A few years ago, consumer preference shifted away from in-store shopping in favor of online shopping. E-commerce retailers like Amazon led the charge by making it incredibly easy for customers to browse, purchase, receive, and return items from their homes.
As other companies began to follow Amazon’s lead and the pandemic forced everyone to shop online for almost all of their needs, warehouse space became incredibly valuable. But while warehouse demand may be high, it has not yet exceeded warehouse supply, as more and more warehouse properties are being built each year.
If you are considering investing in a warehouse space, there are some things you’ll want to keep in mind to help you make a sound investment when it’s time to finalize the purchase.
The number one rule of real estate remains critically important when dealing with warehouses: location, location, location. Warehouses must be close to effective means of transportation, such as waterways, airports, and roadways.
Additionally, proximity to highly populated areas bears consideration when selecting a warehouse where the delivery trucks are found en masse. However, you must balance the potential costs associated with high-traffic locations against access to more trucks. It will come down to a cost-benefit analysis, and every situation will differ.
How much space do you require for your warehouse? Depending on your operations, you may need tons of space or make do with a smaller warehouse. The answers to these questions will be crucial when you decide on your eventual warehouse purchase, as the cost per square foot can be relatively high depending on several factors.
Specific Features to Consider
This is where deciding on a space can get particularly tricky. It’s vital that you, at a minimum, answer the following questions to make sure you are getting a space that will accommodate your needs:
- How long has the warehouse been around? The age of the warehouse will help you determine how much you’ll need to invest in repairs.
- Will your purchase include any specific equipment, or will you purchase the warehouse space? Depending on what equipment is already there and its shape, you may be able to save yourself from having to make further purchases necessary for the warehouse’s operations.
- What type of equipment can be brought in? Machines such as forklifts have specific space requirements, and it’s essential to consider the equipment-specific features of the warehouse before moving forward with your purchase.
- What are your storage requirements? Depending on your specific products, you may require a facility that has large refrigeration or freezer units. Alternatively, if you work with toxic or hazardous materials, you will likely have specific requirements for your warehouse space that need to be considered and included in your facility.
Your warehouse workforce is an integral part of your operations. Before purchasing a warehouse, consider whether the area nearby contains potential employees interested in working for your company. What is the unemployment rate in the area? Will you experience high turnover because of the nature of the work? These are often overlooked portions of the warehouse acquisition process but are important to consider.
Additionally, you’ll want to consider the advent of artificial intelligence as it is used in warehouses and how you can leverage the technology. Depending on your needs, automating many of the warehouse processes may make sense, which will effectively solve the hiring issue outlined above.
To Lease or to Buy a Warehouse?
So far, we’ve discussed acquiring a warehouse primarily in terms of purchasing the space. However, leasing a warehouse is also viable, should it make sense for your business. The differences between the two options are as follows:
- Initial Cost. When leasing a space, you do not have the up-front payment obligations that come with buying. Leases allow you to pay a monthly, agreed-upon rate to the landlord, who generally handles the costs of some maintenance and repairs. However, the higher down payment and initial cost of purchasing a warehouse also entitles you to ownership over the space and the ability to make changes as you see fit.
- Tax Implications. Leasing a property affords you virtually no tax benefits whatsoever. The tax benefits inherent in warehouse ownership are excellent and are one of the major reasons many individuals elect to buy instead of lease their property.
- Future Plans. Depending on your field experience and thoughts about your industry’s future, you may feel very confident or uncertain. After all, who could have predicted that a global pandemic would force us into the binds we found ourselves in last year? Purchasing your facility ties you down until you eventually sell the space. On the other hand, leasing allows you to leave the warehouse when your lease ends.
Every decision on whether to lease or buy a space must be considered within your specific business’s context. In general, if you have plenty of funds to use to buy space, are looking to reap the tax benefits of warehouse ownership, and believe that your industry will be stable as time goes by, purchasing your facility is the right decision.
If, however, you are uncertain about your industry’s future, don’t have the capital needed to make a purchase, and don’t want to be tied to a location for a long time, you may consider leasing your warehouse instead.
Investing in a warehouse is a big decision. With how online shopping has affected nearly all industries, many people see great value in purchasing or leasing a warehouse. If you plan on buying a warehouse, ensure you have thoroughly considered all the items listed in this article. Also, discuss your plans with a trusted advisor or partner to determine if this is right for you and your business.
Hi! We’re Josh and Jolene Baijot, the creators of this website. We’re also Commercial Real Estate Agents in Washington State. Thank you for taking the time to read this blog post. We appreciate your time spent on this site. You can connect with us on Facebook, Instagram, or contact us through this website.
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