Why Are Clear Heights Important in Industrial Real Estate?
Industrial buildings are getting taller and taller, as modern distribution tenants make better use of their space.
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One of the most important building characteristics for an industrial asset is its clear height. This figure is calculated as the height on the inside of a structure that can be used for storing products. While 20-foot clear heights were commonplace before the 1980s, industrial buildings have become taller and taller in recent years. Today, most newly constructed Class A distribution centers feature clear heights of 32 to 36 feet.
E-commerce users in particular seek to maximize the efficiency of distribution operations, and storing more product within the same building footprint is a clear win. Consider a 100,000-square-foot warehouse. If the structure offers internal clear heights of 30 feet, the building essentially has 3 million cubic feet of capacity (assuming ceilings are essentially the same height throughout). On the other hand, if that property has 36-foot clear heights, the capacity is 3.6 million cubic feet, or an increase of 20%.
Industrial buildings with higher clear heights are generally able to command higher rents. For this reason, understanding the cubic footage of a structure is key to understanding its investment upside.
Distribution centers continue to grow higher and higher, but there is a point of diminishing returns — at least for now. E-commerce tenants like Amazon may seek buildings with clear heights of 40 feet (or even greater), though it is unlikely many smaller tenants today would have such lofty requirements. However, if you are developing an industrial property, it’s best to plan for the future. Once a warehouse’s structure is in place, it generally isn’t feasible to increase its clear height without, essentially, rebuilding.
Related Questions
What is the definition of clear height in industrial real estate?
In industrial real estate, a property's clear height is the height to which product can safely be stored on racking. Clear height can also be defined as the height of a building from the floor to the bottom of the lowest hanging item on the ceiling (i.e. sprinklers, lights, etc.). In recent years, clear height has become much more important due to the increase in online retailers, many of whom are trying to increase warehouse efficiency in any way possible.
Clear heights describe how much clearance a structure has, measured from the floor to the lowest part extending from the ceiling — until a sprinkler or lighting system, for example. This metric is essential in understanding how much inventory can be stored within a distribution center. For this reason, industrial real estate has begun increasingly measuring building size in cubic — not square — footage. Most industrial properties built in or before the 1980s have smaller clear heights, generally around 20 feet, while today’s newest industrial real estate often boasts heights of up to 40 feet or more.
Unlike many other characteristics of most commercial real estate, clear heights are practically unchangeable. Boosting a structure’s clear height would more or less mean rebuilding the property, after all. Because of this, make sure you choose an industrial asset with clear heights that ensure it stays in demand in the years to come.
What are the benefits of having a higher clear height in industrial real estate?
Having a higher clear height in industrial real estate can increase the capacity of a warehouse by 10-25%. This can be especially beneficial for investors and developers looking into building industrial real estate, as they may be able to get significantly more rent for only a small increase in construction costs. Taller warehouses are typically more in demand in larger metropolitan areas and industrial centers where space is at a premium, and are therefore most likely to garner higher rents in these areas.
What are the drawbacks of having a lower clear height in industrial real estate?
Having a lower clear height in industrial real estate can be a major drawback, as it limits the amount of cubic space available in the facility. For example, a 50,000-square-foot property with 36-foot clear heights has 50% more cubic space than a structure with the same footprint but only 24 feet of clearance. This can make it difficult to store large amounts of inventory, and may make the property less desirable to potential tenants. Additionally, clear heights are not easily changed, as it would require rebuilding the structure, making it difficult to increase the clear height of an existing property.
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What are the common clear heights for industrial real estate?
The common clear heights for industrial real estate vary depending on when the property was built. Industrial properties built in or before the 1980s typically have smaller clear heights, generally around 20 feet, while today’s newest industrial real estate often boasts heights of up to 40 feet or more. Source
How does clear height affect the value of industrial real estate?
Clear height is an important factor in determining the value of industrial real estate. Higher clear heights allow for more product to be stored in the same amount of space, making the property more attractive to logistics tenants. According to Commercial Real Estate Loans, most industrial properties built in or before the 1980s have smaller clear heights, generally around 20 feet, while today’s newest industrial real estate often boasts heights of up to 40 feet or more. This can make a huge difference in the amount of product that can be stored in the same amount of space. For example, a 100,000-square-foot warehouse with a clear height of 20 feet has 2 million cubic feet, while a structure with the same footprint but clear heights of 36 feet could have up to 3.6 million - that’s 80% more space for storing products. Logistics tenants understand this, with many major companies refusing to even consider occupying assets with clear heights under 30 feet.
Because of this, clear height is an important factor in determining the value of industrial real estate. Higher clear heights can make a property more attractive to potential tenants, and can increase the value of the property.
What are the most important factors to consider when evaluating clear height in industrial real estate?
When evaluating clear height in industrial real estate, the most important factors to consider are the building's square footage and cubic footage. Square footage is important because it determines the size of the building, while cubic footage is important because it determines how much inventory can be stored within the building. Clear heights are typically measured from the floor to the lowest part extending from the ceiling, such as a sprinkler or lighting system. Most industrial properties built in or before the 1980s have smaller clear heights, generally around 20 feet, while today’s newest industrial real estate often boasts heights of up to 40 feet or more.
Unlike many other characteristics of most commercial real estate, clear heights are practically unchangeable. Boosting a structure’s clear height would more or less mean rebuilding the property. Because of this, it is important to choose an industrial asset with clear heights that ensure it stays in demand in the years to come.