Multitenant industrial property is a less well-known type of property, particularly among new investors. Multitenant industrial properties usually consist of several small spaces spread across many buildings. They are all located in an industrial business park.

This asset class is not well-known, but it offers a lot of opportunities. The market for single-tenant industrial property is constantly frenetic. This makes it difficult for non-institutional investors to access these assets. However, smaller multitenant industrial properties offer a unique opportunity for investors to purchase an industrial asset.

Multitenant industrial properties offer some key attributes such as:

• There are many value-added opportunities.

• Lowest lease-up cost.

• A diverse and resilient tenant base.

• Potential for rental growth.

• Attractive returns and investment size

• Multiple exit options.

Abundant Value-Add Opportunities

Most multitenant industrial properties were built between the 1970s and the 1990s. This means that they average 30-50 years old. Many of these properties need modernization and capital improvement. In addition, multitenant properties require more attention because they are more complex to manage. This is why many of these assets were mismanaged in the past by disconnected investors and apathetic landlords.

These are complex challenges that require financial ability and careful oversight. However, multitenant industrial properties can be a great choice for investors looking to create value-add opportunities. Value-add opportunities are when investors invest capital and manage improvements to the property to increase operating income and enhance residual value.

Multitenant industrial properties are open to modernization. These include exterior improvements, new landscaping elements, and interior upgrades such as polished concrete flooring and luxury vinyl tile.

It is essential to have a process that allows maximum lease velocity and fosters relationships to ensure high renewal rates. This will make it easier to manage your property and leasing. Many landlords are now digitizing their leasing process. Space measurements, availability information, and 3D virtual tours can all be done online. To show multiple prospects the space, it can be advantageous to organize in-person tours. These methods can significantly reduce the time and effort required to market and lease the space while increasing the occupancy rate at the property.

Due to high construction costs and limited land availability, industrial properties are often replaced in significant numbers in the major U.S. markets. As a result, multitenant industrial properties are rare, and almost no new developments of this kind are being made. The lack of new supply creates a shortage of demand. Consequently, improved properties will be highly appreciated by the market and attract a lot of interest from potential tenants.

Lowest Lease-Up Prices

The industrial components of an asset usually need minimal renovations after one-time capital improvements have been made. For example, multitenant industrial properties often have a small office component. This can be renovated before finding a tenant to fill the space. Pre-leasing activities are mainly limited to cleaning, flooring, and painting. This reduces the time it takes to lease up a space. Tenants can often tour it, sign a lease, and get access (and pay rent) within days instead of weeks.

Small tenants are less likely than larger tenants to use commercial real estate brokers. They will often find space via online resources, local ads, and inquiries to nearby property managers. Multitenant industrial property owners can often forego the need to hire a third-party agent and will not be subject to significant brokerage fees from tenants.

Resistant And Varied Tenant Base

Multitenant industrial properties usually have a diverse base with small service businesses, branch locations, and users who support larger distributors and manufacturers. Rent roll resilience is a result of this diversity. Therefore, it is unlikely that anyone circumstance will affect all tenants.

Each tenant space typically measures between 1,000 and 10,000 square feet. In most multitenant industrial properties, no one user accounts for more than 10%. Therefore, the impact on your property's cash flow will be minimal if one of your tenants moves or is in financial distress.

Potential For Rental Growth

Investors often benefit from a shorter lease term when it comes to driving industrial property value. This is in contrast to larger tenants, who usually require a minimum of five-year lease terms. In addition, a shorter period allows for market flexibility and rent roll stability, which is a significant advantage in today's fast-paced industrial market.

Large leases of greater than 10,000 square feet in Southern California's industrial markets saw an average annual rent increase of 3%, while the overall industrial market experienced 7% increases over the same period. This discrepancy indicates that smaller multitenant properties could quickly increase rents to reflect market conditions (i.e., This resulted in an escalating net operating income.

Attractive Returns And Investment Size

Multitenant industrial properties with a value below $20 million are the majority. These properties have not attracted significant interest from institutional entities. This means that they have not been subjected to cap rate compression, which has affected much of the industrial market. These properties are well-suited for individual investors, entrepreneurs, and syndicators due to their low acquisition costs and potentially strong returns.

Multiple Exit Options

Multitenant industrial properties are attractive because they provide investors with a range of exit options. Owners can sell the whole property to another investor or convert each unit into an industrial condominium. Then, they can dispose of the units to different end-users. Creative investor can maximize their profits by purchasing the property at a wholesale price and then selling the units at a retail rate.

Caveats And Finding Investments

Multitenant industrial properties have many advantages. However, they require strategic oversight and upfront capital expenditures. These assets, like any multitenant property, will require more management and leasing attention than single-tenant ones. Nevertheless, these properties are a great opportunity for investors, despite the caveats.