What is Industrial Real Estate? – A Quick Overview

Industrial real estate doesn’t get as much attention from investors as residential and commercial real estate. The main reason is that many investors don’t understand how it works or realize its potential for profitability. Moreover, many investors assume that the niche is complicated. However, industrial real estate is relatively simple and can be an attractive investment opportunity when you understand how it works. Here is a definition of industrial real estate and an overview of its types to get you started.

Defining Industrial Real Estate

Industrial real estate covers all land and property designed to accommodate industrial activities. Notably, industrial activities have a broad definition and cover production, manufacturing, warehousing, storage, distribution, and research. Interestingly, many people often confuse commercial real estate with industrial real estate.

Types of Industrial Real Estate

Industrial real estate properties come in eight types and are grouped under the following three categories:

Storage & Distribution

The storage and distribution industrial real estate category covers properties where goods are stored and shipped to end users. This category includes the following industrial property types:

·         General Warehouses

General warehouses are designed to store goods in bulk for long periods. Space is an essential requirement, so these properties are typically large.

Smaller warehouses usually measure from 50,000 square feet, while the largest can measure more than a million square feet. To this end, most general warehouses are located outside metro areas because of their large footprints. Notably, some general warehouses are specialized to facilitate cold storage.

·         Distribution Warehouses

Distribution warehouses are designed to facilitate the storage and shipping of goods. Overall, goods are stored for short periods before being shipped to their recipients. To this end, they see a lot of traffic from people sorting the goods and trucks bringing goods in and taking them out.

Besides space, location is crucial for distribution warehouses – they are usually located inside or close to metro areas to ease distribution logistics and facilitate fast deliveries. Interestingly, the growth of e-commerce platforms like Amazon and the growing demand for fast deliveries are fueling demand for distribution warehouses.

·         Truck Terminals

Truck terminals are used to park large fleets of vehicles and facilitate other related activities, such as refueling and exchanging deliveries. These properties are usually basic and don’t necessarily require storage space.

Manufacturing

Manufacturing real estate refers to properties where goods are produced and assembled. Factories are the first thing that comes to most people’s minds when contemplating manufacturing properties. Overall, properties in this category are split into the following two types:

·         Heavy Manufacturing

Heavy manufacturing properties accommodate bulky, heavy-duty equipment (connected to three-phase electricity) used for the production and assembly of goods. They also feature large loading docks, while the workspaces for employees can take up as much as 20% of the total space. To this end, they are considerably large and can range from tens to hundreds of thousands of square feet.

·         Light Manufacturing/Assembly

Light manufacturing properties are used to produce and assemble small and simple items. To this end, they are smaller and simpler than heavy manufacturing properties. Moreover, their interiors are flexible and easy to reconfigure, making it easy for new manufacturers to move in.

Flex Space

Flex space is like a hybrid industrial building featuring dedicated office space for works and flexible space for multi-purpose, industrial-related uses. Notably, the office space is considerably bigger than in distribution warehouses, usually taking up about a third or more of the total space. The idea is to make it convenient for companies to work and run their operations from the same place where manufacturing happens.

Flex space industrial properties are categorized into the following three types:

·         Car Dealerships

Cars take up a lot of space, requiring industrial-grade buildings for showrooms and large-scale garages. Moreover, car dealerships feature two space partitions: one to display cars and another to accommodate office workers handling the paperwork for transactions.

·         Data Centers

A data center is a large industrial building used to store and power servers and other equipment used for hosting digital platforms, such as websites and social media. They also feature office space for technicians and security personnel. Notably, some data centers measure millions of square feet.

·         Research Bases

Research and development projects vary in nature. Overall, research bases feature flexible spaces, including office space for researchers and versatile workspaces for testing products.

Conclusion

Industrial real estate is a diverse niche covering many property types. While not as robust as commercial or residential real estate, this niche still has a sustained demand for industrial properties, especially distribution warehouses. To this end, industrial real estate has many potentially lucrative opportunities for investors and developers.