When investors think about commercial real estate they focus on two aspects: office space and retail space. They usually don’t think about the industrial properties which are solely meant for manufacturing, storing, distributing, and shipping. Industrial real estate was not a popular investment choice compared to offices or retail stores. But the sudden hike in e-commerce in 2020 made a drastic change in the industrial real estate market. This increased demand resulted in online retailers searching for new warehouse space and distribution hubs. Hence, it spikes the demand for industrial properties.
This blog by Lilypads focuses on the different types of industrial properties and their utility.
Types of Industrial real estate
Industrial real estate properties are buildings that are used to manufacture, store, and ship goods. Investing in industrial properties not only provides regular cash flow but also provides higher returns. It’s a profitable real estate investment option if you choose the right type of property. Industrial real estate is a long-term investment ensuring long-term benefits.
Generally, industrial property consists of eight types of buildings which come under three categories: manufacturing, storage and distribution, and flex space. So, let’s have a look at the 8 different types of industrial properties:
According to the Commercial Real Estate Development Association, the manufacturing space must be less than 20% of the office space. There should be loading docks for trucks and the height of the space should be a minimum of 10 feet. Thus, having a giant space left that can be reused later. Manufacturing real estate has two common varieties: Heavy manufacturing and Light Assembly manufacturing.
1. Heavy Manufacturing:
Heavy manufacturing buildings usually manufacture heavy-duty goods and materials. The total area can be ten or hundred of thousands of square feet, equipped with powerful equipment. It also has three-phase electricity and a huge loading dock space. These industrial spaces are designated with a drainage system, ductwork, ventilation system, chemical lines, etc as per the company’s need.
During the change of owners or tenants, the heavy manufacturing buildings are completely renovated for the change in purpose. As there are permanent fixtures for heavy manufacturing a top to bottom renovation is required.
2. Light Assembly Manufacturing:
Light assembly manufacturing is comparatively smaller and simpler than heavy manufacturing facilities. Generally equipped with smaller equipment that is portable and can also be configured with ease while changing tenants. As a result, the manufacturing space required is also a bit smaller than the heavy manufacturing buildings. Since the manufactured goods are also smaller in size, these buildings are also equipped with storage spaces and shipping facilities.
Storage and Distribution
As the name implies this space is completely dedicated to storing goods and then distributing them to the end users. The size of these buildings varies according to the purpose. They are featured with less than 20% office space and a minimum of 80% space for storage. It’s further categorized into three parts as follows:
3. Distribution warehouse:
Warehouse real estate is meant solely for distributions. Thus, location is the key component of warehouse real estate.
Distribution warehouses are located centrally, preferably near an airport so that you can deliver the goods quickly to any parts. The size and shape of this space vary depending on the function of the company. They usually have numerous loading bays and large doors for truck access.
For example, Amazon has huge distribution warehouses with high-tech fulfillment centers around the country. Hence, they are able to offer same-day delivery.
4. General-purpose warehouse:
A general-purpose warehouse is generally geared towards storage rather than distribution. As the goods are stored for a long term so location doesn’t matter. And also the specific door-to-square footage ratio is not crucial since it does not require shipping. Hence, the main factors are space and price for such properties.
A particular example of a general-purpose warehouse is cold storage space. These kinds of warehouses require cooling facilities for storing the products properly for a long time. They also require sealed docks and insulated overhead doors to control the temperature.
5. Truck Terminal:
Such industrial real estate properties are solely intermediate sites meant for maintaining the supply chain. This spectrum entirely focuses on transportation. This is because here the goods are moved from one truck to another so it doesn’t require any storage space. Rather, it focuses on the features of convenient distribution.
Typically, flex space is a combination of purposes served under one roof and customized according to the business needs. This space is designated with 30% office space and a bit bigger parking lot making them fit for startups. The common types of flex space are illustrated below:
6. Research and Development:
Research and development generally imply the creation of new products and improvement of the existing ones. The manufacturing companies need a specified office space for creating and testing the existing one.
In the present scenario, the R&D spaces are converted into a campus-type attached to a business park. This space typically comprises labs, offices, testing space, and some light manufacturing space. The products are stored here solely for testing purposes.
7. Data Center:
The data center is entirely designated for keeping the equipment required for network connectivity and data storing purposes. The square footage of this space is much bigger, most probably 100,000 sq ft.
These spaces require special wiring and a cooling system as well as a reinforced floor to bear the weight of the equipment. Data centers require backup generator services and also tight security. Typically data centers are located near power stations.
The world’s biggest data center is 6.3 million square feet in China. The size varies since many companies lease the office space to third-party data centers.
Showroom properties consist of offices, warehouses, and formal showrooms. In this category, at least half of the space is dedicated to showcasing and selling. The most common example of industrial property in this category is a car dealership. But, there are also various other kinds of business models that also need showrooms for showcasing their products.
The above-mentioned properties are the different types of industrial real estate. Understanding these categories is the initial stage of finding the accurate space for your business. For acquiring a good and lucrative industrial property you must take the help of experts.
And Lilypads can do that for you. Our mentors can assist you with good advice and managerial information for achieving the maximum cash flow from your industrial real estate investment. Get in touch.