Industrial properties are commercial real estate facilities dedicated to the production, storage, and distribution of goods. These buildings are the operational hubs for businesses involved in making, holding, and moving products. Unlike other forms of real estate, industrial spaces are focused on functionality and operational efficiency, serving as the physical infrastructure for the supply chain.
Defining Industrial Property
Industrial real estate includes properties designed for activities like manufacturing, assembly, warehousing, research, and distribution. These facilities are distinct from other commercial sectors, such as retail or office spaces. While retail properties are for public interaction and office buildings house administrative services, industrial properties are for behind-the-scenes work.
Their purpose is to support tenants who prioritize the efficient flow of goods over public-facing aesthetics. The items used in daily life, from food to electronics, are almost all produced or stored within an industrial facility before reaching the consumer, linking these properties to the health of the economy.
Common Types of Industrial Properties
Industrial properties come in several common types, each serving a different function.
- Warehouses and Distribution Centers: These are built for storing and moving goods. A warehouse is primarily used for storage, while distribution centers are focused on the efficient processing and shipment of goods. The rise of e-commerce has increased demand for fulfillment centers, where customer orders are picked, packed, and dispatched directly to consumers.
- Manufacturing Facilities: This is where raw materials are transformed into finished products. Heavy manufacturing plants are large, capital-intensive facilities with specialized equipment for producing goods like steel or automobiles. Light manufacturing properties are smaller and used for assembling consumer-centric products such as electronics or furniture.
- Flex Space: This hybrid property type combines office space with industrial functions like warehousing or light assembly. These versatile buildings allow tenants to manage administrative and operational activities from a single location, with a significant portion, often at least 30%, dedicated to office use.
- Cold Storage Facilities: These are specialized, temperature-controlled warehouses designed to preserve perishable goods for the food and pharmaceutical industries. Building and operating these facilities requires superior insulation and advanced HVAC systems, causing them to consume significantly more energy than standard warehouses.
- Research and Development Buildings: These are facilities where companies engage in product innovation, development, and testing. They may combine office space, laboratories, and testing areas with unique requirements, such as clean rooms for sensitive manufacturing or high-capacity power.
Key Physical Characteristics
The functionality of an industrial building is defined by its unique physical attributes.
- Clear Height: This is the usable vertical space from the floor to the lowest-hanging overhead obstruction, like a beam or sprinkler. Taller clear heights, now often exceeding 32 feet, allow for more efficient vertical storage, maximizing a building’s capacity for tenants like e-commerce companies.
- Loading Docks: These provide direct access for trucks to load and unload goods. The number of dock doors often corresponds to the building’s purpose, as distribution centers have a higher ratio of docks than manufacturing facilities. The truck court must also provide adequate space for large trucks to maneuver.
- Floor Load Capacity: This determines how much weight the slab can support. It is a necessary detail for tenants using heavy machinery or high-density racking systems.
- Electrical Power: The available power is a major factor, especially for manufacturing tenants. Many industrial operations require three-phase power to run heavy equipment, and a facility’s power capacity can be a significant constraint.
Industrial Property Classifications
Industrial buildings are categorized into Class A, Class B, and Class C based on factors like age, location, condition, and amenities. This system provides a shorthand for investors, brokers, and tenants to communicate the quality of a property. The standards for each class can be subjective and vary by market, meaning a Class A building in a small town might be considered Class B in a major metropolitan area.
Class A represents the highest tier of industrial properties. These buildings are modern, constructed within the last 15 years, and located in prime areas with excellent access to transportation. They feature state-of-the-art systems and high clear heights, attracting top-tier tenants at the highest rental rates.
Class B properties are a step down in quality, often being older buildings that are still in good, functional condition. They may have lower clear heights or fewer modern amenities than Class A facilities. Class C buildings are the lowest classification. They are generally over 20 years old, located in less desirable areas, and often require significant renovations, making them a budget-friendly option.
Crucial Location Considerations
The location of an industrial property is a primary factor, particularly for logistics and distribution businesses. Proximity to major transportation infrastructure is a main consideration. Access to highways, airports, seaports, and rail lines is necessary for the efficient movement of goods, helping to reduce transit times and freight costs.
These transportation routes often form “logistics corridors,” which are geographic areas that serve as major arteries for supply chains. Properties within these corridors are highly valuable because they connect production centers with consumer markets. The rise of e-commerce and consumer expectations for same-day delivery has intensified the demand for facilities located near densely populated urban centers.
Access to a suitable labor force is another important factor. Industrial operations require a reliable pool of workers to function effectively, so properties in areas with a strong workforce are more attractive to tenants.
The Role of Zoning
Industrial properties must be located in areas designated for industrial use by local government zoning regulations. Zoning is a legal tool used by municipalities to control land use, ensuring that incompatible activities are kept separate. For instance, industrial zoning exists to buffer residential and commercial areas from the potential noise, traffic, and environmental effects of industrial operations.
Local governments create specific zoning districts, often identified by codes like “M-1” for light industrial or “M-2” for heavy industrial. An M-1 zone is for uses with limited environmental impact, such as warehousing and light manufacturing. An M-2 zone is designated for more intensive uses that may generate significant nuisances.
These regulations dictate permitted uses and development standards such as building height, setbacks, and parking requirements. This framework helps guide orderly growth and protects public health and safety.