7 Types of Industrial Buildings in Commercial Real Estate
It’s the nature of our job to answer a lot of questions about real estate. Often, we field general inquiries like “how is the industrial market?”. Fair question overall, but usually the asker has something more specific in mind, and whatever it is represents only a part of what industrial real estate encompasses.
Depending on who you ask or even how I’m feeling on a given day, you might hear there are three or five or eight different types of Industrial Real Estate. Each one serves a different purpose and has different characteristics. Ultimately, the answer to the question ‘How is the industrial market?’ is... it depends. First, we need to agree on what we’re talking about.
Industrial properties is a generic term that covers many different categories of commercial spaces. Each category can be generally defined by how those properties are used. The different use cases lead to very different building requirements, meaning an ideal property for one category can be utterly dysfunctional for the next. To help illustrate this, let’s take a closer look at the three main categories (and their seven subcategories) of industrial buildings in commercial real estate.
Category 1: Manufacturing Properties
Manufacturing properties are used for the manufacture or assembly of products. Because manufacturing tends to produce substantial noise and activity, there are special zoning requirements for these buildings (a topic for another day). Municipal Zoning districts will not match directly with building types below as code is more concerned with the use within (and outside) and not necessarily the type of building. An experienced broker is key for navigating these requirements and ensuring the building you buy, lease, or construct will work for your specific plans.
Of course, not all manufacturing operations have the same requirements. Printing yearbooks is very different from, say, assembling automobiles. Below, I’ll break things down into two high level sub-categories. However, it’s important to note that the category of manufacturing properties can, and often is, broken down even further by specialty.
1. Heavy Industrial Buildings
Heavy industrial properties house the operations for producing goods and materials. Many of these properties contain heavy-duty equipment, extensive machinery, heavy power and likely significant parking given the larger number of employees versus other industrial uses. They also routinely have substantial HVAC and related specialized improvements (air lines, heavy water usage/supply, floor drains, make-up air, etc.) Types of products produced can vary greatly.
Certain heavy industrial operations, due to noise, pollution or nuisance to neighbors may be even further removed from other uses or allowed only in certain zoning districts. For example, steel production and a packaging manufacturer may have a lot of similar needs, but one may more seamlessly blend into an industrial park.
2. Light Manufacturing/Assembly
Light manufacturing and assembly properties also deal in the manufacture or assembly of goods and materials but do not have the extent of specialized improvements that more heavy industrial users require.
Compared to heavy manufacturing properties, light manufacturing and assembly facilities tend to require less energy and less space - particularly vertically. They also tend to require less specialized improvements, which can make finding new tenants easier.
Category 2: Warehousing and Distribution Properties
Warehouse and distribution properties are used for the storage and distribution of both raw materials and finished products. These spaces will often commonly have some portion of their square footage dedicated to offices, usually less than 20%.
3. Distribution Centers
Distribution centers are built with high clear heights as these users typically look at efficiency through cubic volume of a space and a space’s ability to store goods vertically, rather than the square footage or footprint that may be of greater concern to a manufacturer laying out equipment.
Additionally, these facilities are built with lots of dock doors so they can accommodate the loading and unloading of semi-trucks. They’re used to store bulk quantities of products, making them an intermediate step between manufacturing and delivery. This is often the type of property people think of when they say industrial real estate.
4. Truck Terminals
Truck terminals are considered a kind of warehouse, despite the fact they’re not usually used for storage. Also known as ‘cross dock’ facilities, they’re used for quick unloading and loading of trucks. The products moving through them stay for very short periods of time, just long enough to be transferred between trucks as a key part of distribution networks.
The semi-trailer and box truck traffic that truck terminals generate makes traffic management design especially critical during their construction. If the projected traffic is determined to have a substantial impact on the public roadways, zoning exemptions and-or mitigation plans may be required.
5. Cold Storage
Cold storage properties are used to store temperature sensitive products such as foods or pharmaceuticals. These buildings need to be built with superior insulation and HVAC systems to maintain their cold temperatures. They also benefit from advanced humidity control and emergency backup systems, which help ensure uninterrupted optimal conditions even during unexpected events. These system requirements mean the energy demands for cold storage facilities tend to be markedly higher than other types of storage and distribution properties.
Category 3: Flex Properties
The term ‘flex’ is used in commercial real estate to describe an industrial-zoned property that’s used, in part or in whole, for purposes other than the two categories described above. It’s appropriate to consider it more of a catch-all term than a specific use-defined category of industrial buildings.
6. Flex Spaces
Industrial properties classified as flex are truly what the name implies - flexible. They usually contain a decent amount of office space in addition to some or all of the components of assembly, warehousing, distribution, tech, etc.
7. R&D
Research and Development (R&D) properties exist for every industry. In the Twin Cities, these properties typically serve Med-Tech uses. These buildings fall into the overarching flex category, but typically have additional specialized needs such as:
Clean rooms
High power requirements
Specific HVAC requirements
These types of industrial properties are among the most niche on the market, often being custom-built for a client or requiring extensive improvements.
Work with Experts in Industrial Real Estate
These buildings are listed out to be informative and help clear up confusion related to different industrial building types. One last interesting note, however, is that some businesses will have a need that fits into more than one of the above categories. Understanding their need deeply, the costs of each building type (lease or purchase), and the total cost to improve said property are crucial to navigating the Industrial market and finding the right property.
That’s where we can help. At Modern Commercial Real Estate, we have decades of experience helping industrial clients find, rent, buy, and build the optimal facilities for their business and growth. If you’re ready, we’re here to help. Get in touch with Modern CRE today.