Picture an industrial listing that lands in your inbox with a headline yield that looks good. A warehouse, a roller door, a tenant in place. Before I look at that percentage, I want to know whether the building can do the job the tenant needs it to do, and whether the next tenant will be able to use it too. Industrial property is simple to understand and easy to get wrong, because the things that decide its value are physical and legal details that a flyer rarely shows.
This is the checklist I work through on an industrial purchase: clear height, hardstand and truck access, power, zoning and permitted use, contamination, the tenant behind the lease, and the make-good clause. I do this before the numbers, because the yield on a flyer only holds if the building keeps working for a tenant. The number work comes after, and it sits in my pieces on commercial property yield in Australia and the capitalisation rate for buyers.
Why the building comes before the yield
A yield is the rent divided by the price. It tells you nothing about whether the rent is safe. On industrial, the rent is safe when the building suits more than one kind of tenant, because that is what gets you a new tenant quickly when the current one leaves. A warehouse that only fits one business's equipment is a bet on that one business.
So I ask a plain question first: if this tenant left in a year, who else could use the place tomorrow? The rest of the checklist is how I answer it.
Clear height
Clear height is the usable height inside the building, measured to the lowest thing that gets in the way, such as a roof truss, a beam or a sprinkler pipe. It is not the height of the wall at the outside edge. Flyers often quote the taller number.
Height matters because tenants stack pallets on racking and tall racking needs tall buildings. A low building can still lease, but to a smaller pool of tenants. I ask for the clear height at the lowest point and I check it myself on the walk through. It is one of the quickest ways to find out whether the flyer and the building agree.
Hardstand, trucks and the loading side
Hardstand is the sealed or concreted area outside the building where trucks turn, park and load. I look at how a large truck actually gets in and out. Is there room to turn without reversing onto a public road? Is the entry wide enough? How many roller doors are there, and are they a useful height and width for the trucks this kind of tenant uses?
I also ask about the strength of the floor slab. A warehouse floor that was built for light loads can crack or settle under heavy racking or forklifts. The floor loading, in tonnes per square metre, should be on the plans or in the building report. If nobody can find it, I treat that as a gap to close before I make an offer.
Hardstand is not building area. A pack that adds it into one big total is mixing two different things, which is why I always ask for an area schedule that separates them.
Power and services
Many industrial tenants need more electricity than an office or a shop. I want to know what power is connected to the site now, whether it is single phase or three phase (three phase carries more load and runs heavier machinery), and whether there is room to increase the supply if a new tenant needs it.
Upgrading power can be slow and costly, and who pays is a matter for the lease and the electricity network. I ask for the current supply, any past upgrade records and whether there is a private transformer on site. I do the same for water, gas, sewer and fire services if the tenant's use depends on them. A building with spare capacity is easier to re-let than one that is already maxed out.
Zoning and what the land is allowed to be used for
Zoning decides what can legally happen on the land. An industrial building is not automatically allowed to be used for every industrial purpose. A use that suits the current tenant may not suit the next one, and some uses need separate approval.
In South Australia, I start with the Planning and Design Code, which is public. PlanSA lets you pull a property and planning report for an address, and it shows the zone and the rules that apply. Other states have their own planning maps and schemes. I then compare what the current tenant does on site with what the approvals actually allow. If the tenant's use has drifted beyond what was approved, that can become a problem for the owner.
I also look at what sits next door. Industrial sites next to homes can carry limits on hours of operation, noise or truck movements, which affect how many kinds of tenants can use the building.
Contamination
Industrial land can carry a history. Fuel, solvents, metals, workshop chemicals and fill brought in from elsewhere can all leave something behind in the soil or groundwater. If a site is contaminated, the cost and the responsibility can end up with whoever owns it, and a lender or valuer may mark the value down.
I start with the site's history: what it has been used for over time, and whether any environmental assessment has been done. If the use history includes anything that could leave a mark, I recommend an environmental site assessment by a qualified consultant before the purchase is unconditional. It is far easier to act on a problem found before the contract is unconditional than one found after settlement.
The tenant behind the lease
Rent is only as secure as the business paying it. I look at who the tenant actually is: a long established company with a track record, or a newer business, or a company set up for the lease with little behind it. I ask for financial information where it can be obtained, and I look at what extra security backs the lease, such as a personal guarantee or a bank guarantee.
I also look at how much of the building the tenant truly needs. A tenant who has fitted out the site with specialised equipment is less likely to walk away than one in a bare shed. Then I check how long the lease has left, because one number on a flyer does not tell the whole story. How to calculate the average time left on leases (WALE) goes through how I read that.
The make-good clause
A make-good clause says what condition the tenant has to hand the building back in when the lease ends. For an industrial tenant that can mean removing fit-out, repairing the floor, repainting, or taking out equipment that was bolted down.
Two things trip buyers up. First, a make-good clause is only worth what the tenant can pay when the day comes, which links straight back to the tenant check above. Second, the clause can be vague. If the lease says to return the premises in good condition without a record of what the condition was at the start, it is hard to enforce. I ask whether a condition report exists, whether any make-good money is held as security, and what the clause says about the floor, the roller doors and any hazardous materials.
Putting the checks together
Here is the checklist in one place, with the question I am trying to answer for each line.
| Check | What I ask | What it protects |
|---|---|---|
| Clear height | How high at the lowest point? | The pool of future tenants |
| Hardstand and doors | Can large trucks get in, turn and load? | Day to day use of the site |
| Floor strength | What load can the slab carry? | Racking and forklift use |
| Power | What is connected, and can it grow? | Heavier users, upgrade cost |
| Zoning | What use is approved, and does the tenant match it? | Legal use and re-letting |
| Contamination | What has the site been used for? | Cost, lending, value |
| Tenant | Who pays the rent and what backs it up? | Income security |
| Make-good | What condition comes back, and who pays? | Cost at lease end |
If the building and the tenant pass, then I move on to the money. I rebuild the rent from what the tenant actually pays, not what the flyer says, using commercial passing rent vs net income. I read who pays the outgoings under the lease with triple net lease in Australia. Then I run the yield on that cleaned up income. The full order I use for the paperwork is in commercial property due diligence.
Frequently asked questions
What should I check before buying an industrial property as an investment?
I check the building first: clear height, hardstand and truck access, floor strength and power. Then the legal side: zoning, permitted use and contamination. Then the tenant and the lease, including the make-good clause. The yield comes after those, because it only holds if the building keeps working for a tenant.
Is clear height the same as eaves height?
No. Eaves height is measured at the edge of the wall. Clear height is the usable space inside, measured to the lowest roof truss, beam or sprinkler pipe. The two numbers can be quite different, so I ask for the clear height at the lowest point.
Do I need an environmental assessment on an industrial property?
It depends on the site's history. If the land has had a use that could leave something in the soil or groundwater, such as fuel, solvents or heavy workshop use, I recommend a qualified environmental site assessment before the contract becomes unconditional. Your solicitor can help you build the right condition into the contract.
What is a make-good clause in an industrial lease?
It is the part of the lease that says what condition the tenant must leave the building in when the lease ends. It can cover removing fit-out, repairing the floor and similar work. How much it is worth depends on how clearly it is written and whether the tenant can pay.
Is industrial property safer than other commercial property?
I would not say that. Industrial can be a good fit for some investors, but each building and tenant carries its own risks. This page is general information about what I check, not a view on whether industrial suits you.
If you are thinking about stepping into industrial or other commercial income property, the place to start is my commercial service. Bring the listing, the lease and any building reports you have, and I will go through the checks above with you before you commit to anything.
General information only. Not personal financial advice. This does not consider your objectives, financial situation or needs. Zoning, approvals, contamination rules, lease terms and building standards vary by state, council and property. Seek licensed professional advice, including legal and environmental advice, specific to your situation before acting. Individual results vary.
