What Is Industrial Real Estate | Your Comprehensive Guide

What Is Industrial Real Estate: Your Comprehensive Guide

Inna Radford | 15th May 2024 | 10 minute read

This is an image of an interior industrial space

What is Industrial Real Estate?

When you think of industrial real estate, picture the properties that power the behind-the-scenes action. These aren’t the places you visit as a customer – they’re where the magic happens backstage.

Industrial real estate covers a wide range of uses, from manufacturing plants to research labs to massive distribution centers. Basically, any non-retail commercial operation that needs room to operate out of the public eye.

One thing these properties have in common? They’re big – sometimes mind-bogglingly big! We’re talking small (but still sizable), large, and then there are the absolute behemoths exceeding 100,000 square feet. These giants are built to handle some seriously heavy-duty operations.

So while industrial real estate may not be the glamorous, customer-facing side of business, it’s the vital backbone that keeps many industries functioning. These workhorses of the real estate world may fly under the radar, but they pack a mighty punch when it comes to economic impact.

What Types Of Industrial Real Estate Are There?

When it comes to industrial real estate, variety is the spice of life. We’re talking about spaces where function trumps form – practicality takes center stage over pizzazz. But don’t let the no-frills exterior fool you; these properties are versatile workhorses that power countless industries.

So, what kind of industrial spaces are we talking about? Let’s break it down into three main categories:

The Rugged Manufacturers: These are the factories, plants, and mills where raw materials get transformed into finished products. Think automotive assembly lines, food processing facilities, and good ol’ fashioned manufacturing hubs.

Warehouse Warriors: Ah, the unsung heroes of logistics and distribution. We’re talking vast warehouses, distribution centers, and fulfillment hubs – the places where goods get stored, sorted, and prepped for their journey to customers.

Tech Innovation: Don’t let the industrial label fool you; these spaces also foster cutting-edge research and development. We’re talking tech campuses, life science labs, and anything that requires specialized facilities for experimenting and innovating.

From gritty factories to state-of-the-art research centers, the industrial real estate realm is a diverse bunch. But they all have one thing in common: they’re the workhorses fueling our economy, one widget (or breakthrough) at a time.

Manufacturing

One huge player in the industrial real estate game? Manufacturing facilities. These are the places where raw materials and components get transformed into the finished products we all use daily.

We’re talking everything from simple assembly lines cranking out consumer goods to heavy-duty metal fabrication shops crafting industrial equipment. Whether it’s a sleek new smartphone or a hulking piece of machinery, it all has to be built somewhere!

These manufacturing facilities run the gamut from low-tech manual operations to highly automated, cutting-edge production lines. But they all have one thing in common – they’re the birthplaces of the products that keep our world running.

So next time you’re admiring that shiny new gadget or watching a massive construction vehicle in action, remember – it all started life in some unassuming industrial manufacturing plant. From simple assembly to heavy metallurgy, these workhorses are where the magic happens behind the scenes.

1. The Big Bruisers Of Manufacturing:

When it comes to heavy manufacturing, we’re talking the true heavyweights of the industrial world. These operations don’t mess around – they need space, and lots of it!

We’re talking facilities that can sprawl across tens of thousands of square feet, and oftentimes even more. Why so much room? Well, these big bruisers have some pretty impressive needs. Massive loading docks to handle heavy equipment. Reinforced floors to support hulking machinery. And enough electrical power to make even the grid blush.

For tenants that require this level of heavy-duty space, a standard lease just won’t cut it. Nope, they go for the triple net variety, which gives them the freedom to customize the entire layout to their specific needs. Need extra crane beams? Fortified high ceilings? Bring it on!

These facilities are the heavyweights that help build our world, quite literally. From foundries casting giant machine components to assembly lines for construction vehicles, if it’s big, brawny, and built to last – chances are an impressive heavy manufacturing space was involved somewhere along the way.

2. The Versatile Lightweights Of Manufacturing:

While their heavy manufacturing cousins are the hulking giants of the industrial world, light manufacturing facilities are the versatile lightweights that pack a serious punch.

These spaces don’t need the massive footprints of heavy industrial zones. We’re talking relatively compact properties that can flex their adaptability between tenants. From light assembly to basic manufacturing processes, these facilities are all about ease of use.

No need for heavy-duty reinforcements or specialized machinery here. Keep it simple – an open layout, solid electrical, and you’re good to go. Easy peasy!

That versatility is a huge selling point for light manufacturing tenants. One day it could be hosting a consumer product assembly line. The next, a workshop producing specialty electronics or components. Heck, you could likely even retrofit it into a micro-brewery if needed!

The name light manufacturing may sound unassuming, but don’t be fooled. These are the versatile rockstars that allow for lean, agile production across countless industries. Big things can come from smaller, flexible spaces when innovation is involved!

Industrial Storage And Distribution

One of the biggest markets keeping industrial property owners in business? Storage and distribution, baby! At the end of the day, we’re a society that loves our stuff. We can’t get enough of buying, acquiring, you name it. But here’s the catch – all that stuff has to live somewhere before it gets shipped to its next destination.

Enter: the warehousing wonderlands of the industrial world. These are the real MVPs that keep supply chains humming and consumer cravings satisfied. Massive distribution centers stacked to the rafters with every product imaginable. Simple storage spaces providing a temporary home for overstock, equipment, and anything else that needs a roof over its head.

The possibilities are endless when you’ve got a nice flexible space with easy access for bumping and trucking. Retailers, manufacturers, logistic companies – they’re all in desperate need of these warehousing wonderlands to support their operations. From housing spare parts to operating vehicular fleets, you’d be amazed at the kaleidoscope of uses.

So next time you happily click “add to cart” from the comfort of your couch, say a little thanks to the unsung heroes of industrial warehousing. Those big boxes you receive? They’ve definitely racked up some serious industrial real estate frequent flyer miles!

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Truck Terminals

In the gritty world of industrial real estate, some of the most in-demand properties are the truck terminals – aka the truck drivers’ version of a truck stop.

These no-frills pit stops don’t need much fancy storage space or amenities. Nope, they’re all about providing a basic home base for the big rigs to stop, fuel up, switch loads, and get ready to hit the road again. Think of them as the truckers’ very own truck stops, just on a bigger, more industrial scale.

They’re the perfect intermission sites for when transportation fleets need to take a breather mid-delivery route. Grab some shuteye, grab some grub, and get prepped for that next long haul. With their seamless access on and off major transportation arteries, these terminals make an efficient pitstop.

No need for excessive square footage either – just enough space to park up all those truck cabs, maybe an area for doing basic maintenance. The fancier stuff can wait for the next dedicated facility. These places are all about maximal functionality with minimal fuss.

So whether it’s regional haulers or long-distance road warriors, truckers know the invaluable role these utilitarian truck terminals play. They’re the humble re-fueling stations that keep the 18-wheeled lifeblood of logistics flowing across the nation.

This is a picture of a truck terminal

Distribution Warehouses

If you’ve ever wondered what powers those lightning-fast e-commerce deliveries, look no further than the whirlwind wonders of distribution warehouses. These behemoth facilities are popping up all over like mushrooms after a rainstorm!

We’re talking massive, airplane hangar-sized spaces absolutely stuffed to the gills with products. From that fancy new smart gadget to your favorite snacks, if you ordered it online, it likely passed through one of these industrial stockpiling giants. The name of the game? Getting those goodies ready for rapid shipout to impatient doorsteps everywhere.

Unlike their more laidback storage warehouse cousins, distribution hubs are whirlwinds of constant activity. Trucks zooming in and out with new loads around the clock. Armies of warehouse staff zipping around controlling the organized chaos of stock and fulfillment. It’s a dizzying dance of meticulous logistics.

For any investor looking to cash in on this booming sector, a few key things are needed: primo locations near major transportation corridors, an absolutely massive footprint, and enough loading docks to make a traffic controller dizzy. After all, in this need-it-now world of ours, the e-commerce machine demands peak distribution efficiency.

So next time you’re clicking away for same-day shipping, raise a glass to these whirlwind wizards of the warehouse realm. They’re the rockstars making our wildest delivery dreams possible, one parcel at a time!

This is a picture of distribution centre

Cold Storage Facility

Not every industrial warehouse needs to be a frentic distribution dynamo. Sometimes, companies just need a calm secure place to stash their stuff – no rush, no problems. 

Enter: the general storage warehouse. These workhorses of industrial real estate provide flexible, lower-maintenance spaces for housing products and inventory that don’t require constant access. Maybe it’s overflow stock, maybe it’s equipment in need of a temporary home. Who knows? Who cares? As long as there’s enough square footage and decent security, it’ll do the trick.

No zippy loading docks or high-tech stock control needed here. General storage is like that beloved junk drawer you can’t quite bring yourself to clean out. Just pile it all in and forget about it until you need it again!

That said, some of these generalist warehouses do evolve into more specialized roles over time. Take cold storage facilities, for instance. An investor gets savvy, retrofits the place with premium refrigeration units, and bam! Instant niche product for companies needing temperature-controlled spaces.

From the no-frills catchall to the quirky cold storage cubby, general warehouses prove that even the simplest industrial spaces can adapt to meet amazingly diverse needs. Sometimes you just need some cool, flexible square footage to stash your assorted goodies for a spell.

This is a picture of a cold storage facility

Flexible Industrial Spaces

In the world of industrial real estate, some spaces just can’t be pinned down to one strict purpose. Enter the flex spaces – the versatile shape-shifters that offer the best of both worlds.

We’re talking hybrid properties that deftly blend a professional office environment with good ol’ industrial flex space. Usually, about a third of the building gets converted into nicely appointed office quarters, while the remaining two-thirds keep that wide open, adaptable layout.

The genius behind these flex spaces? Giving companies a cohesive operational home base where the front and back-end activities can live side-by-side. Sort of like an intimate industrial compound!

On one side, the cushy digs for management, client meetings, and bureacratic businessing. Just a short stroll away? A big open canvas for all the gritty, hands-on manufacturing, R&D, light assembly – you name it. Heck, some tenants even use part of the flex space for warehousing and distribution too.

From microbreweries to specialized fabricators, businesses are lapping up these flex spaces. All the perks of professional office environments, plus a beautifully blank industrial slate to mold to their unique operational needs. It’s the best of both worlds under one roof!

No longer must companies be shackled to strict industrial-OR-office buildings. These flex spaces break the mold, creating exceptionally adaptable hybrids tailored to the way modern businesses truly operate. Now that’s versatile!

Car Dealerships

When it comes to businesses in desperate need of versatile real estate, car dealerships are pretty high on the list. I mean, think about it – these vehicular empires need to expertly juggle two very different operational needs.

On one side, you’ve got the glamour and glitz of the showroom floor. Rows upon sparkly rows of shiny new rides, meticulously staged under the bright lights. An auto enthusiast’s dream! But then you’ve also got the nitty-gritty side of the biz – the service bays, the pre-owned lot packed with second-hand gems, all the paperwork processing happening behind the scenes.

Trying to find two separate properties to house both halves of the operation? What a logistical nightmare! That’s why car dealerships make such brilliant tenants for those flex industrial spaces.

The best of both worlds, all under one roof. You get that polished, client-facing office space for handling the meet-and-greets and bureaucratic busywork. But then, just a stone’s throw away, this wonderfully expansive blank canvas for staging inventory, housing the repair shop, you name it.

No shuttling cars miles across town or cramming tiny showrooms. Nope, these flex spaces let dealerships spread out and seamlessly blend their dual identities as both professionals and gritty automotive traffickers. 

This is a picture of a BMW car dealership

Data Centres

In our increasingly wired world, there are some true industrial juggernauts keeping the digital realms firing on all cylinders – data centers. These behemoth facilities are the unseen backbone upholding our cloud-based existence.

Picture this: colossal industrial warehouse spaces absolutely crammed full of servers, humming away 24/7 to keep our data zipping around the internet superhighway. We’re talking room after room of these blinking, whirring monoliths working tirelessly to make sure our emails send, our Netflix streams, and our cloud backups stay…well, backed up.

But, of course, such critical digital infrastructure doesn’t just run itself. These data center hives are buzzing with activity from armies of technicians, engineers, and security personnel. After all, when you’re the guard dogs of the world’s precious bytes, you can’t afford any downtime on your watch.

Need a scope of just how massively scaled these operations are? Get this – the largest data center on the planet covers a staggering 6 million (!!!) square feet. That’s more floorspace than some small towns! All those servers and cooling systems need acres upon acres to sprawl.

So next time you seamlessly hop between digital spaces, say a little thanks to these industrial temples of the data age. They’re the massively humming hives diligently powering our collective digital obsession.

This is a picture of a data centre

Research and Development (R&D)

When it comes to the wide wonderful world of research and development, one thing’s for sure – these innovators need space to play. And I mean plenty of wide-open, flexible space to really let their scientific imaginations run wild.

We’re talking everything from top-secret labs cooking up the latest breakthrough pharmaceuticals to genius engineering teams tinkering away on prototypes for flying cars. Heck, maybe they’re just doing some certifiably weird science experiments that need to stay far, far away from prying eyes.

Whatever bizarre R&D rabbit hole these mad scientists have ventured down, one thing’s certain – they need an industrial-sized sandbox to dig around in. Cramped office spaces just won’t cut it when you’re trying to birth the next big thing.

Enter: the flex industrial research base. These facilities offer glorious expanses of wide-open versatility with customizable layouts ready to morph into whatever wacky lab or workshop setup the tenants can dream up. Need to construct an isolation chamber? A massive vapor tank? Just say the word!

Plus, being tucked away in more secluded industrial pockets means no nosy neighbors getting sneak peeks at the latest top-secret prototypes. These R&D spaces are like cloistered scientific playgrounds where eureka moments can flourish without interruption.

So whether it’s developing cutting-edge tech or pushing the boundaries of our knowledge, these flex sites are the perfect secluded sandboxes for research’s biggest sandbox of world-changing ideas.

What's the difference between Commercial Real Estate and Industrial Real Estate?

In the vast realm of real estate, there are two distinct personalities that sometimes get mistaken for twins – commercial and industrial properties. Sure, they may seem similar on the surface, but these two actually have some pretty key differences.

Let’s start with the obvious – commercial spaces are the extroverted social butterflies always ready to mingle with the public. We’re talking retail shops, restaurants, even offices – any property that relies on creating an environment to welcome people inside and interact. These places need to be all dolled up with attractive designs, inviting vibes, and pedestrian-friendly locations to lure in those customers.

Industrial properties, on the other hand, are the more reserved, behind-the-scenes introverts. Manufacturing facilities, warehouses, data centers – they’re the worker bees facilitating operations out of the public eye. Forget fancy window dressings or open floor plans. These spaces are all about maximizing square footage and functionality over form.

Another key divider? Public interaction (or total lack thereof). Commercial tenants crave that foot traffic like a plant craves sunlight. But industrial users? They’re perfectly content staying in their secluded operational bubbles, rarely seeing any clients darken their doorsteps.

Despite being cousins under that commercial real estate umbrella, these two personalities are definitely distinct breeds. One’s focused on creating experiences built around customer-facing interactions. The other’s simply looking for flexibility and bulk space to handle the behind-the-scenes heavy lifting keeping the world turning.

So while both may don professional attire and carry briefcases, just know there’s a big split between these two real estate psyches. One’s the life of the party, the other’s the quiet powerhouse making it all happen offstage.

What's the Pros and Cons of investing in industrial real estate?

Pros

Long Term Tenants

One of the biggest pros? Those sweet, sweet long-term leases industrial tenants crave. We’re talking years-long commitments that keep that rent money rolling in with beautiful regularity. Unlike their more nomadic commercial cousins, industrial businesses want to really settle in and make your space their home. Hello, stability!

Rental income

But it’s not just reliable income – industrial rents command top dollar too. These tenants know the massive operational value of a well-situated flex space or distribution hub. They’re willing to pony up premium rental rates for the right set-up to run their operational circus

Minimal Maintenace

Another huge perk? These properties are pretty much naturally low-maintenance. We’re talking wide-open layouts and bare-bone basics here – not a lot of frills or wear-and-tear to worry about. Just draft those big blank spaces and let your tenants go to town customizing the rest.

All-inclusive Rent

Speaking of letting tenants take the reins, you know those coveted triple-net leases? They’re incredibly common in industrial deals, meaning you can efficiently transfer most operating costs and maintenance onto your tenants. It’s like an all-inclusive vacation package…except instead of bottomless margaritas, it’s bottomless returns for you!

Economic Stability

While economic storms can shake lots of investments, industrial spaces tend to remain remarkably recession-resistant. Warehouses, distribution hubs, manufacturing – they’re all representing the vital backbone and logistical arteries of the economy. Which means constant, steady demand through the ups and downs.

The future is now (and lots of it)

And let’s not forget – this entire sector is rapidly expanding as our consumer-crazed, need-it-now world keeps ramping up. From booming e-commerce to bustling logistics, developers can’t build these operational behemoths fast enough to meet skyrocketing demand.

So whether you’re an investor searching for enduring passive income streams or massive upside potential, industrial real estate deserves a serious look. These unsung warriors may not be the real estate stars…but they’re definitely the investment MVPs.

Cons

Like any investment arena, the world of industrial real estate isn’t all sunshine and exponential returns. These unsung workhorses may be highly lucrative, but they come with their own set of potential potholes to navigate. Here are some of the caution lights to keep an eye on:

People Leave

While industrial spaces can flex their versatility, they’re still pretty niche in demand compared to other sectors. If you can’t find a manufacturing tenant, logistics company, or other industrial biz to fill those wide-open spaces, get ready for a whole lot of tumbleweed. Vacant properties in this arena can turn into month after month (or year after year) of zero income real fast.

High Interest Rates

Speaking of cash flow problems, good luck getting a low interest rate loan from banks for industrial acquisitions. From their perspective, these specialty properties are higher risk investments than apartments or retail spaces. Be prepared for shockingly high rates – some up to 30%! That’s a hefty bite out of potential profits.

Requirements change

Today’s bleeding-edge industrial hub could be tomorrow’s has-been dino facility. As companies’ operational needs and capabilities evolve at a breakneck pace, older buildings risk rapidly becoming obsolete husks. Maybe the ceiling heights or floor loadings are no longer adequate. Or perhaps zoning changes render the location sub-optimal. Whatever the reason, real estate irrelevance can strike shockingly fast.

It's complicated

This isn’t the kind of passive investment where you can kick back and automatically collect monthly checks. Nope, navigating industrial real estate’s hyper-specialized world of niche tenants, complex operations, and strict regulations often requires paid professional expertise. Experienced property managers, code consultants – someone’s gotta ensure you’re minding all those compliance Ps and Qs.

So while the upside rewards can be massive, jumping into the industrial investment scene definitely demands keeping a prepared eye on these potential hazards. But for those willing to do their homework and bring in the right guidance when needed? An entire landscape of opportunities awaits.

Conclusion

Size matters!

When it comes to jumping into the industrial game, stake your claim on some serious square footage – especially if you’ve got your sights set on that sizzling hot distribution sector. We’re talking warehouses and fulfillment centers big enough to make an airplane hangar feel inadequate. Go big or go home!

Location, Location Location!

Of course, just having massive spaces isn’t enough. Where these behemoth properties are planted is everything. Easy access to major transportation arteries, proximity to dense population centers – landing those prime spots can exponentially amplify an industrial asset’s moneymaking potential.

Flexibility = $$$

At the end of the day, one of the biggest investment advantages here is just how amazingly adaptable these spaces can be. From distribution to manufacturing to R&D campuses, that open blank canvas means you can cater to a kaleidoscope of operational tenants. The more versatile, the more lucrative.

Triple Net Leases

Speaking of tenants, making use of those beautiful triple-net lease deals is a must for smart passive investors. Let those industrial operators shoulder the management and maintenance burdens while you kick back and collect those delightfully hefty monthly rent checks.