Investing in factories in Australia
Despite the manufacturing industry’s decline since the 1960s, factories and manufacturing facilities are still plentiful in Australia.
Factories are at the heart of mining companies’ supply chains; textile companies work solely out of factories to produce clothing and garments; and factories are critical for the smooth operation of food producers in Australia.
It’s important to invest where manufacturing is relevant. Most major players operate their factories on the east coast of Australia, with major textile, food and even mining facilities located outside major cities, like Brisbane, Melbourne and Sydney. Selecting a factory investment in these markets is a reasonable bet for future prosperity.
When choosing a factory to invest in, do your due diligence. Ensure there is considerable or growing tenant demand for a factory in your chosen precinct, and a factory of that particular size and layout.
Should your factory investment contain specialised equipment, you may appeal to a tighter niche. This has pros and cons. It bumps out a good chunk of prospective industrial tenants. However, it also puts your premises into higher contention for occupancy, because specialised equipment is sometimes hard to come by.
What businesses need factories?
Manufacturers and producers occupy most of Australia’s factories.
Manufacturing in Australia peaked in the 1960s, providing 25% of the nation’s Gross Domestic Product. This dropped to 13% by the beginning of the new millennium.
Now, food processing is the largest producer in Australia’s manufacturing industry, turning over $70 billion each year. These businesses are an essential service, which bode very well in the event of an international crisis such as a pandemic.
These days, a factory investment may not be as common as, say, a logistics real estate investment. However, it can come with just as many benefits:
- Solid returns (much higher than residential real estate)
- Annual rent escalations
- Long-term leases
- Tenants paying all outgoings
- Minimal capital expenditure required on factory aesthetics (i.e. no fuss property investment)
What’s a good return for an industrial factory investment?
An investor can expect far higher returns in a factory than they can in residential property investment.
While residential real estate typically provides yields of around 3 per cent to 5 per cent, industrial real estate will offer yields of between 7 per cent and 10 per cent.
The reason behind this is industrial leases are far better documented than residential leases, and also provide the landlord with annual rent escalations. Rent per square metre is typically much higher for commercial space such as a factory, so your factory tenants will be paying a higher premium for your space than any residential tenant would for a home.
If an industrial property investor can buy well, both timing their investment before the market has hit its peak and finding a factory with value-add potential, the property might provide huge capital growth opportunities.
Higher cash flow, alongside the potential for big returns on investment, is pulling many investors away from residential investment and towards purchasing industrial real estate.
How does factory investment work?
You don’t need millions in the bank to invest in an industrial factory. Many investors pool their funds with others to go after multi-million-dollar real estate investments, which would otherwise be unattainable on their own. These pools of funds are known as property syndicates or unlisted property trusts and are hugely popular among Australia’s wealthiest.
Want to know the benefits of investing in an industrial real estate syndicate?
If you’re interested in learning more about investing in a property syndicate or unlisted property trust, you’ll find plenty of benefits. Take a look for yourself.
For information on how to partake in a high-quality industrial factor investment in a property syndicate, get in touch with Properties & Pathways. We invest alongside our investors in exclusive commercial property investment opportunities, with the majority of our clients being sophisticated investors. At Properties & Pathways, we’re in it together.
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