Although the overall vacancy rate of industrial property inched up to 6.1% in the first quarter of 2024, the projected 7.5% increase in U.S. industrial production over the next five years could lead to a strong demand for manufacturing and distribution facilities in the second half of this year. Our guide to industrial real estate covers the three classes (A, B, and C) of industrial buildings; however, those commercial classes of real estate refer to the amenities, age and overall quality of the buildings, not the intended uses.
Here, we look at the types of industrial CRE designed for manufacturing, storing, and distributing goods.
What is an industrial building? Industrial building definition encompasses a type of commercial real estate that companies use to manufacture, distribute, assemble or store large scale goods.
Production & Assembly CRE
Manufacturing
Manufacturing properties include factories where goods are produced or assembled. According to the NAIOP, the Commercial Real Estate Development Association, a manufacturing building has a clear height of 18+ feet (how high a product can be safely stored on racking or from the floor to the lowest hanging object on the ceiling, such as a light or sprinkler). Other manufacturing property features include industrial office space (less than 20%) and loading docks. Two subtypes under this type of industrial property are heavy and light assembly.
Example: Boeing's Everett, Washington, manufacturing plant, which makes 747, 767, 777 and 787 airplanes.
Heavy assembly
Heavy manufacturing factories require extra-large production areas that can accommodate heavy-duty equipment. This type of industrial property is often customized according to tenant/owner needs and may have multiple stories with elevators or freight lifts. Other features include heavy-duty floors (able to withstand heavy equipment) and multiple large loading docks. Examples of companies that use this type of industrial property include automotive, aerospace, farming, or construction equipment manufacturers.
Example: GM's Spring Hill Manufacturing in Spring Hill, Tennessee, which builds Cadillac XT5 and XT6 SUVs.
Light assembly
Light assembly facilities typically require less overall square footage and production space, a lower ceiling height, and fewer loading docks. Office space may take up a larger percentage of square footage in this subtype of manufacturing property. Businesses that use light assembly include furniture, toy, and electronics companies.
Example: Geiger Furniture, which has been making modular office furniture and chairs in Atlanta since the 1970s.
Storage & Warehouses
Commercial storage
Commercial storage buildings are used to store and/or ship materials or goods. While this type of industrial property varies in size, it typically has a clear height of 16+ feet, a minimum of one loading dock, and office space that takes up no more than 20% of the building. The three subtypes under this industrial property include bulk, office, and refrigeration/cold storage.
Example: B&E Storage and Transfer is a warehousing and transportation company in Port of Baltimore, Maryland
Bulk warehouses
Bulk warehouses, or general-purpose warehouses, vary in size, from under 15,000 square feet to over 100,000 square feet. Other features include tall ceilings with a clear height of 32+ feet, a minimum of one loading dock, and little office space, less than 5% of total square footage. You may find this subtype of commercial storage in industrial parks or near highways or ports. Businesses that may use a bulk warehouse include e-commerce, retailers, and wholesalers.
Example: Amazon has over 100 active fulfillment warehouses across the United States.
Office warehouses
An office warehouse is a combination of an office and a warehouse. Opting for this joint space property rather than separate buildings may help businesses lower expenses. This type of commercial storage will have more square footage dedicated to office space than bulk warehouses and is often found in an industrial park. Companies that may select an office warehouse as a storage, distribution, and office solution include retailers, e-commerce, and food companies (non-perishable goods).
Example: Irvine Corporate Park in Irvine, California, has 12 buildings with 112,272 square feet of office/flexible warehouse building space.
Refrigeration/cold storage
Refrigeration/cold storage facilities store and distribute sensitive items at specific temperatures to protect their integrity, quality, and shelf life. Office space is limited to under 5% of overall square footage, while ceilings tend to be very high, with a clear height of 50+ ft. Businesses that use this type of storage include food (perishables), pharmaceuticals, or craft goods (candles).
Example: Interstate Cold Storage has five locations in Ohio and Indiana, including a 4.2 million square foot facility in Columbus, Ohio, that includes quick-freeze facilities, convertible storage, and refrigerated docks.
Flex Warehouses/Industrial
Flexible warehouses
Flex warehouses offer a cost-effective mixed-use space that is adaptable to the tenant’s needs. This type of industrial property may be near other industrial properties or urban areas. At greater than 30%, office space is considerably more significant than other industrial properties. One subtype flex warehouse is the industrial showroom.
Example: Luke Field in Glendale, Arizona, includes three buildings with flexibility for industrial, warehousing or distribution.
Industrial showrooms
An industrial showroom features a warehouse, office space, and retail area. This combination allows businesses to store goods, perform office duties, and demonstrate or sell products in one building. Companies that use this subtype of warehouse industrial property include breweries or car dealerships.
Example: Luxe Luxury Fifth Wheels' showroom in Elkhart, Indiana, which makes toy haulers and "fifth wheel," towable recreational vehicles.
Industrial Parks
Industrial parks are unique to industrial real estate because they combine production, transportation, and storage facilities in the same area. Instead of a single-purpose use building, industrial parks may have businesses that provide goods and services that complement each other or companies that provide similar goods or services, such as beverage manufacturers. Variations of industrial parks are office or business parks. Businesses that you may find in an industrial park include food and beverage processors, plastics manufacturers, research and development.
Example: MidAmerica Industrial Park, which covers 9,000 acres in Oklahoma and includes a regional business airport.
Refineries
A refinery is a manufacturing facility that uses a series of chemical engineering processes and operations to refine specific materials or transform raw materials such as sugar, metal, or oil into valuable products. This type of industrial property is typically located near waterways for shipping accessibility.
Examples: C&H Sugar, United Precious Metals Refining, ExxonMobil, and Marathon all use refineries to manufacture their products.
Photo 144519894 | Detroit Manufacturing | Ray Akey | Dreamstime.com