The Ultimate Guide to Industrial Real Estate
Industrial real estate has skyrocketed in popularity among commercial real estate investors over the last decade as e-commerce has taken hold of our market.
This demand for larger industrial properties from businesses has prompted investors to buy and build industrial buildings as fast as they can, creating a solid investment opportunity for those new and seasoned in the industry.
Industrial real estate can be a wonderful passive investment, too, because of how the deals are structured. Here’s everything you need to know about industrial real estate.
The History Of Industrial Real Estate
In the late 18th century, a new wave of technological, socioeconomic, and cultural revolutions began to influence the rapid shift of economies once dominated by largely rural and agricultural production.
This period of time, now known as the “industrial revolution,” played a vital role in shaping the way our global economic system works today. Goods that had been previously crafted by hand started were being produced in some of the first factories with the aid of new machinery like the cotton gin.
The introduction of improved transportation methods like the railroads and steam powered vehicles, allowed producers to expand their consumer markets beyond their immediate base and efficiently ship their goods to different markets all around the globe.
These innovations shaped the way our businesses operate and the way our cities were designed as the need for a larger workforce for factories emerging drove the need for denser urban populations.
Buildings are built higher and more closely together in order to accompany the housing demand creating a synergistic growth between city expansion and industrial technology development.
Since the beginning of the industrial revolution, production of and transportation logistics for consumer goods have continued to evolve into the industrial complex that we know today. And, because this sector is so important to the framework of our society, industrial real estate is some of the most valuable property that you can own.
What is Industrial Real Estate?
When most people think of real estate, they naturally think about the places where they spend their time: their homes, their offices, their favorite retail store, or their favorite restaurant/bar, but when people hear “industrial real estate,” they might picture giant, brick chimneys pumping out foul-smelling smoke or an assembly line at a GM factory with computer automated machinery putting cars together.
This visual can apply to certain realms of industrial activity, but as a whole, industrial businesses extend far beyond this picture, working behind the scenes of all these high-traffic spaces and essentially providing the fuel for them to operate.
Toilet paper, food, clothing, and almost every item in your home, office, or favorite retail store was either produced or stored in an industrial building at some point, so it is easy to see the gravity of influence that industrial businesses have on our everyday lives.
Defining Industrial Real Estate
Industrial Real Estate can be broadly defined as all land and buildings which accommodate industrial activities including production, manufacturing, assembly, warehousing, research, storage, and distribution.
There are specific areas in each city designated to industrial properties shown on a zoning map, which describe where these spaces can be constructed and operate, so that the activity on these sites does not disrupt businesses or residencies that might have otherwise been adjacently placed.
These zoning ordinances get even more specific defining where certain industrial activities can and can’t take place. There are many different facets to the industrial sector, and because this definition covers a wide scope of properties, it is important to recognize the differences in each type of industrial property before determining which one to invest in, so that you fully understand the risks and rewards that each one carries.
Class types of Industrial
For any commercial building, there will be a class grade attached to it- Class A, Class B, Class C. It is important to consider which class will make the most sense for your investment as some of these assets are more likely to see capital appreciation whereas others will be better suited, rather, for capital preservation.
Of course, your return on investment will be influenced by a variety of factors associated with the property that you purchase, but identifying these differences in these classifications may help to narrow your focus as you move forward in the search process.
Class A Industrial
Class A buildings typically represent the newest and best-quality structures that exist in the market. The industrial assets built today are made of high-quality materials and feature amenities like tall ceilings and top of the line mechanical and utility systems.
Because these spaces are “The Cream of the Crop,” they usually have the high-income earning tenants with low vacancy rates. These top of the line industrial properties provide investors with the security that there are very few outstanding issues that will require them to invest further into their asset.
Class A assets usually are priced high with lower CAP rates associated with them, especially if they are fully leased, but these Class A assets carry far less risk to investors and can be a great option for someone to preserve capital or to passively invest in some cases.
Class B Industrial
Class B properties are usually older buildings, but can also be new buildings without all of the bells and whistles. Rental income is typically lower than rates that Class A owners will see, however Class B buildings are oftentimes well-maintained, so investors can view these assets as “value-add opportunities” as they can sometimes be converted in to A or B+ class buildings through renovations and improvements.
In this tier of Class B industrial properties, it is sometimes easier to find an attractive deal, because these assets are viewed as a higher risk to buyers due to potential vacancy issues.
Class B properties can be a great option for an investor who is looking to immediately cash flow and sit on their asset while the land appreciates, if the property is in a desirable location.
Some industrial real estate is now being rezoned into multifamily or mixed-use sites in order to increase city density, so an investor with knowledgeable foresight could make a good guess as to whether their industrial property investment may fall into this category.
Class C Industrial
Class C properties are buildings that are usually 20 or more years old, have multiple deferred maintenance issues, and are sometimes located in less-desirable areas.
Class C buildings typically bring in the lowest rental rates in the market, which makes passive investment opportunities less available.
For the investor that is willing to put time, money, and creativity in this type of property, Class C industrial properties can be converted into higher value assets with some significant renovations and updates, and create significant upside if executed correctly.
Class C properties can also be fantastic opportunities for an owner/user type of business because the improvements that you make not only help your business, but also add value to the property that you already own!
Industrial Location And Logistics
Industrial tends to desire sites that afford the greatest profitability at the lowest cost by ensuring that the costs of production, overhead, and distribution are at a minimum.
The well-known saying “Location, Location, Location” has always played a huge role in the efficiency of an industrial business’s operation.
As E-commerce continues to expand, a new phrase, “logistics, logistics, logistics,” is now the approach that many businesses are applying to their search for industrial real estate.
Distance and location are now being paired with travel time and traffic congestion analysis to determine how logistically efficient their sites are in terms of being able to receive goods from their suppliers and then ship them to their consumer base.
Types of Industrial Real Estate
There are many different types of users for industrial properties, and there are different types of structures associated with them, so it is important to familiarize yourself with each one to know what kind of tenants occupy each type of property.
Keep in mind that some of these properties can accommodate other industrial uses, so knowing the basics of each one should help in determining the types of tenant options you’ll have once you purchase an industrial property.
Industrial Land
Industrial land is fairly straight forward in it’s basic definition whereas it is land that is zoned industrially, but does not have any permanent structure on its premises.
A site like this doesn’t always have to have a building on its grounds in order for an industrial business to operate. The land may be used for purposes such as parking equipment, storing gravel or mulch, or any other surface operation.
Investing in industrial land also gives you the opportunity of building from the ground up. Vacancy rates in the Industrial sector of commercial real estate have been historically low, so building a structure on your industrial site carries a much lower risk of having long-term vacancies than that of other commercial real estate developments.
Owning a piece of industrial land also gives an investor the option of advertising a build to suit type opportunity where the landowner pays the upfront construction costs of a build that meets the tenant’s specific requirements, and then leases the space to the tenant upon the project’s completion.
If you own industrial land there are a couple of good routes you can take in order to gain the most from your development. When developing anything, it is always important to assess where your market’s local demand lies.
Industrial Build-To-Suit
You may have seen a sign on a piece of land before that says “build to suit.” A build to suit is an advertisement to businesses who may be looking for space for their company. In a build to suit, a landowner pays for the construction of a structure according to the tenant’s specifications and then leases that building to the tenant once the building is delivered.
Build to suit options can be great for industrial land owners because you don’t have to worry about vacancy rates since you already have a tenant in place. In other words, you are having someone pay you to add value to your building with less risk than building a speculative building.
Speculative buildings, however, can also a great way to add value to your land. Building a “spec building” means that you are essentially constructing a building for the purpose of putting it immediately on the market.
For example, if there is a low vacancy rate for general warehouse space in your area, it may be wise to go ahead and meet the demand by delivering a brand new warehouse to the market. Spec buildings can be highly risky, but also highly rewarding if you can fill a need that is lacking in your local market.
Bulk Warehouse
Bulk warehouse properties are the largest industrial product and are typically in the 50,000-1,000,000+ square foot range.These properties are usually regional distribution for various types of products and require strong accessibility for trucks entering and exiting the highway systems.
Most bulk warehouses are located outside of metro areas because most of these have incredibly large footprints, although some larger companies like Amazon are starting to construct multi-story industrial warehouses in order to use less acreage.
Tenants of bulk warehouses do sometimes ship good directly to consumers, but more often these warehouses are largely purposed for bulk goods to be stored and act as the main supply chain for a multitude of retailers and distributers.
Flex Warehouse
Flex Warehouse, as the name implies, is a flexible industrial product that may easily accommodate a wide range of uses. These warehouses usually have at least some portion of office space connected to the warehouse and can widely range in size to fit your small mom and pop plumber to regional granite distributors and more.
Flex warehouses exist in rural areas as well as densely populated urban areas. In urban areas, this type of industrial real estate is often referred to as “infill industrial.”
Infill industrial is a great avenue for CRE investors to get their feet wet in industrial real estate because these types of properties are so highly sought after by tenants and are able to accommodate a wide variety of users.
Heavy Manufacturing
Heavy manufacturing space is often isolated within the most intense industrialized areas of municipalities due to its use of heavy machinery, chemicals, and power necessities. Think of General Motors and DuPont as tenants for this type of industrial product.
These types of properties are most often owned by larger national companies or local owner users because heavy industrial properties are often very customized for the current user and their specific requirements.
Tenants tend to occupy these sites for very long terms (sometimes decades-long) because it is very inconvenient to relocate such a large operation, so if you find an opportunity to own a heavy manufacturing plant with a tenant already in place, it would definitely be an opportunity to investigate.
Light Assembly
Light assembly industrial has a fair amount of crossover with flex space, but unlike heavy manufacturing, light assembly space isn’t typically utilized to manufacture materials, simply to assemble them and ship them out to distribution centers.
Like flex space, light assembly can also be used for storage and office space (call centers, data centers).
Cold Storage
Cold storage and refrigeration warehousing is exactly what it sounds like: refrigerated warehousing intended to store perishable food and products.
They are often used as distribution centers for chain groceries and require HVAC systems and insulation setups that are able to support and maintain temperatures ranging between 34 degrees to -10 degrees.
With the rise in consumer demand for fresher food and grocery delivery, cold storage has increased significantly since 2000. As grocery delivery grows as widespread convenience, grocers are exploring how to become more efficient in their delivery services.
Same-day delivery service has been implemented in select cities and this trend is not going away anytime soon. Over the next several years, this level of timely service should continue to spread to other metropolitan areas.
Similar to heavy manufacturing sites, these spaces are build out intensive and tenant retention can be very high.
Data Centers
Data Centers are very complex properties usually in centralized locations that are typically equipped with computer systems and networking equipment that is concentrated for the purpose of storing, processing, distributing, or allowing access to large amounts of data.
Data centers provide important services such as data storage, backup and recovery, data management and networking. These centers do things like run Web sites, e-mail, and instant messaging (IM) services, provide cloud storage and applications, and enable e-commerce transaction among many other things that require computer processing.
In today’s technologically-centered world, almost every business in operation either needs its own data center or needs access to someone else’s.
Data centers need to be in close proximity to major communication trunk lines with access to extremely large and redundant power supply that is capable of powering these servers and telecom equipment.
They also require strong flooring to support the weight of computer and electrical systems, along with specialized HVAC systems, backup generators, and other specialized equipment.
Because of the large amount of high-tech, specialized equipment that these centers use, the electric and power systems that run these buildings are extremely complicated and expensive, which makes new construction of these sites very costly.
If developing one of these facilities, it is always a good idea to work with specialists who have expertise in this area.
Industrial Showroom
Industrial showrooms are a bit of a hybrid between retail and warehousing. This product allows manufacturers to showcase their goods in a more retail setting while having shipping and distribution, too.
Showrooms are often situated along interstates where they can achieve high visibility and easy access for consumers. Typically around 50% of a showrooms space is dedicated to sales.
These sites are attractive to small business manufacturers that make custom goods (such as a woodshop) because they are able to showcase their process to their customers and save on shipping and warehousing costs.
Research and Development
Research and Development sites like other categories of industrial real estate are able to accommodate a large variety of users. These sites may sometimes fall under the flex space category as they can be any hybrid combination of office, warehouse, and manufacturing space.
Typically users are in fields like electronics, biotechnology, chemicals, or drug development but can be utilized by anyone who is researching new products or sciences.
Some of these properties are highly specialized to fit the needs of specific users with custom plumbing, ventilation, and electrical layouts.
Oftentimes these types of buildings are located in industrial parks or on campuses that contain other similar operations.
Industrial outdoor Storage
Industrial outdoor storage refers to the practice of storing various materials, equipment, products, or goods in an outdoor environment within an industrial setting or facility.
This type of storage is commonly used by businesses and industries to house items that may not require climate-controlled indoor storage or are too large or bulky for indoor spaces. Industrial outdoor storage can take various forms and serve different purposes, including raw materials, finished products, heavy machinery, vehicles, bulk storage, and more.
Industrial outdoor storage areas are often designed and managed carefully to protect the stored items from adverse weather conditions, theft, and damage. These properties ensure the safety and integrity of the stored materials or equipment by using secure fencing, proper drainage systems, covers or canopies, and other security measures.
Foreign Investment in Industrial Real estate
Historically, foreign investment into the American commercial real estate markets have been largely geared towards multifamily, office, retail and hotel properties, but as of recent there has been an incredible increase in the industrial real estate sector of foreign investment.
Overseas investors from Canada, China, Germany, and others are seeing higher yields on their returns from investing in US industrial real estate. According to a study done by CBRE, $14.4 Billion dollars of industrial real estate was purchased from overseas investors, which accounts for a 152% increase from the previous year.
The top three markets they are investing in are in Los Angeles, Dallas/Ft.Worth, and Chicago, but other markets such as those in Atlanta and New York are also seeing cross-border investment.
There are a variety of factors that make foreign investment attractive to those overseas. Although it is not completely perfect, our legal system is one of the most stable systems in the world. The checks and balances system in place provides foreigners with a notion that less corruption exists and that there is more fairness in litigating business dealings.
In some other parts of the world, laws can change at the flip of a coin, which could be potentially very disastrous to an investor.
Our liquidity and size of our economy also play a role in the allure of US property to overseas investors.
When ready to liquidate a piece of property, investors are able to sell their assets in a matter of months, thanks to the size of our economy, and the number of specialized, connected brokers in our system.
As the industrial sector continues to expand in America, we will likely continue to see foreign investment play a large role in the acquisition and development of industrial real estate in the United States.
What is driving the demand for Industrial Real Estate?
The demand for industrial real estate has been on the rise, driven by several key factors that reflect the changing landscape of business and consumer behavior. Here are the primary drivers of demand for industrial real estate:
E-commerce Boom: The explosive growth of e-commerce is perhaps the most significant driver of demand for industrial real estate. Online retailers require extensive warehousing and distribution facilities to meet consumer demand for quick and efficient delivery. As a result, e-commerce giants and smaller online businesses are leasing or building large-scale distribution centers and fulfillment centers.
Last-Mile Delivery: With consumers expecting faster delivery times, companies are seeking warehouse spaces closer to urban areas to facilitate last-mile delivery. This trend is fueling the need for strategically located industrial properties near major population centers.
Supply Chain Resilience: The disruptions caused by the COVID-19 pandemic highlighted the vulnerability of global supply chains. Businesses are now looking to enhance their supply chain resilience by securing additional inventory storage and diversifying their distribution networks. This has led to increased demand for industrial spaces, both for storage and distribution purposes.
Cold Storage Facilities: The growth of online grocery shopping and food delivery services has driven up the demand for cold storage facilities. Temperature-controlled warehouses are essential for storing perishable goods, and this niche market within industrial real estate is experiencing significant growth.
Urbanization and Population Growth: As populations continue to grow and urbanize, the need for goods and services in urban areas has increased. This has prompted businesses to establish distribution centers and logistics hubs closer to their target markets, driving the demand for industrial space in urban and suburban locations.
Manufacturing and Light Industry: While manufacturing has evolved with increased automation and technology integration, it still requires industrial spaces. Manufacturing companies are seeking modern, efficient facilities to produce goods, contributing to the demand for industrial real estate.
Technology Integration: The integration of technology, including automation, artificial intelligence, and the Internet of Things (IoT), has increased the efficiency of warehouse and distribution operations. Businesses are investing in technologically advanced facilities, which often require larger, purpose-built industrial spaces.
Foreign Investment: Industrial real estate in key logistics and distribution hubs has attracted significant foreign investment. Global supply chain considerations and the stability of industrial property investments have made them attractive to international investors.
Sustainability Initiatives: Sustainability is a growing concern for businesses. Green initiatives, including energy-efficient lighting, solar panels, and eco-friendly building materials, are becoming more prevalent in industrial properties, attracting environmentally conscious tenants and investors.
Adaptive Reuse: As traditional retail spaces face challenges, vacant malls and retail centers are being repurposed into industrial facilities, demonstrating the adaptability and versatility of industrial real estate.
Are Industrial Properties a Good Investment?
As compared to the over-concentrated residential market, not only are industrial properties easier to find, but they are much less of a hassle to deal with as an owner and can make for a great investment. Here's why:
Industrial properties require much less maintenance than other types of real estate. Industrial businesses also tend to sign long-term leases in order to keep their businesses running smoothly, which results in steady, long-term income to help pay off a mortgage on the building and keep your cash flow consistent.
Vacancy rates are often the lowest of all types of real estate, meaning that if you have a tenant leave your property, it shouldn’t take long to find a new occupant. That also means that it will be easier to liquidate your asset should you ever want to sell it.
There is almost always a business or investor looking to purchase industrial buildings, and unlike residential property, it is not necessary to make repairs or improvements to your building in order to sell it because the real estate market is not saturated with other similar properties.
10 Reasons to Invest in Industrial Properties
Steady Income Streams: Industrial properties typically provide stable and predictable rental income. Long-term leases with tenants, such as e-commerce companies, logistics providers, and manufacturers, often result in consistent cash flow for investors.
Diversification: Adding industrial real estate to an investment portfolio can provide diversification benefits. It is a different asset class compared to residential or commercial properties, and its performance may not always align with other sectors, reducing overall investment risk.
Strong Demand: The increasing demand for industrial real estate, driven by e-commerce, last-mile delivery, and supply chain resilience, suggests a positive outlook for this sector. Growing demand can lead to higher occupancy rates and potentially increasing rental rates.
Resilience in Economic Downturns: Industrial real estate has demonstrated resilience during multiple economic downturns. The essential nature of warehouses and distribution centers, which support the movement of goods, often results in a continued need for industrial space even when other sectors may suffer.
Long-Term Appreciation: Over time, industrial properties can appreciate in value, providing potential capital appreciation along with rental income. This can lead to a solid return on investment (ROI) over the years.
Low Tenant Turnover: Industrial tenants, especially larger logistics and manufacturing companies, tend to have lower turnover rates compared to residential properties because of the complexity involved in relocating their operations. This reduces the hassle and costs associated with finding new tenants frequently.
Tax Advantages: Like other real estate investments, industrial properties offer various tax advantages, including depreciation deductions, potential capital gains tax benefits, and the opportunity to use 1031 exchanges for tax deferral when selling and reinvesting in similar properties.
Inflation Hedge: Real assets, including industrial real estate, can serve as a hedge against inflation. Rental income and property values often increase in line with or ahead of inflation rates.
Portfolio Stability: Industrial real estate can provide portfolio stability due to its resistance to market volatility. During times of economic uncertainty, investors often seek safe havens in real assets like industrial properties.
E-commerce Growth: The continued growth of e-commerce and the need for efficient warehousing and distribution centers suggest that demand for industrial properties will remain strong in the foreseeable future.
Industrial real estate has proven to be one of the most attractive assets in commercial real estate for both beginner and seasoned investors, alike.
How to Invest in Industrial Real Estate
Investing in industrial real estate can be a rewarding venture, offering the potential for stable income and long-term growth. However, like any real estate investment, it requires careful planning, research, and risk management. Here’s how to get started investing in industrial real estate:
Understand the Industrial Real Estate Market: Begin your journey by understanding the industrial real estate market. Research current trends, vacancy rates, rental prices, and demand in different locations. Identify regions or cities with strong economic growth, robust transportation infrastructure, and proximity to major distribution hubs.
Create a Detailed Investment Plan: Develop a clear investment plan that aligns with your financial goals and risk tolerance. Define your budget, investment strategy (e.g., buy and hold, value-add, or development), and timeline for achieving your objectives. Having a well-defined plan will help you stay focused and make informed decisions.
Secure Financing and Establish Budget: Determine how much capital you can invest and explore financing options like bank loans, private lenders, or partnerships. Calculate your total budget, including acquisition costs, due diligence expenses, potential renovations, and ongoing operational costs.
Conduct Thorough Due Diligence: Perform comprehensive due diligence before making any purchase. This involves assessing the property's physical condition, environmental concerns, zoning regulations, and potential liabilities. Engage qualified inspectors, environmental consultants, and legal advisors to ensure a meticulous evaluation.
Identify Suitable Industrial Properties: Search for industrial properties that align with your investment criteria and fit your budget. Focus on factors such as size, location, access to transportation, utility infrastructure, and potential for future appreciation. Consider working with experienced real estate agents or brokers to access off-market opportunities.
Evaluate Potential Tenants: For income-generating properties, evaluate potential tenants thoroughly. Look for established businesses with strong financials and long-term lease commitments. Reliable tenants will ensure a steady stream of rental income and reduce the risk of vacancy.
Mitigate Risks and Consider Insurance: Assess potential risks associated with industrial real estate investing, such as economic downturns, changes in demand, or supply chain disruptions. Consider purchasing appropriate insurance coverage to safeguard your investment against unforeseen events.
Build a Reliable Support Team: Surround yourself with a reliable team of professionals, including attorneys, accountants, property managers, and contractors. Their expertise will prove invaluable throughout the investment process, from due diligence to property management.
Negotiate the Purchase: When you find a promising industrial property, negotiate the purchase price and terms diligently. Work with your real estate agent or attorney to secure a favorable deal that aligns with your investment goals.
Investing in industrial real estate can be a lucrative endeavor when approached with careful planning and a systematic approach. Remember to do your research, build a strong support team, and remain patient for the right opportunities.
Our team here at The Cauble Group represents industrial investors across the country. Reach out to us to get your investment process started today.
How to Find Industrial Real Estate Investments
Leverage Online Commercial Real Estate Platforms:
Explore online commercial real estate platforms that specialize in industrial properties. Websites like LoopNet, CoStar, and CREXi provide comprehensive listings, allowing you to search for industrial properties based on your specified criteria. These platforms often include detailed property information, photos, and contact details for the listing agents.
Work with Local Real Estate Brokers:
Collaborating with experienced local real estate brokers can be advantageous in your search for industrial real estate. Brokers have extensive knowledge of the local market and can provide valuable insights on available properties that may not be listed publicly. They can also assist with negotiation and guide you through the entire purchasing process.
Networking and Industry Connections:
Tap into your professional network and industry connections to gather information about potential industrial properties. Attend industry events, seminars, and networking functions to meet commercial real estate professionals who might have suitable properties for sale or lease.
Drive and Observe:
Take a proactive approach by driving around industrial areas that interest you. Pay attention to "For Sale" or "For Lease" signs and note down contact information. This hands-on method can lead to discovering off-market opportunities that may not be advertised online.
Consult Local Economic Development Agencies:
Local economic development agencies often have valuable information on industrial properties available for sale or lease within their jurisdiction. Reach out to these agencies to inquire about industrial zones and upcoming developments that might align with your needs.
Consider Auctions and Real Estate Auction Websites:
Keep an eye on industrial real estate auctions and auction websites. Properties sold through auctions can offer unique investment opportunities and competitive prices. However, ensure you conduct thorough due diligence before participating in an auction.
Engage in Direct Outreach:
If you have specific properties or locations in mind, consider reaching out directly to property owners or landlords. Express your interest in their property and inquire about potential opportunities for sale or lease.
How Much Does Industrial real Estate Cost to Build?
The short answer? You’re likely going to be in the $85 per sq. ft. to $125 per sq. ft. range to build industrial warehouses. BUT there are quite a few factors that cause your project to cost less or more.
So…
If you're considering investing in or developing industrial real estate, one of the first questions that likely comes to mind is, "How much will it cost to build?"
The cost of constructing industrial properties can vary significantly depending on a variety of factors, including location, size, complexity, and market conditions.
Keep in mind that true construction costs can vary substantially from one project to another, so it's essential to conduct a thorough feasibility study and engage with local professionals for precise estimates.
Factors Influencing Industrial Real Estate Construction Costs
Location: The geographic location of your industrial property plays a critical role in determining construction costs. Construction costs can differ significantly between urban, suburban, and rural areas. Additionally, local labor and material costs, as well as building code requirements, can vary widely.
Size and Type of Building: The size and type of industrial building you intend to construct will have a substantial impact on costs. Warehouses, distribution centers, manufacturing facilities, and flex space have different construction requirements and associated expenses.
Site Conditions: The condition of the land where you plan to build is another crucial factor. If the site requires extensive preparation, such as clearing, grading, or environmental remediation, these costs can add up quickly.
Design and Complexity: The complexity of the design and the architectural features you want in your industrial property will affect costs. High ceilings, specialized machinery, office space, and loading docks can all contribute to increased construction expenses.
Construction Materials: The choice of construction materials and finishes will influence the overall cost. High-quality materials, such as steel framing or energy-efficient systems, often come with a higher price tag.
Labor Costs: Labor costs can vary widely depending on the local labor market and the skills required for your project. Skilled tradespeople and specialized contractors may demand higher wages.
Regulatory and Permitting Costs: Obtaining the necessary permits and complying with local regulations can add to the cost and timeline of your construction project. This includes fees for zoning permits, environmental assessments, and inspections.
Market Conditions: The state of the local real estate market can significantly impact construction costs. In high-demand areas with limited availability of contractors and resources, prices can rise.
Economic Factors: Economic conditions, such as inflation and interest rates, can influence construction costs over time. Fluctuations in material prices and supply chain disruptions can also impact expenses.
Project Timeline: The duration of your construction project can affect costs. Delays, weather-related setbacks, or labor shortages can lead to increased expenses.
The easiest way to find out how much your project is going to cost is to reach out to general contractors that are building similar projects in the area you’re looking to build in. Chances are good that they have these prices broken out on a per square foot basis and will be able to give you a high-level idea of pricing for your initial underwriting.
Industrial Real Estate Trends
In the ever-evolving landscape of real estate, the industrial sector continues to be a dynamic and resilient player. Industrial real estate has seen substantial growth and transformation over the past few years, driven by various factors that are shaping its present and future.
E-commerce and Last-Mile Delivery
The surge in e-commerce activity, accelerated by the COVID-19 pandemic, has had a profound impact on industrial real estate. With consumers expecting faster delivery times, companies are seeking warehouse and distribution center spaces in close proximity to urban areas. This trend has given rise to the concept of "last-mile delivery," resulting in increased demand for strategically located industrial properties.
Multistory Warehouses
In densely populated urban areas where land is scarce, multistory warehouses are becoming increasingly popular. These vertical warehouses allow businesses to maximize space utilization and serve urban consumers efficiently. Expect to see more of these innovative structures in major metropolitan areas.
Cold Storage Facilities
The growing demand for online grocery shopping and food delivery services has boosted the need for cold storage facilities. Temperature-controlled warehouses are now a hot commodity in the industrial real estate market, offering opportunities for investors looking to capitalize on the food supply chain.
Sustainability and Green Initiatives
Sustainability is not just a buzzword in the industrial sector; it's a driving force. Investors and tenants are increasingly prioritizing eco-friendly features such as energy-efficient lighting, solar panels, and environmentally friendly building materials. Green initiatives not only reduce operational costs but also align with corporate social responsibility goals.
Adaptive Reuse
As traditional retail spaces face challenges, vacant malls and retail centers are being repurposed into industrial facilities. Adaptive reuse projects offer cost-effective solutions for repurposing existing structures and can provide unique opportunities for industrial real estate investors.
Technology Integration
The integration of technology, particularly automation and artificial intelligence, is transforming the way industrial properties operate. Robotics and automation are streamlining warehouse operations, increasing efficiency, and reducing labor costs. Additionally, smart buildings equipped with IoT sensors are improving maintenance and energy management.
Foreign Investment and Global Supply Chains
Foreign investment in industrial real estate continues to grow as investors seek stable returns. Global supply chain disruptions have highlighted the importance of resilient and diversified logistics networks, making industrial properties in key distribution hubs increasingly attractive.
Industrial Flex Spaces
Flexibility is key in today's rapidly changing business landscape. Industrial flex spaces that can adapt to various uses, such as storage, light manufacturing, and office space, are gaining popularity among tenants seeking versatile solutions. They’re in incredibly high demand now due to the lack of development in recent years and the demolition of many of these buildings since they often sit on land with a higher and better use.
Post-Pandemic Resilience
The COVID-19 pandemic underscored the importance of resilience in supply chains. Businesses are now looking to secure their supply chains against future disruptions, which means increasing their stock of inventory and seeking additional warehouse space, leading to sustained demand for industrial properties.
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