A quick overview into what makes warehouse property a good investment.

With companies like Amazon and Flipkart becoming household names, the warehouse sector has seen substantial growth in the past few years. Meanwhile, the underlying fact that warehousing and logistics are the backbones of the e-commerce sector, the demand for well-equipped and maintained warehouses have also seen a rise. While the common man may not have any interest to keep themselves updated with the latest trends in the warehousing industry, the real estate investors are eyeing warehouse investment.

Moreover, the policy changes including the introduction of GST, and each Indian state has its own warehousing policy have further contributed that the sector is likely to see considerable growth in the future. It is believed that leasing in the warehouse segment is expected to breach the Pre-Covid level on the back of the continued expansion of e-commerce and 3PL (3rd-Party Logistics). Though the sector is seeing growth, investing in it could be a bit tricky. Along with the pros, it also has a set of drawbacks. Hence, before stepping into the world of warehouse investment, it is strongly advised that you should be clear with the basics of its concept.

With that being said, in this comprehensive write-up of PropReturns, we will give you a brief of what warehouse investment is, does it makes a good investment, and what are the pros and cons of investing in warehouses. So, let’s clear the fundamentals first.

A warehouse is a structure that stores products for the purposes of stocking, packing, and shipping. Broadly, there are five types of warehouses, namely:

  • Private warehouses

  • Public warehouses

  • Bonded storage

  • Co-operative warehouses

  • Distribution centers

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Each of the above-mentioned warehouses is different from each other while the purpose of them remains the same that is storing goods. Before jumping on the pros and cons of investing in warehouses, here is a brief overview of how one can invest in warehouses in India.

How to invest in a warehouse?

In the booming warehouse industry, there are primarily three ways via which real estate investors can invest. They are as follows:

– Direct Warehouse Investment: Well, this method is for those investors who are confident about their investment. In this method, the investor buys the warehouse and rents it out to different businesses to reap good returns.

– Flipping existing retail spaces into warehouse facilities: Investors in commercial real estate who have invested in retail spaces and are facing defaulting retail tenants can consider this strategy. They should choose a low-cost warehouse site and make revenue as a result.

– Investing in warehousing through REITs: For the unversed, REIT stands for Real Estate Investment Trust. In simple words, REITs allow individuals to invest in large-scale, income-producing real estate. This is the safest strategy to opt for those who want to start investing in a warehouse but does not have the required knowledge of the market.

Some benefits of buying or investing in a warehouse are:

  • Tenants in warehouses typically stay for 9 to 15 years. Warehouses have a high occupancy rate due to their low cost, making them a reliable investment.
  • Warehouse construction costs are much lower. This makes warehousing a significantly more cheap choice in terms of commercial real estate. It also takes less time to build than an office building, taking only six months rather than three years!
  • The monetization cycle from the time of construction until rental earnings happens much faster, making them ideal investments for those looking into long-term security without sacrificing performance.
  • As the monetization cycle from construction to rental earnings is substantially shorter, they are suitable investments for people seeking long-term security without sacrificing performance.
  • If your facility has additional space, you may always rent it out to make more money. This additional income can be put towards paying off the fixed mortgage.
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The final wrap

The industrial and warehouse real estate market is growing steadily with no slow down in sight, making warehouse property investing worth considering. While doing so, remember a popular quote that goes “Review 100 deals, make offers on 10, and purchase 1”. However, concluding if a warehouse makes a good investment or not is a bit tricky as the choice depends on the location, the economy, your financial situation, and most importantly your risk appetite. Hence before sealing a deal of investing in a warehouse, make sure you have considered these factors.

Once you have come to the conclusion about investing in a warehouse, You can find plenty of warehouses up for sale or investment across the various Indian cities. We list verified commercial real estate opportunities along with a data-backed analysis. The community of 500+ veteran investors also share their knowledge for the budding investors to make a sound decision.