Industrial
Pros
• Longer leasing covenants (typically 3-10 years)
• Fixed or CPI yearly increases
• Tenant responsible for all outgoing costs
• Higher ROI compared to its counterpart

Cons
• Incentives offered
• Potential for longer vacancy periods
• Economically influenced with factors such as consumer confidence and unemployment playing a role
• Stricter lending conditions

Residential
Pros
• No incentives offered
• Considerable CGT advantages
• Lower vacancy periods
• Softer lending conditions compared to its counterpart

Cons
• Lower ROI as compared to its counterpart
• Outgoings generally paid for by the landlord
• Locality risks
• Low security/no guarantor

At social gatherings when asked my profession, I often face the question. What would be a more viable investment, residential or industrial property?

Let me start by stating that industrial property provides a stronger income. In addition to a stronger income, outgoings are generally paid for by the tenant as compared to residential property, which ultimately strengthens your cash flow. However, there are certain risks involved when aiming for higher income producing assets like industrial property and there are many crucial factors that come into play. Like any investment, you will need to conduct some due diligence to make sure your investment decision is a viable one.

As a starting point to minimising your risk, location is very important for industrial property. Ideally you would invest close to where major infrastructure or future infrastructure projects are located such as major motorways, intermodal terminals, shopping centres, public transport and airports.

Rental rates and property yields need to be acknowledged also as this would affect your ROI. Vacancy rates and current market conditions, which are economically influenced, also need to be looked at. If not already leased or the lease expiry is fast approaching there is the potential risk your asset would be sitting vacant for a lot longer than expected – temporarily making your investment void of producing any income.

There will always be strong demand for residential investments, however the tenancy turnover is on average every 6-12 months. When compared to vacancy periods for commercial tenancies, that number can be anywhere between 3-10 years, especially if the tenant outlays capital when customising the premises to suit their particular use. With longer leasing covenants coupled with higher returns, fixed annual increases and strong security and guarantee’s in place, industrial investments can provide favourable returns and strong security for investors when compared to residential.
So in short, investing in industrial property can be very rewarding and a great addition to your property portfolio. Some would also say “Safe As Warehouses”.

Author: Michael Mileto.
Michael is a sales executive with Link Property Services working the south western Sydney market.

Michael is based in our Silverwater office.