How Landlords Justify Their Industrial Rental Rates

Industrial building rental rates are a complex topic that has been extensively covered in numerous publications over the years. However, there are still some unique angles and perspectives to explore that have not been fully addressed. In this blog, we will take a fresh look at industrial building rental rates, exploring some of the lesser-known factors that can affect pricing and offering insights on how businesses can negotiate the best deals.

Location Matters, But Not in the Way You Might Think

It is common knowledge that location is one of the most significant factors influencing industrial building rental rates. Buildings located in prime locations, such as near major transportation hubs or in high-demand industrial areas, often command premium pricing. However, what many businesses fail to consider is that the exact location within a building can also impact rental rates.

For instance, spaces that are situated near loading docks or elevators may be more expensive than those located further away. This is because these spaces offer greater convenience and accessibility, making them more desirable to businesses that rely heavily on shipping and receiving. As such, it's essential to consider not just the building's overall location, but also the location within the building when negotiating rental rates.

Lease Length Can Affect Pricing

The length of your lease can also impact industrial building rental rates. In general, landlords prefer longer lease terms, as they offer more stability and predictability. As such, they may be willing to offer more favorable rates to businesses that sign longer leases.

Conversely, businesses that only need space for a short-term project or are uncertain about their future needs may end up paying a premium for a short-term lease. It's essential to consider your long-term business goals when negotiating rental rates and explore whether a longer lease term may be more cost-effective in the long run.

Negotiating Can Save You Money

Finally, it's worth noting that industrial building rental rates are not set in stone. Businesses that are willing to negotiate with landlords may be able to secure more favorable rates. This is especially true in today's market, where many landlords are struggling to fill vacancies due to the pandemic's impact on the economy.

When negotiating, it's essential to have a clear understanding of your needs and budget, as well as the current market rates for comparable spaces. This will enable you to make a compelling case to landlords and potentially secure a better deal. Hiring a broker to do this on your behalf is the safest way to ensure a fair deal as this is their expertise.

In conclusion, industrial building rental rates are a complex topic with many factors to consider. By understanding the lesser-known factors that can impact pricing, such as location within a building and lease length, and being willing to negotiate, businesses can secure the best possible rates for their needs.

Secure Investments With High Returns? Look No Further

Commercial real estate industrial buildings are a type of property used for manufacturing, storage, distribution, and other industrial activities. They are typically large and located in areas zoned for industrial use, often near transportation hubs such as highways, ports, and airports.

Industrial buildings come in a wide range of sizes and types, including warehouses, manufacturing facilities, distribution centers, and research and development (R&D) facilities. They are often customized to the specific needs of the tenant, with features such as loading docks, heavy power and ventilation systems, and specialized lighting and flooring.

Investing in industrial real estate can be attractive due to its potential for stable, long-term cash flow and appreciation. Industrial tenants often sign long-term leases, which provide a predictable income stream for the property owner. In addition, demand for industrial space has increased in recent years due to the growth of e-commerce and the need for efficient supply chain management.

When investing in industrial real estate, it is important to consider the location, condition, and tenant mix of the property. Properties located near major transportation routes or logistics hubs may be more valuable due to their accessibility and convenience for tenants. The physical condition of the property, including the age and quality of the building, can affect its value and appeal to potential tenants. A diverse tenant mix can help mitigate risk and ensure a stable income stream in the event of a tenant vacating the property.

As with any type of commercial real estate investment, there are risks and potential downsides to investing in industrial buildings. Market conditions and economic factors can impact the demand for industrial space and the rental rates that can be charged. In addition, changes in zoning laws or environmental regulations could impact the value of the property or its potential uses.

Overall, commercial real estate industrial buildings can be a lucrative and stable investment opportunity for those who understand the market and take a thoughtful and strategic approach to investing. As demand for industrial space continues to grow, the potential for long-term cash flow and appreciation in value makes industrial real estate an attractive option for investors looking for a diversified portfolio.

Capital Investments - A higher return than your bank account

Capital investments into real estate are the one commonality that most millionaires add to their portfolio. This is smart and a proven path to creating wealth. Although investment in commercial property can be listed at a higher cost than residential real estate, there is equally a higher return on investment creating passive and stable cash flow. One of many benefits to being a landlord in commercial real estate is most maintenance responsibilities fall back onto the tenant, depending on the type of lease you buy into or establish. We will explore the many reasons why you might consider investing in commercial property.

Cash Flow and Income 

Investing in commercial real estate is returned twice; once in the present as monthly cash flow from rental income and again on the asset’s future appreciation. This is unlike other forms of investment, such as bonds that are valued only for their appreciation or stocks that return in a quarterly dividend. A stable and steady source of income is protected from the volatility of stock and bond investments because CRE does not trend the same as financial markets.

The amount of cash flow will depend on the type of rental property and the type of lease. The property can be an office or medical buildings, industrial lots, land, multifamily buildings such as apartments, retail, hotels or special purpose buildings like amusement parks. Different properties require different involvement from their landlord and dictate the level of cash flow the investor will receive. There are three types of leases, called net leases, that determine how involved the landlord must be with the management of the property. On a single net lease, also called an N lease, the tenant pays for their utilities and some property tax, but the landlord is in charge of all other financial and upkeep responsibilities. On a double net lease, or NN lease, the landlord maintains structural upkeep (land and buildings) but the tenant handles maintenance as well as tax and insurance on the property. The best type of lease a landlord can hope for is a triple net lease or NNN lease. With this lease, the tenant is solely responsible for everything regarding the property and the landlord is not involved with any maintenance or financial upkeep. This is the most beneficial lease because it has the highest income with the least involvement.

Appreciation of Assets

As mentioned above, an investment in commercial real estate returns on the potential future appreciation of the asset. This can be caused by an increase in demand in a central location, the higher the demand for property the more money people are willing to pay for it. Appreciation can also be due to improvements and maintenance done by the landlord. If a landlord renovates or improves aspects of the building, they are entitled to ask a higher rental price. Appreciation also happens during inflation; rents go up and that makes the value of the property increase too. CRE generates a higher total return and income than other real estate investments, stocks or bonds.

Long Term Lease

One of the reasons to invest in CRE is because of long term leases. Commercial properties that house businesses will average a three to a ten-year contract. This is unlike most residential leases that expire after a year and leave landlords to find new, reliable tenants on a recurring basis. Even if tenants try to break their lease early, there are still financial penalties tied to cancellations. Long-term leases are beneficial for both landlords and renters because a long-term lease creates a steady stream of income for landlords, without them having to search and do due diligence on new renters and renters have more ground to bargain for a better price per square foot.

Leverage 

When investing in commercial real estate, it is usually not purchased with 100% of the cash value upfront. A payment of 20-30% is made by the investors and the rest of the capital is from bank loans. Since CRE has been proven to be a valuable investment that has a greater return than other investments, banks are willing to provide loans. This allows investors to purchase real estate assets that are greater than their cash flow balance. When rent price increases and the value of the property goes up, the investor can resell the CRE asset for a larger sum of money. This means that the return on investment is greater than 100% and this is one of the main reasons to invest in CRE.

Tax Benefits

There are certain tax benefits to owning and investing in commercial real estate. Investors can claim tax deductions for depreciation of the asset and interest expense. The Tax Cuts and Jobs Act (TCJA) is a tax reform that brought new light to tax deferral strategies for CRE investors. It allows for properties bought between September 2017 and December 2022 to be eligible for bonus depreciation. Other tax benefits include loan interest write-offs, lower tax rates for passive activity, and a favorable long-term capital gains rate.

Tangible Asset

Another reason to invest in CRE is that ownership of a property is a hard asset. Both the property and the land it is on have financial value and can be used to create income. Remodeling of the property can further increase the value of the hard asset, making it an even better investment. Hard assets move in the opposite direction of stock markets so CRE can be a stable investment in an otherwise volatile investing market. Ownership of a tangible hard asset also feels good for the investors because it creates security.

Reasons to Invest in CRE

Commercial real estate is the most profitable of real estate investments with a proven track record of high returns. It is not subject to the whims of the stock market because real estate has a strong ever-growing demand. This, along with all the reasons listed above, makes it an attractive opportunity for every investor. 

Wildmor Advisors specializes in capital investment sales. We provide curated investment opportunities nationwide. We analyze each properties financial future ensuring that the juice is worth the squeeze. Contact us today to explore potential investment opportunities.

What Is Tenant Improvement Allowance? - How To Get The Best Bang For Your Buck

Most tenants looking to occupy a new space need some sort of build-out to accommodate their needs. This can include all industries such as office, industrial, and even retail. To make leasing a particular space more attractive, Landlords typically offer a “T.I. Allowance” to help sell you on signing a contract. So how can you use it best?

By minimizing your out-of-pocket expenses, a TI allowance can help you create a space that fulfills your particular requirements or preferences. With this information at your disposal, you can negotiate favorable terms with your landlord to create the best-customized space for your company.

How is TI allowance calculated?

Typically, a TI allowance is negotiated into the lease before signing and is expressed in either a dollar per square foot amount based on the size of the unit or a total dollar sum.

As an example, imagine that an owner agrees to a $35 per square foot TI allowance. In a commercial office space that is 12,000 square feet, that equals $420,000 in total. However, if the landlord bases their allowance on usable square footage and you have 11,000 usable square feet then your TI would only be $385,000.

Landlords typically offer a competitive TI allowance with corresponding rates from other buildings in the area. Surprisingly, the landlord may also take into consideration, who the tenant is, their credit, and their history as a tenant.

What Does a Tenant Improvement Allowance Cover?

Owners are more likely to prefer that a TI allowance covers basic construction costs, whereas tenants generally try to expand it to cover additional costs including permit fees, legal fees, architectural fees, and labor. Again, the specifics of what is covered should be negotiated as part of your lease agreement.

Keep in mind that costs related to moving fees, internet, cabling setups, and décor and furniture are not usually included in the TI allowance.

Sometimes, you can negotiate that if your project is completed under budget, any remaining funds can be applied to either future improvements or some other use associated with the lease, such as free rent.

How To Get The best bang for your buck?

It is important to get an accurate build-out cost so you can evaluate your out-of-pocket expenses that may go beyond your TI allowance. At Wildmor Advisors, we always negotiate the best commercial real estate deal for your goals by running predictive analytics giving you an idea of the total cost of your project for the length of your lease. We then keep your goals top of mind and go back to the landlord for negotiations.

Our best advice to you is to work with a team like ourselves, who specializes in tenant representation. Don’t leave money on the table by not having an advocate by your side!