Everything You Need to Know About Industrial Real Estate

Avoid any reluctance to participate in conversations and negotiations pertaining to industrial real estate. Understanding industrial real estate will help you better transact business, communicate manufacturing, supply chain, storage, and negotiations.

The below information defines what industrial real estate is, how it differs from commercial and residential properties, how zoning laws affect it, and how e-commerce has dramatically influenced the way industrial properties are viewed.

What Is Industrial Real Estate?

Industrial Real Estate can be defined as the land and structures that accommodate industrial activities like production, manufacturing, assembly, warehousing, research, storage, and distribution. Some examples of industrial property include:

• Industrial land

• Factory-office multi-use property

• Factory-warehouse multi-use property (Flex-Warehouse)

• Bulk warehouse property

• Refrigerated warehousing (Cold storage)

• Heavy manufacturing buildings

• Industrial parks

• Power plants

• Light manufacturing/assembly buildings

• Data centers

• Research and development parks

The principal difference between commercial and industrial properties is that commercial properties are zoned, built, bought, and sold with the intent to gain profit. Both industrial and commercial properties require maintenance and ongoing improvements. Commercial property managers and owners must know how to care for your investment so get familiar with the maintenance tips, and create a plan.

Industrial Zoning Explained

Industrial zoning defines or regulates how much noise the occupant can produce, environmental or ecological concerns for the surrounding area, and how much land the buildings and operations will occupy. Zoning issues can quickly turn a relatively simple real estate transaction into a complicated municipal or regional issue. Consider the following:

Noise - This is one of the many reasons industrial zoning restrictions are so stringent and extensive. Manufacturing, assembly, fabricating, and repair, among other industrial businesses, can be inconveniently loud. This noise can disturb citizens and cause businesses to lose revenue.

Environment - Industrial zoning restrictions also address environmental concerns and the effects that industrial business may have on the local or surrounding environment. Depending on the state, much of the environmental influence is regulated by industrial zoning. Pollution, erosion, and effects on the water table are all closely monitored. Commercial zoning also has environmental restrictions, but none of them are as stringent and far-reaching as industrial zoning laws.

Property Size - These restrictions for industrial zoning, along with the type of business being conducted typically determine industrial property size. Zoning laws directly address the amount of land it will take for production for most industrial tenants. Not enough land restricts a company's future expansion needs, while too much land risks damaging or polluting the environment and potentially creating an unpleasant experience for nearby or adjacent residents and consumers.

Property Setback - A "setback" is the distance mandated between the property line and the area where building can occur. These setbacks are established to ensure there is maneuverable space between buildings and from the roads to accommodate ventilation, sun exposure, and features like utilities and drainage. In contrast, these setbacks are often significantly reduced for commercial buildings. Industrial zoning establishes greater setbacks to account for the environmental and noise restrictions.

Note: Industrial zones are designed to provide areas suitable for the operation and protection of larger-scale commercial and industrial businesses and their processes. These zones are also designed to minimize the impacts and noise disturbance on adjacent residential neighborhoods.

Industrial Building Class Types

For any commercial or industrial building, there will be a class assigned to it - Class A, Class B, or Class C. Carefully consider which class makes the most sense for your investment - some of these assets can see capital appreciation while others are better suited for capital preservation.

Your return on investment (ROI) will be influenced by a number of factors, but identifying these classifications can help narrow your focus as you search for the most suitable industrial property.

Class A - These buildings typically represent the newest and most modern structures on the market. Nowadays industrial assets are constructed with high-quality materials and feature highly sought-after amenities like efficient mechanical and utility systems. 

Class B - These are typically older buildings but may be newer buildings without updated features and technologies. Investors can view these assets as "value-adds" as they can often be converted to Class A buildings through renovations and upgrades.

Class C - Class C properties have buildings that are typically aging (20 years old or more), have deferred maintenance problems, and may be located in less-desirable areas.

E-Commerce and Industrial Real Estate

E-commerce has experienced an explosion in popularity in recent years as brick-and-mortar retail is experiencing significant declines in sales. Consumers are rapidly adjusting their shopping preferences to online stores. Companies like Amazon, Walmart, The Home Depot, and countless others can ship their product directly to consumers in some areas within hours of the transaction.

Major retailers will typically have an online presence, and as technology develops, more of these large companies are reducing or eliminating retail space while handling their operations from the inside of the organization. This, in turn, is creating a greater demand for even larger industrial real estate.

Industrial Real Estate

In this article, you discovered how industrial real estate is defined, its differences from commercial and residential real estate, how it is heavily regulated by zoning laws, and how this type of property has been transformed by technology.

Knowing how industrial real estate is used will help you better understand and communicate your business's production, storage, and distribution logistics. 

Remaining oblivious to the purpose and value of today's industrial real estate will leave you clueless in your business negotiations and lacking operational control.