Why Industrial Space for Rent Is the Hottest CRE Sector in 2022
An Overview: What Is Industrial Space for Rent?
While not the most scenic part of any city, industrial space for rent powers the corporate infrastructure of America.
Before 1760, most Americans made their living farming and lived in widespread rural communities. The onset of the industrial revolution fundamentally changed the way that ordinary people interacted within society. With the emergence of factories, production efficiency, and mass manufacturing, industrial space for rent became the backbone that supports today’s modern cities. The great strides in production and manufacturing fostered our economic infrastructure, a system that provides more products with greater efficiency at lower prices.
Real estate often falls into two categories: residential and commercial. Industrial real estate and industrial space for lease is a subcategory of commercial real estate. Any property that has to do with production, manufacturing, assembly, warehousing, research, storage, and distribution is considered industrial real estate. Industrial space for rent produces, stores, and distributes the goods critical to our economy. America’s intricate network of corporate capitalism is upheld by industrial real estate.
The Many Flavors of Industrial Space for Lease
Industrial real estate comes in various forms. Examples of industrial activities include:
- Production, manufacturing, and assembly: Industrial spaces that create goods for consumers and businesses. Retail products, food manufacturing, and pharmaceutical healthcare are all examples of different types of production facilities.
- Heavy manufacturing: Industrial space that requires heavy chemicals, machinery, and power generators. Heavy manufacturing is often highly regulated for factories that assemble vehicles or refine oil or gas.
- Bulk warehousing: Warehouse rental space that stores goods in large quantities, most commonly as middleman storage between retailers and distributors. These spaces have large footprints and can span anywhere from 50,000 to 1,000,000+ square feet.
- Fulfillment, distribution, and storage: Industrial spaces that support the operations of e-commerce or brick-and-mortar businesses. These buildings are a critical center for managing the distribution and logistical flow of products. Amazon is the iconic frontrunner when it comes to the future of modern distribution and smart warehouses.
- Research: Also coined in the industry as “flex,” flex space is utilized for research and development to design new products. They include showrooms, laboratories, and office space. Startups and new ventures often use flex industrial space for rent.
- Build-to-suit: These most commonly start as vacant pieces of land where there is an opportunity to build something from scratch. The two scenarios surrounding build-to-suit are speculative buildings and scenarios where the tenant is already secured. Speculative buildings are produced without the guidance of a specific tenant in mind but can be rewarding if they are of high quality and fulfill the needs of local businesses. Rising modern fulfillment centers are build-to-suit buildings that offer high ceilings, multiple floors (which is not standard), and an extensive footprint.
While industrial space for sale or lease is more and more difficult to find, The Robert Weiler Company is consistently adding new properties to its online listing. Check back often or contact firstname.lastname@example.org to inquire with one of our experts.
Industrial Class Types Examined
All commercial buildings are categorized by class. Classification is a way to differentiate specific market features for investors. Just as there are two sides of a spectrum in residential real estate with new development and house flippers, characteristic types exist similarly in industrial space for rent. Commercial real estate investors are usually looking for a specific class of property for their capital. Some categories are characterized by huge upside potential for appreciation, while others are more appropriate for preserving capital. Below are the different classes of industrial space for sale:
- Class A Industrial: The newest building in a prime location with attractive amenities is a Class A Industrial. A key characteristic of Class A Industrials is that they are near logistics hubs and growing population centers. These buildings are the latest and greatest in state-of-the-art warehouse rentals and attract high-quality investors and tenants alike. An example would be a modern logistics facility near an interstate or seaport that supports the business operations of an e-commerce giant.
- Class B Industrial: This type can be characterized in two ways. It can be a building slightly older than Class A, situated in a location that is considered a secondary or tertiary market. Or, it could be a newer building without the perks and amenities found in Class A’s. There are many options for the industrial space for sale because it’s not a Class A. For instance, an investor can improve a Class B property through conversion projects, thus raising its grade to an A or B+. Another option is rezoning the area for multifamily units or mixed-use buildings, dependent on the city and timing for development. Lower-than-average vacancy rates are also a trait of Class B Industrials.
- Class C Industrial: Class C Industrials require some work. They have usually been constructed over 20 years ago and require renovation at this point. They’re also often located in secondary or tertiary areas. Similar to the Class B Industrial, Class C has the options of grade or zone conversion. An investor can either put money in through value-add projects to update the building or seek residential and mixed-use conversion options. Class C industrials have the lowest vacancy rates and require capital injection to bring it to a standard that could attract tenants.
Industrial space for rent is usually a single-story building categorized as large or small. A large industrial building is anything above 70,000 square feet. They are usually a mixture of concrete and metal structures with specific features created for longevity and functionality:
- Ceilings: Industrial space for rent has high ceilings – the higher, the better – to house specialized machinery and equipment. Rent is calculated explicitly by floor space, not cubic footage, so high ceilings in a warehouse are a huge value-add.
- Loading zones and Parking: This is perhaps an essential feature for industrial space for rent because they facilitate logistical operations. The loading zone allows trucks to unload safely, quickly, and efficiently. The two most common types of loading areas are dock-high and grade-level. The outside space also includes parking, which can be leveraged as another source for storage.
- Electrical Infrastructure: Power, measured by amps and voltage, is critical in operating sophisticated machinery systems. Industrial space for rent has a massive capacity for generating power to supply heavy-duty equipment.
The zoning of industrial buildings is complex and requires a heavy regulatory hand. Each area within a city is earmarked for specific industrial functions with deep consideration for the businesses and residential neighborhoods nearby. Additionally, not all types of industrial space for rent are permissible within an industrial zone; area designation is often specific to the function of the building and dictated by municipal codes and rules. Within a particular area, zoning ordinances dictate which industrial activities can occur and what kinds of properties can be constructed or operated.
Characteristics of an Industrial Space for Lease
- High rent and high yield: Industrial properties serve a specific customer that needs ample space to perform certain functions for the masses. These are high-rent paying clients. As a result, the annual return for industrial properties is usually higher than that of residential. We’re talking anywhere from 7-10% for industrial vs. 4-5% yearly return from residential. Most industrial space for lease includes a fixed annual price increase.
- Longer leases: Tenants of industrial space for rent usually sign lease terms for anywhere between 5-25 years. From the perspective of a commercial producer, it would be a massive undertaking to relocate production facilities each year. As an investor, this provides long-term security and stability of income.
- Low maintenance: Most tenants sign “net leases” where the tenant covers most of the costs that the owner in residential property management would otherwise pay. These costs include insurance, utilities, maintenance, and repair costs. One significant perk of industrial real estate maintenance is that the tenant is usually attuned to the maintenance repairs required and resolves all issues themselves.
Looking for space in our area, specifically? Our blog post, “Where Are The Warehouses for Rent in Columbus, Ohio?” is chock full of insight!
Benefits of Investing in Columbus Industrial Space for Sale
Industrial real estate is quickly becoming one of the most profitable methods of real estate investing. Compared to investing in residential real estate, it’s a lot less work with much longer projected stability. Because of the already specific nature of industrial property, there is less variety between industrials. Industrials are more clearly classified by their grade – Class A, Class B, and Class C, and the pathway to profitability is pretty straightforward within each class. Class A properties sell themselves, and Class B and C’s can be renovated to cater to a target market. With some of the lowest vacancy risks in the real estate market and a longer average lease commitment from tenants, investing in industrial real estate is a smart bet.
Finding Funding for Your Columbus Industrial Space for Sale
Modern technologies have made participating in investing in industrial space for rent more accessible than ever. While it’s unlikely that a single person will be the source of funding for a single property, investor money is often assembled in various ways:
- REITs offer the most flexibility as they are publicly traded financial products available to purchase through financial institutions in the same way that one goes about buying a stock. A Real Estate Investment Trusts is a bucket of different industrial properties. The purchase of a REIT is naturally diversified because it is composed of numerous industrial properties. Depending on the REIT, the properties can vary across the spectrum and class market or be concentrated in one industrial property type.
- Syndicates through crowdfunding. A crowdfunding option is more costly and less flexible than a REIT because of minimum investing and holding requirements. That said, the financing method offers higher payback potential.
- Private equity is the closest an investor can get to single-handedly funding an industrial space for sale or development. Private equity pools capital from a limited number of investors to create the highest potential for returns.
Foreign Investment in Industrial Real Estate
With one of the most stable legal and economic systems globally, the American industrial real estate market is desirable to foreign investors. Compared to other countries, we offer one of the world’s safest and most attractive investment environments. Our laws minimize risk and protect investors by providing a fair valuation process and stable investing environment.
As one of the hottest markets in real estate, foreign investment will likely push the acquisition and development of industrial space for sale in the United States forward in the years to come. In addition, retail-to-industrial conversions are the new trend of e-commerce, a segment alone that, according to the CBRE, has surged three-fold in year-over-year performance.
Industrial Real Estate Now [in 2022]
We’ve been in the middle of an historic industrial real estate boom. Some estimates forecast that the United States is in a critical warehouse space shortage and may need another 1 billion square feet of warehouse rental space by as soon as 2025. The phenomenon is driven primarily by e-commerce: easy online shopping and quick deliveries. The way Americans shop has changed significantly, especially over the last decade. As the global pandemic reshapes our world, the shift from brick-and-mortar to digital shopping has accelerated exponentially.
This shift is evident through our analysis of the U.S. Department of Congress 2021 Retail E-Commerce Sales Report. E-commerce penetration has increased from 7.2% in 2010 to 13.2% in 2021. Consumers spent $870.8 billion online in 2021, an increase of 14.2% from 2020. And in Q4 2021, retail e-commerce sales neared $258 billion, the highest quarterly revenue in history. While e-commerce growth last year paled in comparison to the record-breaking 32.4% during 2020, it’s on par with the pre-pandemic growth (which was 11% in 2019).
The acceleration of e-commerce throughout the pandemic has been evident. Consumers have often shopped online out of necessity, which resulted in brands quickly needing to revise their strategy. Not surprisingly, the global pandemic taught older generations how to “do” online shopping, and younger generations don’t know of a world before. The need for fulfillment centers has quickly eclipsed the need for physical stores. As previously behind-the-curtain departments come front and center, supply-chain and distribution are the new battlegrounds for innovation that fuels business growth. According to recent studies by a prominent REIT, the demand for logistics real estate has outstripped industrial production, and most developed countries have adopted modern logistics real estate, such as omnichannel fulfillment. Real estate optimized for shipping and fulfillment is more valuable than ever.
What Does Omnichannel Fulfillment Mean?
Also referred to as omnichannel warehousing, omnichannel fulfillment is the process of streamlining the fulfillment and shipment of orders placed through multiple channels (e.g., stores, websites, online marketplace shops). To handle the influx of online sales, retailers are moving towards creating omnichannel fulfillment strategies. Two of the more popular tactics are ship-from-store and buy online and pickup in store (BOPIS). Large retailers such as Target and Walmart have adopted these tactics early on and performed phenomenally, especially during the peak of the pandemic. Omnichannel fulfillment is one of the hottest retail trends now, and for good reason; to stay competitive, businesses must optimize their fulfillment operations. Optimizing your warehouse space and ensuring supply chain efficiency are just as important.
Trends in demographics, the economy, and technology propel the market for industrial space for rent. Simply put, the way that most people live requires more industrial activities because the way consumers get their products has fundamentally changed.
Let The Robert Weiler Company Uncover Your Columbus Industrial Space for Rent
Are you eyeing large or small industrial space for rent, Columbus, Ohio? Have you noticed that industrial space for sale or industrial space for lease is becoming more difficult to find? Demand for industrial real estate is in full force. You’re going to need the best guide to navigate this market!
The Robert Weiler Company has served the Central Ohio commercial real estate community for nearly 85 years! Our team is prepared to offer their expertise whether you need assistance buying or selling industrial real or want to uncover the market value via an in-depth commercial real estate appraisal. We have a deep understanding of the market for all the industrial space for rent Columbus, Ohio region has to offer.
Call The Robert Weiler Company today and let us discover the industrial space for rent you’ve been searching to find or attempting to sell or lease. We’re here to serve you; get in touch at 614-221-4286.