REAL ESTATE AGENT / DEFINITIONS

By: Joe Stephenson REALTOR®

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Examples

Examples of industrial real estate include manufacturing facilities, warehouses, distribution centers, and flex spaces. These properties are typically characterized by their large square footage and operational infrastructure such as loading docks and high ceilings.

• Manufacturing facilities are designed for the production of goods.
• Warehouses provide space for storing goods.
• Distribution centers serve as hubs for shipping and receiving products.
• Flex spaces combine office and industrial space into one property.

Types

There are several types of industrial real estate, each serving a different purpose within the industrial sector.

• Heavy manufacturing properties: These are large plants that typically produce goods and materials.
• Light assembly properties: These spaces tend to be used for product assembly or small-scale manufacturing.
• Data centers: These are facilities that store and distribute data for businesses and organizations.
• Cold storage facilities: These are used for the storage and distribution of perishable goods.

Physical Characteristics

The physical characteristics of industrial real estate vary depending on the type and use of the property. However, common features often include the following.

• Large square footage: Industrial buildings typically require a significant amount of space.
• Operational infrastructure: This includes loading docks, overhead doors, and high ceilings.
• Zoning: Industrial properties must be zoned for industrial use.
• Access to transportation: This can include proximity to highways, rail lines, and ports.

Industrial Property vs. Industrial Real Estate

While the terms “industrial property” and “industrial real estate” are often used interchangeably, there is a subtle difference. Industrial property refers specifically to the land and buildings used for industrial activities, while industrial real estate encompasses both the physical property and the rights associated with its use and ownership.

Industrial Property vs. Commercial Real Estate

Industrial property is a subset of commercial real estate, but the two serve distinct purposes and cater to different needs. While commercial real estate includes a broad spectrum of properties such as office spaces, retail stores, residential real estate, and car dealerships, industrial real estate primarily focuses on properties that support industrial activities. These include manufacturing buildings, warehousing, distribution hubs, and specialized facilities like cold storage and truck terminals.

Purpose of Use

• Commercial real estate typically accommodates businesses that engage in direct interaction with consumers, such as retail shops, restaurants, or office spaces.
• Industrial real estate serves industries focused on production, storage, and distribution, such as manufacturing facilities and distribution warehouses.

Property Characteristics

• Industrial properties are designed to handle large-scale industrial activities. They often offer expansive square feet of interior space, loading docks, and energy-efficient systems optimized for operations.
• Commercial real estate includes properties such as flex buildings, which may have a mix of office and showroom features that cater to smaller business needs.

Location

• Commercial real estate tends to appear in areas with high foot traffic and commercial zoning, often catering to consumers directly.
• Industrial real estate is often situated in industrial parks or industrial land, strategically placed near highways, ports, or railways to ensure logistical efficiency.

Leases and Income Streams

• Properties in commercial real estate may involve shorter-term leases and fluctuating rental incomes.
• Industrial real estate typically involves long-term industrial leases, such as triple net leases, which offer steady income streams for property managers and investors.

Examples by Category

• Commercial real estate – Office towers, retail centers, and car dealerships.
• Industrial real estate – Heavy manufacturing buildings, distribution centers, and cold storage facilities.

Industrial real estate offers unique investment opportunities for those looking to diversify their investment portfolio. Adding industrial real estate to a portfolio not only provides exposure to a different asset class but can also offer advantages like lower tenant turnover and dependable income. Industrial sites frequently accommodate facilities that prioritize specific industrial classes, such as light assembly or heavy manufacturing.

Commercial real estate investors often consider integrating industrial sites into their portfolio to align with the growing consumer demand for e-commerce and distribution hubs. Flex buildings, distribution warehouses, and even properties with cloud storage capabilities are playing an increasingly vital role in meeting these demands. If you’re managing property leases or evaluating future investments, then knowing the nuances of both sectors ensures better decision-making in a competitive real estate market.

Different Class Types

Industrial properties are typically classified into three categories: Class A, Class B, and Class C.

• Class A properties are the highest quality and often the most expensive. They usually have multiple loading docks, modern fire suppression systems, and ample parking.
• Class B properties are older but still functional. They may require some updates or improvements.
• Class C properties are the oldest and typically require significant renovation or redevelopment.

Popular Types of Investments

The industrial real estate market is a dynamic sector with a variety of property types that present numerous investment opportunities.

From expansive warehouses to versatile flex space industrial properties, each type of industrial building offers unique benefits and challenges.

As the demand from industrial tenants continues to grow, so do the prospects for industrial real estate investing.

Whether it’s a massive manufacturing facility or a smaller commercial property, understanding the different types of industrial real estate investment properties is crucial to making informed industrial property investments.

This guide will delve into the various options available in this vibrant market sector.

1) Warehouses

Warehouses are industrial properties designed primarily for the storage and distribution of goods. A popular brand that utilizes warehouses extensively is Amazon. Investors are drawn to these assets due to:

• High demand driven by e-commerce growth
• Potential for steady rental income
• Low maintenance costs compared to other types of real estate

2) Manufacturing Facilities

Manufacturing facilities are industrial buildings where goods are produced. Companies like General Motors have large manufacturing facilities. These facilities are attractive for investors because:

• They offer long-term leases
• They often come with reliable tenants
• Rising manufacturing activity can increase deman

3) Data Centers

Data centers, used by companies like Google and Microsoft, store and manage vast amounts of data. These properties are becoming increasingly popular among investors due to:

• The growing reliance on digital technologies and cloud services
• High tenant retention rates
• Attractive yields compared to traditional real estate asset

4) Distribution Centers

Distribution centers are large buildings or complexes from which goods are distributed to various locations. Companies like Walmart and Target operate numerous distribution centers. Investors find them attractive because:

• They cater to the growing need for efficient supply chains
• They often have long-term leases
• They are critical to e-commerce operations

5) Cold Storage Facilities

Cold storage facilities are used for storing perishable goods under controlled temperatures. Major food retailers and distributors, like Sysco, use these facilities. Key factors that make them appealing to investors include:

• Growing consumer demand for fresh and frozen foods
• Limited supply of these specialized facilities
• Long-term growth potential due to the rise in online grocery sale

6) Flex Industrial Spaces

Flex industrial spaces combine office space with industrial space, offering versatility to accommodate industrial activities and administrative tasks. Tech startups often utilize these spaces. Investors like them because:

• They offer flexibility to meet various tenant needs
• They have lower vacancy rates due to their versatility
• They can command higher rents than traditional industrial space

7) Light Industrial Buildings

Light industrial buildings are used for small-scale operations, such as assembly or light manufacturing. These properties are popular among smaller businesses and startups. Investors are attracted to them because:

• They typically require less capital to purchase
• They can cater to a wide range of tenants
• They often offer higher yields than Class A industrial asset

8) Research and Development Facilities

Research and development facilities are used by companies in sectors like biotechnology and pharmaceuticals, such as Pfizer. Investors find these properties attractive due to:

• Their specialized nature, which can command premium rents
• The growth potential in sectors like biotech and pharma
• Long-term lease agreements common in this secto

9) Showroom Industrial Properties

Showroom industrial properties combine retail showrooms with industrial space, often used by wholesale businesses. Investors like these properties because:

• They cater to both the retail and industrial markets
• They offer a unique blend of income from both the showroom and warehouse space
• They are in demand due to the growth of the home improvement marke

10) Heavy Industrial Buildings

Heavy industrial buildings are used for large-scale industrial operations, such as power plants or steel mills. These properties are notable investments because:

• They are essential for many industrial processes
• They often have long-term, stable tenants
• Despite high operational costs, they can yield high returns

The industrial real estate sector offers a variety of investment opportunities. From warehouses and manufacturing facilities to data centers and flex spaces, each type of property offers unique benefits. As consumer demand continues to reshape the industrial market, commercial real estate professionals can find lucrative opportunities in this growing sector.

FAQs

Which is an example of an industrial property?

An example of an industrial property could be a warehouse used for storing goods before they’re distributed to retail locations.

What does industrial use mean in real estate?

Industrial use in real estate refers to properties that are used for industrial operations such as manufacturing, storage, and distribution.

What is the industrial sector in real estate?

The industrial sector in real estate includes properties used for industrial purposes, such as factories, warehouses, and distribution centers.

Why industrial real estate is a good investment?

Industrial real estate can be a good investment due to its potential for steady cash flow, long-term leases, and increasing demand driven by e-commerce growth.

What type of industrial property is in most demand?

Currently, warehouse and distribution facilities are in high demand due to the surge in online shopping and e-commerce.

What is the definition of industrial property in simple terms?

Industrial property, in simple terms, refers to land or buildings that are used for industrial activities such as manufacturing or storage.

What is the meaning of industrial properties?

Industrial properties are real estate assets used for industrial operations. These can include manufacturing plants, warehouses, distribution centers, and more.

What is categorized as industrial property?

Properties used for manufacturing, warehousing, research and development, and data centers are categorized as industrial property.

What does the industrial property include?

Industrial property typically includes land and buildings used for industrial activities, such as manufacturing, storage, or distribution.

What is the meaning of the industrial property?

The term “industrial property” refers to real estate assets that are used for industrial processes, including manufacturing, storage, and distribution.

What is the difference between industrial and commercial properties?

While both types of properties are used for business purposes, commercial properties typically refer to office and retail spaces, while industrial properties are used for manufacturing, storage, and other industrial functions.

Is industrial the same as commercial real estate?

No, industrial real estate is a subset of commercial real estate. While commercial real estate can cover a broad range of property types, including office and retail spaces, industrial real estate specifically refers to properties used for industrial activities.

What is the meaning of industrial property in business?

In business, industrial property refers to real estate assets that are used for industrial operations such as manufacturing, storage, and distribution.

Pros and Cons

Being an owner of industrial property can be a rewarding venture for commercial real estate investors, but it’s not without its challenges.

On the positive side, industrial technology development has increased the demand for specialized spaces, such as data centers and flex space industrial properties, creating new opportunities for investors.

Owning Class B and Class C industrial properties can yield attractive returns, especially when these older buildings are updated and repurposed.

Manufacturing spaces, with their large square footage, can command significant rents, while storage spaces offer steady income due to consistent demand.

Compared to residential property, industrial facilities often have longer lease terms, providing more stable and predictable cash flow.

On the other hand, investing in industrial real estate comes with its share of drawbacks. For one, the cost of maintaining and updating large industrial properties can be substantial.

Additionally, the industrial sector can be more sensitive to economic fluctuations than the residential market, potentially leading to periods of vacancy.

Finally, the success of an industrial property often hinges on its location and accessibility, making thorough market research and site selection critical components of the investment process.

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Author, Joe Stephenson – REALTOR®