Industrial Property Buying Tips and Tools

Industrial property is the entry point for many property investors to the commercial property industry. As a property type, industrial property is relatively straightforward with little complexity. The property owner just needs to target and strategise the following issues when looking for a property to buy:
Stable tenants
Achievable rentals
Good property location
Industrial property precinct
Growth of the local community and business sector
Vibrant industrial community supplying services, products, and raw materials
Access to transport links, ports, airports, and railheads
So now let’s look at the industrial property needed today by tenants.What do Industrial Tenants Need?Traditional warehouses will include quality height, size, loading and unloading facilities, quality office space to support industrial operations, ample car parking for staff and customers, hardstand areas for operational flexibility, and high levels of security to protect the tenant’s goods and their operation.Industrial tenants today are far more sophisticated and demanding when it comes to selecting a property to lease or buy. The investor should therefore select a property that has all the elements of property usage that tenants expect in the local market. Tenants know that the property will impact operational costs and eventually the bottom line of their business. Tenants will choose their property well as a consequence.Taking the First Step to Investment in Industrial PropertyIndustrial warehouses are simple to construct and have a long economic life hence the investor sees it as an entry-level investment vehicle and popular. Providing they select a sound and strong tenant, and apply a good lease, the stable future of the property for investors is normally achievable.There is very little management required on industrial property, and as direct result many private investors will manage industrial property themselves. Unfortunately this does have negative connotations, in that the first time investor sometimes has little awareness of the specialist terms and operational conditions that is supported by lease documentation on their property.These first time investors can then overlook critical matters and make mistakes. To the experienced commercial property specialist and commercial real estate agent, it is easy to see these ‘first time’ landlord managed properties as you drive through a town or city. The errors of ownership are visually obvious. These errors can even reflect in the ultimate levels of rent and price on the property.Invariably and importantly this self management problem will surface at final sale or rent review time when the investor has overlooked something or transacted it incorrectly. The buyers of property today will conduct a due diligence period and investigation of any property prior to settlement.Those property owners that manage their own investments should only do so only when and if they completely understand the complexity of the task at hand. If the investors have only a basic understanding of property performance and function, then they should not self manage the property. The matter is plain and simple.Critical property knowledge will involve key functional elements such as:
Types of rental
The lease clauses and provisions
Property maintenance strategies
Property operational costs
Contractor management
Vacancy resolution and strategy
Incentive use and strategy
Tenant negotiation skills
A good property solicitor is invaluable when it comes to Investment Property. The same should be said for a property experienced accountant. Even the most basic industrial property needs carefully prepared lease documentation and financial guidance. It is interesting to note that many first time property investors will sometimes choose cheaper lease documentation that is ‘generic’ and available off the shelf. Cheap is not a good option when it comes to documentation in investment property. You get what you pay for and so why would you take this risk?Given that you are endeavouring to protect and stabilize cash flow, a few dollars saved on lease documentation preparation at the start of any occupancy can eventually lead to property instability or downfall, loss of tenant, higher property operational costs, and uncertainty when it comes to exercising the critical terms and conditions of the document of lease.A good property solicitor will understand the occupancy needs of the particular property and reflect that into the document used by the landlord to protect occupancy and cash flow. The same solicitor can create a standard lease document and strategy that targets the landlord’s cash flow plans and investment targets. You will not get this advantage from ‘generic’ leases.Industrial Properties Outgoings AdvantageMany Investors seek to purchase and to lease industrial property to major industrial businesses under long term net leases. In long term net leases, these larger tenants would normally control and pay the property outgoings direct.The property outgoings in an industrial property are normally simple although there is an essential checking process needed here to see that the tenant is correctly paying the outgoings in a timely fashion. In many circumstances and in this market, we have seen some tenants avoid the payment of outgoings without the full awareness of the landlord. This then creates unnecessary fines and legal disputes for outstanding outgoings accounts. The landlord must not assume that the tenant has discharged or paid the outgoings; the landlord can later find that the matter is still outstanding and about to go to court for non-payment. Rates and taxes (statutory charges) are usually a charge on the land and will ultimately fall on the landlord for payment.So whilst this process of tenant paying outgoings direct is convenient and simple for the landlord, such leases have little substantial increase in rental return which may not necessarily support the investor’s growth plans. Investors of this ‘basic’ nature typically hold a number of properties of this type over the long term to allow them to achieve portfolio growth.With industrial property it pays to recognise that the property may be uniquely and specially suited to a particular tenant. This means that the vacancy threat in industrial property must be carefully monitored as any lease reaches the end of term. It is not unusual for industrial property to remain vacant for a lengthy period in the current market.Mortgage Lenders and Industrial PropertyMortgage lenders for fully leased warehouses occupied on the long leases see them as being good collateral for loans. Long-term financing is typically available for industrial investors at competitive interest rates. The investors of industrial probably find it easy to refinance an expanding portfolio on the back of their established industrial and well leased property.The secret to success in industrial property investment is to have:
Good leases
Good tenants
Good vacancy awareness and minimisation strategies
Sound recovery of property operational costs
Good maintenance controls
Good insurance strategies
Minimal exposure to risk from the property
Well established permitted use and compliances
Good income and expenditure budgets
Industrial property is the market segment that is normally suffering early in an economic downturn. That is due to the close integration between the industrial business community and the consumer. Fortunately, it is the industrial property market that responds quickly when the economy moves towards growth and stability. Landlords should respect this fact and monitor their way through the downtimes as they will always come and go.Investment Property is cyclical and will on average move through a complete cycle every 7 to 10 years. In today’s market, many investors know that real opportunity exists today at the beginning of a new property cycle. This cycle is currently evident in most countries and major cities.

The Evolution of China’s Industrial Agglomeration

Industrial agglomeration is the result of the free moving and free configuring of productive factors. It is an inevitable phenomenon that industries highly concentrated in a particular area under the conditions of market economy. Because agglomeration can promote economic development and enhance regional competitiveness, finding out the evolution laws of agglomeration is helpful to develop appropriate regional strategies and industrial policies.Industrial agglomeration has been guided by government in the period of planned economy, industrial structure was inefficient. In the process from planned economy transferring to market economy, the fluidity of product factors has been enforced, many industries’ location are guided by the economic rule instead of government planned policy, industrial layout has changed dramatically.New Economic Geography theory suggests that the industrial agglomeration and regional integration take on a reversed “U” curve under the interaction between scale of economy and transportation costs, that is, inter-regional transport costs continue to decline with the development of market economy, and the geographic layout of industries will be dispersed after gathering.Based on the theory this paper analyses the location selection and geographical evolution of different industries.By calculating the EG index and CR3 of 18 industries in China through 15 years, this paper obtained a relatively complete and detailed evolution trend of the industrial agglomeration. The results showed that many manufacturing industries’EG indexes increased which was consistent with their CR3s, such as chemical fiber manufacturing industry, electronics and telecommunications equipment manufacturing industry, instrumentation and Cultural office machinery manufacturing, textiles, electrical machinery and equipment manufacturing industry, food processing and manufacturing, paper and paper products industry, chemical fuel and chemical products industry, which basically belong to technology-intensive and labor-intensive industries. But there also same industries whose EG indexes remain unchanged, such as beverage manufacturing, oil processing and coking industry, pharmaceutical manufacturing, fabricated metal products, ferrous metal smelting and rolling processing industry, non-ferrous metal smelting and rolling processing industry, these industries are basically resource-intensive industries.Surprisingly, the machinery and equipment manufacturing and transportation equipment manufacturing industry which have obvious economies of scale were hardly increased in EG indexes and CR3s, this may have something with places limited rationality during the market-oriented reform process in our country.Regarding to the areas where industries agglomerated, the eastern areas became the biggest area while other areas declined in concentration. Northeast of China experienced a biggest drop, the dominance of many industries in this area have been replaced by eastern areas. And central regions also had a slight decrease of industrial concentration. As regards to northwest and southwest of China, no matter past or present, their industrial agglomeration level was the lowest, and as time goes by, this level becomes further low. Tibet, Qinghai, Ningxia, Xingjiang etc. almost have no manufacturing industries.On the basis of the calculating of agglomeration rates of 18 industries, the paper analyzed the reasons why different industries performed different evolution trends. The main conclusions including: Firstly, endowment advantages impact industrial location by natural advantages and acquired advantages of a certain area. Secondly, generally speaking, the integration of domestic market is increasing, which reduced inter-regional transportation costs and promoted the industrial agglomeration. Thirdly, the level of international market integration is higher than domestic market integration level. Many industries concentrated to Eastern China because of the strengthening of external demands, foreign direct investments and good market accesses.