Industrial real estate has played a vital role in the global economy since the Industrial Revolution began in the 1750s. Nearly every item we use today - furniture, appliances, clothing, cleaning supplies, beauty products, even the food we eat - is produced, stored or shipped through an industrial building. The land and buildings where goods are produced, manufactured, assembled, stored and distributed make up the industrial real estate industry.
Several factors are driving the demand for industrial real estate, making it a substantial investment opportunity. The rise of robotics in manufacturing has automated processes and greatly reduced labor costs. The shift toward eCommerce has changed the face of our economy and generated a huge need for warehouse and shipping space.
Because most cities limit the construction and operations of industry to zoned areas to avoid it disrupting residences and communities, understanding local zoning laws is critical for investors. In many cases, the zoning regulations even dictate where specific types of industrial activities can take place. It’s also important to consider what class a building is rated and which is most appropriate for your business needs.
Business Sectors
MANUFACTURING
Facilities where goods are produced and assembled share several things in common, including open space that can be converted for different uses, a small amount of office space, and loading docks. The most well-known type is heavy manufacturing facilities, which are found in areas zoned for industrial usage due to their need for heavy machinery, chemicals and increased power usage. Because these properties require a great deal of customization for the user’s specific requirements, they are often occupied for the long term because of the logistics and cost involved in moving the facilities.
Light assembly manufacturing facilities are similar to flex warehouse spaces and do not typically house heavy machinery. They often are used for assembling products, storing and shipping them, and can be easily converted for storage and office space.
STORAGE AND DISTRIBUTION
The need for warehouses has rapidly grown over the past ten years with the rise of eCommerce. Bulk warehouses are used for regional distribution sites, and often, require 50,000 to 1 million square feet of space. They are usually located outside of metropolitan areas where land is less expensive and trucks have easy access to highways.
At the other end of the spectrum are flex warehouses, which are much smaller and used for more localized businesses such as cabinet makers, brewers, and small manufacturers. Found in metropolitan, suburban, and rural areas, flex warehouses often include a small amount of office space as well as shipping docks and loading areas. Due to the size, price point, and demand, these are often a good entry-level opportunity for investors.
FLEX SPACE
Flex properties can be used for a variety of purposes, from Research and Development (R&D) to data centers and showrooms. R&D tenants engage in work to develop new products or improve existing ones and are often located near a business’s manufacturing facilities or home office. Data centers house the computer equipment needed to keep the internet and software systems running and for cloud storage. While showrooms include space to showcase products along with warehouse and office space.