Industrial property might lack the glamour of commercial real estate with its glitzy shopping malls, elegant hotels, and prestigious office parks, but in terms of its strength as an investment, its ability to provide excellent returns, and the consistent market demand, it a property sector that shouldn’t be overlooked. There are many types of industrial properties, and exploring that diversity is the aim of this article.
There is a surprising level of industrial real estate diversity to explore based on four categories of activity – manufacturing and processing, storage, distribution, and flex space. Within those categories, various industrial property types are worth examining in detail.
There are good reasons to consider industrial property as an alternative to commercial and residential. It offers benefits the other property classes can’t match: leases that are generally longer, offering secure income, demand for space less affected by economic downturns and unexpected crises such as COVID-19 epidemics, and lower maintenance costs. Let’s take a closer look at the diverse types of industrial property.
The Diverse Types Of Property In Industrial Real Estate
I’ve mentioned the four categories of industrial properties, but flex properties are a combination of these four categories under one roof, so there’s even more diversity to make your selection from.
Manufacturing Buildings
A manufacturing building is defined as a factory or plant equipped to produce goods in quantity. Accepted definitions stipulate that less than 20% of the space is allocated to offices, while at least 80% is used in the manufacturing process.
Heavy Manufacturing
Heavy manufacturing plants may cover hundreds of thousands of square feet, have large pieces of equipment permanently installed, and have loading docks or areas to transport the finished products. Examples include:
- Car assembly plants
- Grain milling
- Iron smelting works
- Chemical production plants
- Oil and gas refineries
Light Manufacturing
Lightmanufacturingis basically a matter of scale compared to heavy industry. Less equipment and energy are used, the products usually are smaller, such as furniture, toys, clothing, and electronics, and the process takes place indoors with no outside stockpiling of materials. An advantage of this type of tenant is that it is easy to reconfigure the premises if they move out.
Processing
This term is used for activities such as packaging a product to create a marketable item or enhancing the product to add value. Re-packaging coffee beans into smaller packages is an example of the first process, and grinding the beans to produce an enhanced ground coffee product is an example of the second.
Storage And Warehousing Buildings
The worldwide storage and warehousing industry was valued at $467.39 billion in 2022 and continues to grow.
Refrigerated Warehouses
These are used to store perishables before they are distributed, and the increased need for this type of warehouse drives the growth in this sector. Food wholesalers, as well as supermarket chains buying in bulk, use this facility to maintain the quality of their produce before it is sold in-store.
General Warehouses
General warehouses provide storage facilities for all types of goods in a secure environment, as a service to the public and to any operation with large stocks of goods, such as retailers, who can remove this stock as required.
Personal Storage Units
Locked storage containers for homeowners to store furniture and household effects safely are becoming more and more sought-after. Rented space on a month-to-month basis provides secure storage for people moving house or those with goods they don’t want to dispose of but don’t have space at home.
Distribution Buildings
A distribution warehouse is primarily used by suppliers of merchandise to ship goods to multiple destinations from a central stockholding. With the massive growth in online marketing, boosted by the restrictions on personal shopping caused by the COVID-19 epidemic, these warehouses have become crucial players in the supply chain.
Distribution warehouses often cover acres under roof and are located strategically so that goods can be delivered anywhere in the country within hours.
Technology plays a vital role in an efficient distribution facility, tracking stock, assembling and packing consignments, arranging the logistics to minimize delivery times, handling the return of goods, and tracking deliveries.
Flex Space
Flex space is a hybrid industrial property with a mixture of warehouse, office, and retail space. It offers investors an excellent opportunity to get into the industrial property market. Because of its flexibility, this kind of investment attracts a wide variety of tenants, including:
Data Centers
In a very specialized space, data centers require high levels of security, temperature control, uninterrupted power, and a lot of space to carry all the electronic equipment, computers, and telecommunications hardware needed to store, transmit, and process data.
They are becoming increasingly complex to the point where some are so sophisticated that very little input is required from personnel, and the premises are “dark” and sealed from the outside world. They consume as much power as a small town and can take up 100 to 2,000 acres of land.
Research and Development Centers
While this is not what one would usually associate with industrial property, R&D operations need a combination of office space, laboratories, light manufacturing facilities, and testing space to create new and improved products.
Showrooms
The most common use of industrial real estate in this category is as a car dealership, which requires a mix of office space, storage, and a retail area. Other potential tenants of flex space that need showrooms as well as storage and office space include furniture manufacturers, art dealers, and medical equipment suppliers.
Other users of flex space, where the versatility of the building provides the necessary environment to run their business, include:
- Gym and fitness centers
- Auto repair workshops
- Food and beverage producers (including caterers and craft brewers)
- Art and craft studios
Conclusion
Industrial real estate provides potential investors with a range of options that is surprising in its diversity. From manufacturing and processing to storage and distribution, covering everything from autobody repair to data storage, there is an industrial property to suit the budget and risk profile of all serious investors. Industrial property is, in fact, more secure than most real estate segments and a must-have in any portfolio.