Like the topic of infrastructure is to politicians, industrial real estate is the least sexy real estate asset class. Characterized by simple, cavernous, and minimally-designed buildings, this real estate is designed to maximize efficiency and prioritize function. These function-forward buildings are perfect for a variety of reasons—from manufacturing to storage and distribution.
Though decidedly not glamorous, industrial real estate is often a steady performer, making it a smart and strategic addition to your investment portfolio. Over the past 20 years, the average annual total return for the properties is 10.6%–just slightly ahead of the average return across all property types (10.2%).
Different Types of Industrial Real Estate
There are three primary categories within industrial real estate: manufacturing, warehouse, and flex/R&D. Manufacturing facilities are used to create products and goods, typically boasting around or just under 20% office space. Warehouse facilities are primarily used for storage and distribution and use less than 15% office space. Finally, the Flex/R&D facility is designed for maximum flexibility, offering occupants mixed-use spaces in office-industrial hybrids. These buildings can have between 30% to 100% office space.
If you are thinking about investing in industrial real estate, you should also consider a variety of factors—location, proximity to customers and workers, transportation, and potential financial incentives used to offset building costs. For example: the success of an industrial real estate property often relies on easy access to major highways and interstates. Similarly, working closely with a local city or state agency to negotiate incentives may result in large tax benefits. It is essential to purchase a strategically-located and debated property.
Industrial Real Estate Trends
As with most real estate, the industrial sector has evolved in recent decades. If you purchase an older facility, you may need to install a range of necessary safety protections. Additionally, older buildings may not suit the current need of industrial work. Increased warehouse efficiency has necessitated taller industrial buildings, though these were not built until the late 90s and early 2000s. If you plan to utilize the space as a 21st century warehouse, your property needs to suit the need.
When considering an industrial property, the above information can provide essential tools to determine the building’s use and function. Once you have examined these factors, you’ll be ready to make a more definitive decision.