your own stores, and so on. If you happen to have a manufacturing business, then a warehouse can improve your logistics as well.
As discussed, you have the option to either purchase or rent your warehouse. This also means that, if you are a small business, you have options available to you. You do not need to have a large amount of capital behind you, since investors have purchased warehouses that you can rent. Most of them have the facilities that you need, including security, so you can receive all the above benefits.
You do also have the option of building a temporary warehouse yourself, for instance, by assembling steel storage containers. However, this does mean you have to find land on which you can do that, which also has the accessibility you need for your staff to actually reach whatever you have stored. While a viable option in certain parts of the country, particularly more rural ones, it often isn’t a suitable solution in urbanized areas.
An affordable alternative to purchasing your own warehouse is to hire one instead. There are firms and agents who deal in leasing warehouses in a variety of different sizes, allowing you to realise these benefits but at a more manageable price. Furthermore, some of these come with security and surveillance included, offering you extra peace of mind regarding your stored goods.
Warehouse Building for Sale
So should you buy a warehouse, or should you lease it? If you are a property investor, the answer is simple: you need to purchase it. But if you are a business and you want to actually use a warehouse, then the answer is not as straightforward.
There are clear advantages of buying the property and there are clear disadvantages as well. You need to consider all the different elements – taxes, finances, your business – ensuring that you find the space that you need at the lowest possible cost. It is highly recommended that you build a team of professionals around you, including a lawyer, an accountant, a CRE agent, and so on, so that you can find the best option out there.
Advantages of Buying a Warehouse for Business Operations
- Your costs are fixed, so you know exactly what to expect of your finances for the foreseeable future.
- You have certain interesting tax advantages, including deductions. These include interests, property taxes, operation costs, maintenance costs, and more.
- Financing is reasonable easy through CRE mortgages, which often equate to monthly payments that are the same as they would be if you were to lease the property.
- You will instantly have equity behind you, using your property as a guarantee.
- You can earn extra income by renting out unused parts of your warehouse, or even renting it out in full if your own business is no longer viable. Purchasing CRE is a solid investment.
- You can have capital growth, particularly if the land on which it is located appreciates in value. This means that, at some point, you are likely to be able to sell it at a profit. And if it does and you happen to have rented out some or all of your warehouse, you can also increase the rent.
- You have control, because you can run your business the way you see fit, rather than always having to ask for permission. Leases are usually quite restrictive in terms of what you can do to the property, because it is the landlord’s investment.
Disadvantages of Buying a Warehouse for Business Operations
- It isn’t very flexible. If you are a new business, you probably don’t know what will happen over the next 10 years or so, which means that signing on the dotted line of a lengthy mortgage may be too much of a risk.
- You need to have substantial capital behind you for the upfront costs, not just for a downpayment but also for maintenance, appraisal, and improvement costs.
- You have less agility, as you will be tied up to the property. If your business changes, grows or contracts, and you need a new type of property, it may take you a long time to sell your warehouse and find a new one. Most CRE properties are on the market for between six and 12 months.
- You will tie up a lot of your capital in the warehouse, which means you cannot put that money into anything else.
- You are responsible for all improvements and maintenance. If something goes wrong, you have to fix it and find the specialists to do that, which may mean that you will experience downtime as well.
The other option is to lease a warehouse, which also has both advantages and disadvantages.
Advantages of Leasing a Warehouse
- You can make use of a property in a prime location. When you lease, you have the opportunity to pick a location that is befitting of your brand image, not of your budget. Prime locations cost a lot of money to buy, but they are a lot more affordable to lease. If your image is important, then leasing is a far more affordable way to find a property in a good spot. In addition, prime properties may not be available for sale but some may be available for lease.
- You have a lot more capital available to you, because it won’t be tied up in your real estate. This means you can use it to grow your business, expand your research and development, hire new staff, and so on. When you consider that you are likely to have to put down 30% of the purchase price of a warehouse if you want to buy it, you can quickly see that a lot of money would get tied up in a purchase.
- You get more time to run your business, because you don’t have to worry about the management of the property.
- You can respond to your personal business needs more quickly. Should you experience unprecedented growth, you can simply get a new lease, rather than having to sell your warehouse and buying a new one. If, on the other hand, your business goes under and your lease isn’t over yet, you may be able to sublease the property to continue to meet those financial demands.
- There is a lot less risk associated with a lease, because you aren’t tied up to a long financial agreement. Of course, a lease does have a time frame attached to it, but it is usually much friendlier than a mortgage.
Disadvantages of Leasing a Warehouse
- The costs can be variable. Your rent will usually increase every year, usually following the Consumer Price Index.
- You have limited control. There is always the chance that your landlord may decide to sell up, which means you will have to move as well. This could tarnish your reputation with your customers. Naturally, you do have some protection within your own lease contract, but as that comes to an end, you have to be aware of the fact that your lease may not be renewed.
- You don’t have any equity. Rather, the payments that you make are building the equity of the property owner.
- You have some serious obligations, including a range of hidden costs, within your lease agreement. While you can mitigate this by properly negotiating your terms and conditions, you are always reliant on the goodwill of the property owner.
So should you buy, or should you lease? If you have the capital available, and you see a property that is below the market value, then buying is generally classed as a better idea. Similarly, if your 10 year plan is to stay in the same location, then buying is usually also a better option. It is also better for those who are in specialized industries, as these require specialized machinery and a unique fit-out.
However, if you want to use your warehouse for general purposes, including distribution, leasing is more likely to be the right option for you. Usually, a lease is better for those who want to hold on to their capital in order to grow their business. Similarly, those who are only just starting and don’t quite know where their business is going, are better served with a lease as well.
Clearly, deciding between leasing and renting a warehouse building is a complex one to make. You need to think about your business, legalities, taxes, finances, and more. Before you decide, therefore, you might want to consult with some experts.