Industrial Property Types
Which Asset Type Is a Good Fit for Your Portfolio?
While industrial real estate often brings to mind large warehouses or distribution centers, industrial properties span a broad range of categories, classes, and functions. The common thread among all industrial assets is that they are utilized for creating, storing, or distributing physical goods — and as a result, a diverse range of properties are included in this category.
Read on to learn more about each major type of industrial real estate.
Also referred to as warehouses, distribution center properties are the backbone of supply chains across the country. Used for temporarily storing products and goods, they are heavily utilized by retailers, wholesalers, and even end users. This category of industrial real estate is by far the most dynamic, with demand for storage and distribution space — particularly from e-commerce companies — driving rents higher and sparking significant development across the country.
There are major differences within this property type. Last-mile distribution centers, for example, are typically smaller assets located near customers in major urban areas. Regional warehouses, on the other hand, are typically expansive buildings — some exceeding 1 million square feet — and are generally located in suburban or exurban areas. Finally, cross-dock facilities are used as nodes to connect inbound trucks from suppliers or manufacturers to outbound trucks headed for customers.
Manufacturing facilities are industrial real estate assets where the production or assembly of goods takes place. Many of these buildings are tailored to a specific manufacturing purpose and can generally be classified as light or heavy. For example, consider the differences between a structure used for assembling vehicles and one used to assemble children’s toys. Car assembly, due to specialized equipment and high energy usage, would generally be classified as heavy manufacturing, while a toy operation would likely fall under light assembly.
Investment in manufacturing facilities is generally low risk as long as your asset has a long-term tenant in place that is financially sound. If a tenant were to relocate or go out of business, it could be prohibitively expensive to refit the property to cater to a new company — particularly in the case of a heavy manufacturer.
Cold storage warehouses are in high demand across the U.S. and the world. This type of property may seem niche, but it has many potential uses for tenants. While grocery stores are one of the largest users of cold storage, online retailers are also becoming increasingly reliant on these high-tech refrigerated warehouses to store and distribute products. Additionally, many pharmaceutical and chemical suppliers use cold storage for their wares.
While cold storage assets are typically strong investments — demand has far exceeded supply in recent years — price points of these facilities are often a significant barrier to investment. Additionally, operating cold storage properties involves specialized knowledge and compliance with FDA regulations.
Showrooms are a mix of a warehouse and a retail property. These assets typically are used to store products while also showcasing them to would-be customers. By merging both sales and distribution elements into one property, occupiers can often lower expenses as no additional storage space is necessary.
A key consideration for a showroom property is its location. Showrooms are, after all, meant to show a product, so good visibility from major streets or interstates will drive an asset’s value and marketability to tenants.
Flex properties are generally able to cater to a variety of tenant needs, from distribution to research and development. They often have a significant office build-out component and can be relatively easily adjusted to meet a company’s specific needs.
These assets can be a strong entry point into industrial real estate investment, as the property type lends itself well to accommodating a range of uses — meaning that meeting a potential tenant’s needs is generally not difficult. However, do consider key factors that apply to most other property types, such as location, property age, and any potential maintenance issues.
Research & Development
Similar to flex space, research and development properties tend to be flexible in the types of tenants they can accommodate. These assets are generally occupied and used by companies researching or testing new products or developing chemicals or drugs.
Several factors play an important role in determining a smart investment play in R&D space. Ensuring building systems — including ventilation, plumbing, and power — are in line with what a potential tenant would expect.
Not traditionally included as a subset of industrial real estate, self storage is a rapidly growing property type making noticeable gains for investors across the country. Find out more about self storage by visiting our partner website, Self Storage Loan.