Not All Industrial Real Estate Is The Same

By: Taro Chellaram /Real Estate Articles/Jun 25, 2023

Not All Industrial Real Estate Is The Same

Commercial real estate is a confusing space in the investment world. There are so many options to choose from that it’s easy to misunderstand market trends and make a less profitable investment. Traditionally, commercial real estate combines retail, industrial, office, land, and multifamily. Demand for one kind of real estate needn’t be the same as for another. In recent years, we have seen an upward trajectory in the demand for industrial spaces. Texas specifically has shown outstanding metrics. According to statistics, by the end of the 2020 calendar year, the U.S. totaled around 27.7 billion square feet of industrial real estate, of which 9.2% came out of Texas alone! The Texas industrial real estate market is booming and faring higher than other states in the country.

These metrics sound exciting and may spark the interest of any prospective investor. However, there is a big question that first needs answering – What kind of industrial real estate would be the best and most profitable option for an investor? To answer this, one must know the different kinds of industrial real estate in the current market. Industrial real estate can be broadly divided into three categories – manufacturing, logistics, and flex or R&D buildings. Knowing which is a better investment depends on your investment profile, investment amount, location, market demand, and more. This is precisely why having a professional on hand who is an expert in the industry is crucial.

Let’s take a closer look at the three kinds of industrial real estate:

Manufacturing Buildings

Manufacturing facilities are where goods are produced, held, and shipped. The raw materials used in the manufacturing process, as well as the machinery that is used to produce the products, are often stored on-site. The staff who operate the machinery and assist the production process are usually present during the day-to-day functioning of the manufacturing unit. These buildings can either be “freestanding” or part of a larger structure, but they typically have more power feeds, 10-30% of total square footage in office space, ground-level loading doors vs. truck-high loading doors (some may have both), fenced outside storage areas, and a warehouse clearance of 14 to 24 feet under-beam in the warehouse/plant area. These units often have more parking spots and greater office space.

Logistics Warehouses

In the past, logistics buildings were known as distribution warehouses. These are units responsible for staging, storing, and delivering products. In most cases, no manufacturing or assembly takes place on-site. As a result, the logistic warehouses have fewer employees and workers and almost no raw materials. Logistics buildings need truck-high loading, warehouse clearance of at least 24 feet, and a truck-turning radius of at least 130 feet. The ‘perfect’ logistic warehouse would be a fairly rectangular unit equipped with a “cross-dock” loading to minimize the distance between the loading and storage areas. Since these warehouses employ fewer staff members, office space premiums and parking spots are lessened. Typically, logistic warehouses feature a parking ratio of one parking place per 1,000 square feet, but these figures are, of course, subjective.

Flex Buildings

The advancement of technology in the late 1980s gave rise to a new kind of industrial real estate – flex buildings or research and development units. Flex buildings typically employ a large number of skilled workers and require ample parking, power, office percentage, and layout features. Office space is prioritized over the loading area, clear height in the warehouse, and outside yard storage. The “mezzanine second story” was created by R&D building developers to make it possible for a smaller lot to accommodate a larger building. All of these, however, are subjective claims. Every flex building is unique and includes features exclusive to its sector.

Investing in real estate can be a tricky business if not done correctly. Having an expert guide you through the process is not just advised but is essential for successful investment. Do not make real estate or other investment decisions by yourselves without the supervision of an advisor or broker. TC Global Commercial offers expert advice, consultation, representation, and more. Get in touch with industry experts and begin your investment journey toward successful wealth management.

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