Why Industrial Property Could Be the Next Opportunity for SMSF Investors

With the Federal Government’s recent changes to SMSF borrowing and residential property investment, many investors are now reassessing how they can continue to use their SMSF to invest in property and build long-term wealth.

And while change can create uncertainty, it can also create opportunity. For investors who have traditionally focused on residential property, industrial property is a sector worth putting on the radar.

Why industrial property?

Industrial property has evolved significantly from the traditional image of large warehouses and factories sitting on the outskirts of a city.

Today, industrial property is a critical part of Australia's economy. Think logistics facilities, warehouses, trade centres, manufacturing facilities, storage, distribution hubs and office/warehouse developments.

Every product Australians buy needs somewhere to be stored, processed or distributed and that creates ongoing demand for well-located industrial property.

At the same time, Australia's population continues to grow, businesses are expanding, and industries such as logistics, manufacturing, construction, healthcare and e-commerce continue to require physical space.

Recent commercial property commentary also points to strong investor interest in positively geared, long-leased commercial assets, with industrial among the sectors attracting capital.

So, what makes industrial property particularly interesting for investors?

1. Stronger rental income and longer-term tenants

One of the key attractions of industrial property is its income profile. Compared with residential property, well-selected industrial assets can offer stronger rental yields, while also potentially providing longer lease terms. This combination can create greater income visibility for investors and is particularly relevant for SMSF investors who are looking to build a reliable, long-term investment portfolio.

Industrial tenants can also have a strong incentive to remain in the property. A business may invest heavily in its premises through fit-outs, equipment, storage systems, specialised infrastructure and signage. Relocating can be costly and disruptive to day-to-day operations.

As a result, successful businesses may be more inclined to stay in a property for the long term, particularly when the premises are well located and meet their operational needs.

For investors, this can mean less frequent tenant turnover and greater rental income stability compared with some residential investments.

The rental structure can also be attractive. Industrial tenants are responsible for some property outgoings, reducing the landlord's ongoing management burden. Rent reviews incorporated into commercial leases can also provide opportunities for rental income to increase over time.

Of course, lease terms, tenant quality, outgoings and rental yields vary significantly between properties. A higher yield does not automatically mean a better investment.

The key is finding the right combination of quality tenant, strong lease, sustainable rent and well-located property.

For an SMSF investor, that income component can be particularly valuable because the goal isn't simply to own an asset. It's about owning an asset that can contribute to the fund's long-term investment strategy.

2. Industrial property is supported by real economic activity

One of the things we look for when assessing property markets is what is actually driving demand.

• Industrial property has a very tangible connection to the broader economy.
• Population growth means more goods need to be distributed.
• E-commerce means more products need to be stored and dispatched.
• Construction requires suppliers and trade businesses.
• Manufacturing requires facilities.
• Healthcare and other growing industries require storage and distribution.
• Infrastructure investment can also create demand for industrial and commercial space around major employment and transport hubs.

This is why we don't simply look at an industrial property and ask: “Does the building look good?”

We ask: “Why does this location need this property?”

That is a much more important investment question.

3. Location matters

With industrial property, location isn't simply about being close to a CBD.

The best opportunities are often found around major transport infrastructure, population growth corridors, established employment areas, ports, airports, major highways and logistics networks.

Accessibility is critical.

A warehouse that allows a business to efficiently move goods, receive deliveries and access its customers can be considerably more attractive to tenants than a cheaper property in an inferior location. It is vital for investors to focus on the fundamentals behind the asset.

4. Supply can be an important consideration

Industrial land isn't unlimited.

Suitable industrial sites need the right zoning, infrastructure, road access and proximity to established transport networks.

Planning restrictions and increasing land values can also make it more difficult to create new industrial stock in some locations.

Where demand continues to grow but quality industrial supply remains constrained, this can support both rental demand and underlying property values.

Again, this is why market research matters.

We aren't looking for industrial property simply because it is industrial.

We are looking for the right property, in the right location, with the right fundamentals.

5. Potential depreciation benefits

Another consideration for investors is depreciation. Depending on the property, investors may be able to claim deductions relating to eligible plant and equipment as well as the building's eligible structural components.

For newly constructed industrial property, depreciation can potentially form an important part of the overall investment strategy.

The exact benefits depend on the property, construction date, eligible assets and the investor's individual circumstances.

A qualified quantity surveyor should always be consulted to determine the available deductions.

6. Industrial property can provide diversification

For investors who already have significant exposure to residential property, industrial property can provide another avenue for diversification.

Rather than having an entire investment strategy tied to one property sector, investors can consider exposure to different types of real estate and different sources of rental demand.

And this is particularly relevant in the current environment.

The Australian property investment landscape is changing.

The Federal Government's recent changes have prompted investors and industry participants to reassess the role of residential property within investment and SMSF strategies. Recent market commentary suggests investors are increasingly looking towards commercial assets with stronger income characteristics and longer leases.

It means investors need to keep an open mind about where the next opportunity may be.

Thinking about industrial property for your SMSF?

The opportunity is not about simply buying a warehouse.

It is about finding an asset that makes sense as part of a broader investment strategy.

At Active Property Investing, we research the market, assess the fundamentals and identify property opportunities based on the individual investor's strategy not simply what happens to be available.

If you're considering your next SMSF property investment, industrial property could be worth a closer look. Want to explore whether it could be right for your investment strategy?

Click here to book your obligation-free consultation with our team and let's discuss your options.

Disclaimer: This article is general information only and is not financial, tax or legal advice. SMSF investment and borrowing rules are complex and can change. Investors should obtain independent professional advice and ensure any investment complies with their SMSF's investment strategy and applicable superannuation legislation.