Story by IPB Industrial
April 23, 2021
Many people use the terms commercial real estate and industrial real estate interchangeably. Although similar in comparison, there are vast differences between the two.
Offices, retail strips, apartment complexes, and hotels are common images that come to mind when discussing commercial and industrial properties; however, industrial real estate focuses more on where the goods are made and shipped instead of the end-user.
In other words, industrial properties are business to business; while commercial properties focus on delivering a product or service directly to the consumer.
For property brokers and owners, industrial real estate properties tend to be a more stable, long-term investment.
At a most basic level, manufacturing plants produce large volumes of goods and assemble them. Typically, these buildings consist of less than 20% office space with loading docks for trucks with clearance for up to 10 feet.
Depending on the kind of manufacturing facility purchased, these properties require a complete renovation after each tenant. Even though the buildings can be renovated for their new purpose, the modifications and reconfigurations can leave behind a hefty price tag for the new owner.
Typically, manufacturing plants fall into two main categories: heavy manufacturing and light assembly.
Heavy manufacturing facilities produce heavy-duty goods and materials. Usually, these spaces are hundreds of thousands in square feet; they are full of customized and powerful equipment with plenty of loading-dock space.
Because the machinery inside of the plant is based on the current owner and its purpose, these buildings typically need to be completely renovated after each owner due to the permanent fixtures needed in heavy manufacturing.
For example, a ship-building facility will need to be completely revamped as an automobile manufacturer takes over due to the machinery differences and nuances with the manufacturing process.
Light assembly facilities assemble products from smaller parts, store them, and eventually ship them to customers.
These facilities are equipped with lighter and simpler machinery and are easier to move in and out of. Because the parts assembled are smaller than those in heavy-duty plants, the machinery is much lighter and portable which makes it easy to reconfigure for new tenants.
Storage and distribution facilities are precisely what they sound like: buildings where products are stored and shipped to the end-user. These properties are focused on shipping products and ultimately delivering them to the end-user.
While the size of the building may vary, roughly 80% of the square footage is assigned to storage space; with no more than 20% of the square footage dedicated to office space.
Distribution warehouses are primarily used to ship goods to customers. Because these facilities are focused on delivering to the end-user, they are often located near the center of the country and near airports, so products can be quickly delivered regardless of where the customer lives.
Amazon fulfillment centers and other warehouses where materials are moved by people or machines are examples of distribution facilities.
General-purpose warehouses are more geared toward storage than distribution and are much smaller than their counterparts.
In other words, the products and goods stored are more important than location. Because of this, location isn’t as important as with other warehouses.
An example of a general-purpose warehouse is a cold storage facility. Typically, the products are stored in the warehouse, then shipped to another location for end-user purchase or distribution.
Truck terminals aren’t exactly warehouses but are solely devoted to transportation with very little storage space.
These are considered intermediate sites where goods are transported from one truck to another and ultimately delivered to a distribution center or retail location for purchasing.
Flex space is precisely what the name implies: a building that’s designed to give tenants flexibility in the way the building is utilized.
Most often, flex spaces are research and development centers, data centers, and showrooms.
Typically, these buildings are made up of at least 30% of office space and are a mix of offices, warehousing, and areas to test or feature products.
Companies may use these spaces to store equipment that makes cloud storage possible, show off the latest models, or test projects away from prying eyes, like Google’s self-driving car project.
The key to a great industrial real estate property is the ability to tailor and reconfigure the space to meet the specific goals of the different businesses. If you are in the market for an industrial space, give us a call.
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