A prime decision is whether to purchase land for future development or an existing industrial building when you invest in industrial real estate. Every solution comes with unique benefits and challenges, so investors must realize that these are not being uniformly measured in terms of cost, flexibility, risk, and return. Choosing between land versus a standing industrial structure can greatly affect how your handling of industrial real estate in the US is executed as well as what kind of growth opportunity there could be.
This article will analyze the main distinctions between industrial buildings for sale investment and buying a vacant plot of land to give readers advice on what is best.
Initial Investment Costs
The most obvious distinction between buying land and buying an existing industrial property is the cost at the outset.
Examples of Industrial Building Construction: When an entity purchases an industrial building, it is almost always buying also the land on which the building sits. The cost, however, is higher to have the facility ready at hand. That investment could also apply to other infrastructure, like utilities, parking, or access roads… As you can start operations immediately.
Raw Land: The most cost-effective purchase, though acquisition and development can be costly. Investors will need to fund the construction of the building and secure permits, as well as install infrastructure in the wake of acquiring land. Although the upfront investment may sound less, the total costs for land development can be higher than they are for purchasing an existing industrial building once you add back in for soft costs and any other unseen items that come up just by the sheer nature of how complicated a project it is.
2. Time to Start Operations
TimeAn additional vital aspect to check if a separation between industrial buildings and land.
Purpose-Built Industrial Buildings: The biggest advantage to buying an existing building is that you can move in straight away. After the purchase, goods can be immediately put to use, meaning those commercial enterprises can get to work and earn revenue quickly. This is a huge advantage for companies on the uptick or investment realistic owners who want to quickly lease the space.
Purchasing Land: Acquiring land, on the other hand, needs a much longer lead time to turn into operational property. Investors must design the building, apply for construction permits, and oversee the building process, which could take many months or even years. This delay pushes back the potential for revenue generation, so companies should expect an extended investment horizon.
3. Flexibility and Customization
The point was that if you build a new building on land, you will have a lot more flexibility in design and you can customize it to your needs and taste, but if there is no immediate need for a customized building or high fit-out, ROI would likely be compromised Major Drawback of Choosing LandExisting industrial buildings are best suited when the time frame is critical because buildings are already built.
Manufacturer Industrial Buildings: Advocates of purchasing existing buildings argue that having a fixed design and start date is helpful. While some accommodations can be made, extensive alterations could prove to be expensive or impossible given the age, state, and zoning laws. However, an existing building might not be able to provide the level of customization that some companies or investors want for their operations.
Raw Land: Land acquisition offers more say in how the facility is developed and built. These can be customized to the specific requirements of the business/tenants to ensure that the building is appropriate. Whether using advanced technology or optimizing the layout for logistics or energy-efficient systems, buying land can help you create a solution that is tailor-made for your business. This generates a real sense of ownership, which might be the best case for special requirements businesses or those that can see themselves in the long term.
4. Things to Think About in Commercial Property Management
Industrial property management involves both land and constructed industrial buildings, but how you manage them is very different.
Built Industrial Buildings: Asset Management with this type of asset, there is generally maintenance to keep up on, tenant relations (if the building isn’t owner-occupied), and an existing administrative team in place to make sure that the space remains safe and compliant with regulatory standards. If your property is already in action, regular repair and maintenance and ensuring that you have happy tenants are just part of the process. While this way is less intense, as you aren’t managing the day-to-day process of construction—it’s still highly intensive, and attention must be paid to detail to get the most value out of a building and make sure that it’s running efficiently.
Land: It will take a more hands-on approach, especially during the construction stage. Property managers must contract with service providers, including construction contractors and architects, as may be appropriate to ensure the building is built as planned and that it stays on budget. Once construction is complete, property management will take over—managing the newly built facility, attracting tenants, and ensuring that all operational aspects are functioning appropriately. Yes, this will take more time in the beginning so that you can create and design a better facility from the start, but ultimately this will lead to fewer maintenance issues for long-term management.
5. Risk and ROI: a love-hate story
The risk and ROI of investing can differ greatly if an area or an individual chooses to invest their money in purchasing the land or buying an industrial building.
Existing Industrial Buildings: Typically less risk in purchasing because the land is developed and its value can be more easily assessed, based on current market trends and and competition. Moreover, the investment can be placed right into use as income generation begins immediately when it comes to the already leased/tenant building, making it a less risky financial option. Nevertheless, the upside can be more muted since there is limited value-creation opportunity in property, and unlike normal equity, where the business can expand, a REIT’s assets may be largely fixed.
Raw Land: Raw land can be risky if you do not proceed to construction because many factors could cause the prices to rise – cost overruns, delays, or zoning. In addition, construction can take place during changing market conditions that will affect the potential sale or rental value of the completed home. Of course, the more risk you are willing to take on, the greater the reward could be. An expertly designed, build-to-suit industrial building built in a growing market where there is strong demand for industrial space can boost the value of such property exponentially.
6. Market Depreciation and Resale Value
Both vacant land and built industrial buildings also depend on market circumstances, geographical position, and how the asset is maintained when it comes to the potential resale value in future years.
Industrial Building: Industrial buildings usually need more maintenance but this building will appreciate over time. A property that already has tenants and established sources of income can also be appealing from a buyer’s perspective. On the other hand, older buildings that fall out of vogue or need to be updated to meet new standards can lose their value rapidly.
Raw Land: The value of land can drastically increase, particularly if the area is a growth area for industry. Once constructed, these utilities can significantly appreciate, particularly if the facility is created specific to industry sectors that are currently experiencing high levels of demand. On the other hand, land located in less attractive positions might not be able to appreciate, and market variations during construction might even influence its final resale.
Conclusion
At the end of the day, whether it makes sense to put money into industrial buildings for sale or acquire undeveloped land just comes down to an individual investor’s goals, timeline, and risk appetite. While constructed buildings have the benefits of speed to market, mitigated risk, and efficient management, they may be inflexible. While the land offers the chance of a higher return, greater risk, and more hands-on involvement, it also can be run on an extended timeline. These differences need to be understood to make educated decisions when it comes to industrial property management and the success of any industrial real estate investment effort.
