Industrial real estate has been the best-performing major commercial asset class of the last decade. E-commerce, supply-chain re-shoring, and the death of obsolete retail have made warehouses, flex space, and outdoor storage some of the most consistently rented and most consistently appreciating properties in commercial real estate. After underwriting hundreds of industrial deals across Tennessee and the Southeast, here's the working broker's guide for investors actually deploying capital into this sector.
- What is industrial real estate?
- Why industrial has been THE asset class to own
- The 9 types of industrial property
- Class A, B, and C industrial (with cap rates)
- The 5 industrial metrics that matter
- Industrial yield calculator
- Financing industrial deals
- Where to find industrial deals
- Industrial-specific due diligence
- 5 industrial investing mistakes I see
- How much does industrial cost to build?
- Go deeper: related Cauble Group guides
- Worked example: a 30,000 SF flex deal
What is industrial real estate?
Industrial real estate is land and buildings used for production, warehousing, distribution, assembly, research, or storage. Unlike retail and office, where the building is built for human occupancy, industrial is built for moving and storing stuff. That single difference drives almost every other characteristic of the asset class: lower operating expenses, longer leases, larger tenants, lower tenant-turnover risk, and substantially better cash flow stability than other commercial sectors.
It's also the asset class that most directly tracks the modern economy. Everything you buy online, every grocery you have delivered, every component in your car, every bottle of medicine — sat in industrial space at some point before reaching you. That structural demand is what's driven industrial to outperform virtually every other commercial sector since 2015.
Why industrial has been THE asset class to own
Three forces created a multi-decade tailwind for industrial:
- E-commerce. Every dollar of online sales requires roughly three times more warehouse space than a dollar of brick-and-mortar retail. As e-commerce share of total retail has climbed from 7% in 2015 to 16%+ today, industrial demand has compounded.
- Last-mile logistics. Same-day and next-day delivery demand drove a build-out of urban-edge distribution facilities, "infill" industrial near population centers, and a premium on properties with truck access and tall ceilings.
- Supply chain resilience. Post-pandemic, businesses started carrying more inventory and dual-sourcing. That meant more warehouse space, more cold storage, and more outdoor storage for equipment and containers.
The honest part: cap rates compressed hard from 2018-2022. Some markets are now seeing modest cap rate expansion as interest rates stabilize at higher levels. The sector is no longer the "easy" trade it was 5 years ago. But the underlying demand drivers (e-commerce share continuing to grow, onshoring, supply-chain inventory build) are still pointing the right direction. Industrial isn't broken — it's normalizing.
The 9 types of industrial property
Industrial is not a monolith. Each subtype has different tenant profiles, different leases, different lender appetite, and different return profiles. The most common types you'll encounter:
Class A, B, and C industrial (and what they earn)
Every commercial building gets graded A, B, or C based on age, condition, finishes, and location. For industrial, the grading is mostly about functional obsolescence: clear height, dock-door ratio, parking, truck court depth, and sprinkler system. Here's how cap rates and rents typically break out by class:
Ranges shift by market. Sun Belt industrial trades 50-150 bps lower than Midwest and Rust Belt for the same class. Coastal port-adjacent industrial trades lowest of all (cap rates in the 4-5% range for Class A near LA, Long Beach, NY/NJ ports).
The 5 industrial metrics that matter
If you've underwritten retail or office, three of these will be familiar. Two are industrial-specific:
1. Cap rate and NOI
Same formula as any commercial property: NOI ÷ purchase price. The difference is industrial NOI tends to be more predictable — fewer tenants, longer leases, and operating expenses that are usually passed through to tenants on NNN. For a deeper primer, see my full cap rate guide.
2. Rent per square foot
Industrial rent runs much lower than retail or office on a per-SF basis ($3-14/SF/year is typical) because industrial has much lower operating expenses and the buildings are vastly cheaper per SF to construct. Don't compare industrial PSF to retail PSF — different units, different math.
3. Clear height
The distance from the floor to the lowest overhead obstruction. This is industrial-specific and it matters more than almost any other physical attribute. Modern bulk distribution wants 32'+ clear. 28-32' is competitive. Below 24' restricts the tenant pool to lighter users and older operations. Below 18' is essentially obsolete for any modern logistics use. A building with 22' clear in a market where new construction is 32' will trade at a steep discount.
4. Dock doors per 10,000 SF
Modern distribution wants 1 dock door per 5,000-10,000 SF. Older buildings with fewer doors (and especially with no grade-level doors) limit tenant operations. Underdocked buildings re-tenant slower and trade at discount.
5. DSCR
Same lender threshold as other commercial (1.20-1.25 minimum). Industrial's edge: predictable long-term leases make hitting DSCR easier than retail or office. A 10-year lease with a credit tenant essentially guarantees DSCR for the lender's hold period.
Industrial yield calculator
Run any industrial deal you're considering through this calculator. Inputs are industrial-specific (rent per SF instead of total rent, occupancy assumption, expense ratio). Outputs include cap rate against the typical band for your selected subtype.
Run an industrial deal
Punch in the numbers from a listing or LOI. Get cap rate, yield, DSCR, and a subtype-aware health check.
What this calculator does and doesn't do: The math is exact for the inputs you provide. The subtype cap-rate benchmark bands and the health-check labels are heuristics from typical Sun Belt industrial markets. Cap rates vary widely by market (coastal port-adjacent vs. interior Midwest), tenant credit, lease term remaining, and building class. Use this as a 60-second filter, then run the full underwriting in the Deal Analyzer.
Financing industrial deals
Industrial enjoys some of the deepest, most competitive financing in commercial real estate. The same three lender categories from any CRE deal apply, with a few industrial-specific twists:
- Local and regional banks. Best fit for deals under $5M, especially owner-occupied or small multi-tenant flex. 25-30% down, 6.5-8% rates, 5-10 year balloon, 20-25 year amortization, recourse.
- SBA 504 (owner-occupied only). If you operate a business that needs industrial space, SBA 504 lets you in for 10-15% down at very competitive long-term rates. The fastest path to industrial ownership for contractors, manufacturers, and distributors who currently pay rent.
- Life insurance companies and CMBS. $3-5M+ deals, especially stabilized assets with credit tenants on long leases. Often non-recourse, longer term, lower rates than bank financing.
- Agency lenders (Fannie / Freddie). Not available for industrial — only multifamily. Worth knowing to set financing expectations.
Where to find industrial deals
Four sources in roughly increasing order of difficulty and quality:
- Public listing platforms. Crexi, LoopNet, CommercialSearch. Marketed deals, lots of competition, listings priced at peak.
- Local industrial brokers. Most industrial deals trade through specialist brokers who have personal relationships with both owners and active buyers. Build relationships with the 3-5 best industrial brokers in your target market.
- Owner-occupied user reach-outs. Many industrial buildings are owned by the business that occupies them. Direct outreach to owners approaching retirement or business sale can surface off-market deals well below replacement cost.
- Off-market through industrial networks. Trade groups, industrial associations, supply-chain conferences. The serious operators trade information off the public market.
For a deeper breakdown of deal sourcing, see how to find industrial real estate and how to find the best industrial deals.
Industrial-specific due diligence
Most CRE due diligence applies (title, survey, leases, T-12, zoning). Industrial has four checks that are higher-stakes than other commercial sectors:
- Phase I Environmental — always. Industrial sites are far more likely than retail or office to have historical contamination (former dry cleaners, fuel storage, chemical use, manufacturing residue). A Phase I that triggers a Phase II can blow up a deal. Order it early.
- Functional inspection. Have a contractor walk the building specifically for clear height, dock-door condition and count, sprinkler system (ESFR vs. wet vs. dry, gallons per minute capacity), column spacing, truck court depth, and parking ratio. These directly affect tenant pool and re-leasing risk.
- Floor load capacity. For users with heavy equipment, racking, or machinery. A floor rated at 100 PSF is fine for general warehousing. Cold storage and heavy industrial need 200+ PSF.
- Power and utilities. Manufacturing and data centers have massive power requirements. Confirm available amperage, three-phase service, and any upgrade costs the utility might charge.
5 industrial investing mistakes I see
- Underestimating obsolescence risk. Buying a 20' clear building because it cap-rates well today. Five years from now, modern tenants want 28-32' and your building can't compete. Underwrite to where the market is going, not where it is.
- Buying single-tenant industrial as a "passive" play. If your tenant is the building (heavy manufacturing, custom build-out, single user takes 100% of the space), you don't own industrial real estate — you own a credit instrument backed by that tenant. Underwrite their financials like a bond.
- Ignoring environmental. Cheap industrial buildings in old industrial corridors often come with contamination. Phase I early; if it triggers a Phase II, the deal economics fundamentally change.
- Underwriting on pro forma rent. Industrial rents have moved up sharply in many markets. Brokers will quote "market rent" as the new high. Actual in-place rent often lags 12-24 months. Underwrite in-place first.
- Skipping the industrial broker. Generalist commercial brokers often don't know which dock-door configurations, sprinkler specs, or truck-court depths matter to industrial tenants. Hire an industrial specialist.
How much does industrial cost to build?
For a basic distribution-style warehouse, expect $85-$125 per SF as a starting range. Variables that push you up or down:
- Office build-out percentage. Pure warehouse with no office is at the low end. 10-20% office finish-out pushes you up $15-30/SF.
- Clear height. 32'+ clear costs more than 24' clear (taller walls, taller columns, more sprinkler GPM).
- Sprinkler type. ESFR (early suppression, fast response) sprinklers are required for high-pile storage and add $2-5/SF.
- Power and HVAC. Cold storage and data center build-outs run $200-500+/SF because of MEP intensity.
- Site costs. Site grading, utilities, and stormwater detention can add $10-30/SF, especially on difficult sites.
- Market. Sun Belt and South are 15-30% cheaper than Northeast and Pacific markets.
For real numbers, get pricing from 2-3 industrial general contractors building similar product in your market. They'll give you per-SF estimates broken out by office percentage and clear height.
Go deeper: related Cauble Group guides
Worked example: a 30,000 SF flex deal
A first-time industrial investor is looking at a 30,000 SF flex warehouse in suburban Nashville. Purchase price $2,400,000 ($80/SF), 24' clear, six dock doors and two grade-level doors, four tenants on staggered 3-5 year leases. Market rent is $8.50/SF NNN with 95% stabilized occupancy assumption. OpEx reserve (capex, vacancy) of $0.50/SF/year.
In-place NOI: 30,000 SF × $8.50 × 95% - 30,000 × $0.50 = $227,250. Cap rate: 9.47%. That's above the 6.5-8% flex warehouse band, which means either (a) market rents are below where the calculator assumes, (b) there's a vacant suite needing lease-up, or (c) the broker is using pro forma rents. The investor's diligence work: pull in-place leases, compare actual rent against the $8.50 assumption, and confirm what's vacant. If actual in-place is closer to $7/SF and one suite is vacant, the "real" cap rate is closer to 6.5% and the deal is priced at market.
Financing: 30% down ($720,000), 7% rate, 25-year amortization. Annual debt service ≈ $142,500. DSCR: 1.59. CoC: ~11.8% on the in-place numbers. If the investor can roll the leases to market rent over 2-3 years, the property re-cap rates at 7%+ on the original purchase price — a clean value-add play.
Key takeaways
- Industrial has been the best-performing CRE sector for a decade. Cap rates have normalized but the underlying demand drivers (e-commerce, supply chain, onshoring) are still pointing right.
- The subtype matters more than the asset class. Flex warehouse, bulk distribution, cold storage, and IOS are different businesses with different returns and different lender appetite.
- Clear height and dock doors drive functional value. A 22' clear building with insufficient docks will trade at a steep discount no matter how good the rent roll looks.
- Always order Phase I early. Industrial environmental risk is the single most likely deal-killer.
- Underwrite in-place first, then pro forma. Brokers will quote market rent; verify what's actually in the leases.
- SBA 504 is the secret weapon for small business owners buying industrial for their own operation. 10-15% down at very competitive long-term rates.
Underwriting an industrial deal right now?
Use the calculator above for a quick read. Run the full work-up in the free Deal Analyzer. If you want the entire industrial investing system from sourcing to closing, join the CRE Accelerator.
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