Inveseting in the Commercial Industrial Warehouse Market

Currently, retail giant Amazon has fulfillment centers in 34 of the 50 US states. With its network of fulfillment and distribution centers spread across the United States, Amazon’s investment in industrial real estate has ensured that the average American is no more than a couple of days away from any of its commercial warehouse facilities. Indeed, this e-commerce model is one of the main drivers behind the current commercial industrial warehouse market boom.

What is Commercial Industrial Space?

Generally speaking, there are three main types of commercial real estate: retail, office, and industrial properties. In this third category, you find several types of commercial industrial space. In this article, we focus on industrial warehouses.

Tenants of these warehouses could be logistics companies or distribution companies. What’s more, commercial industrial warehouses come in all shapes in sizes, from ultra-huge to small. Some of the nations’ largest industrial warehouses are:

  • The 117,000 SF Amazon fulfillment and distribution center in Schertz, Texas
  • Almost 500,000 SF Tesla Motors warehouse in Fremont, California
  • Target’s 2M SF Import Warehouse, Lacey, Washington (a distribution hub for regional warehouses)
  • John Deere’s 2.6M SF Milan, Illinois factory and North American distribution center; the world’s largest factory parts warehouse
  • The 4.3M SF Boeing Everett Factory, in Everett, Washington one of the world’s largest industrial properties and the largest building in the world

Commercial Warehouse Trends

industrial real estate

industrial real estate

At the end of 2018, Bisnow made 18 predictions for 2019. Within these predictions, Bisnow’s commercial real estate trend experts focused on several aspects of the commercial industrial warehouse market. Here are a few of the highlights:

  • According to Bisnow, 2018 was a red-hot year for the commercial industrial warehouse market, the market has continued to be strong throughout 2019
  • ‘Direct to consumer’ sales continue to rise, primarily because of e-commerce. Therefore, the e-commerce sector continues to be one of the primary drivers behind the commercial industrial warehouse market’s strength.
  • This is a great deal of demand for all types of logistics properties, from Class-A warehouses in primary markets to smaller properties in secondary and tertiary markets.
  • In recent years many investors have embraced industrial investments. Additionally, along with multifamily properties, many investors now favor industrial warehouse properties.
  • As the demand for warehouse properties grows, especially in urban areas, the rise of multistory warehouses is growing. Although Europe and Asia have numerous multistory warehouses, these properties are fairly new in the US.

Things to Consider When Investing in Industrial Real Estate

The type of industrial warehouse property you lease depends on your needs and desires. For example, one of the primary concerns is the square footage of the space.

However, the total area of the property is simply one factor to consider. Below are three key factors to look at when considering a warehouse property investment:

  • Ease of Access and Loading – These days, consumers have become accustomed to next-day shipping. As a result, distribution facilities and fulfillment centers need operations to be as streamlined as possible. Without a doubt, trucks need easy access to the facility. Also, getting them loaded and/or unloaded should be as simple as possible. Due to this, an industrial property needs full-height loading docks to make all of these steps easier for everyone involved.
  • Location – In the logistics and distribution businesses, location is everything. Overall, facilities that are near major transportation arteries (expressways, railways, shipping ports) are more desirable than those further away. The further away a warehouse is from major arteries equals more time and fuel spent in transporting the goods.
  • Height – A property’s square footage only denotes its floor space. However, you must also consider the facility’s vertical capacity (the available height inside the property). Also referred to as ‘clear height’, this is the measurement of the space under the property’s roof. Specifically, clear height refers to unobstructed space within the building. This measurement represents the stacking potential of warehoused contents like crates and boxes.

Pros and Cons of Investing in Industrial Real Estate

Investing in the Commercial Industrial Warehouse MarketInvesting in commercial warehouse properties has both advantages and disadvantages. Yet as is the case with any investment, knowing both the upside and potential downside helps you make informed decisions.

To assist you in making the best investment choice, below are some pros and cons of investing in industrial real estate.

Advantages

  • Compared to the other types of commercial real estate (office and retail), industrial warehouses often offer and higher ROI (return on investment).
  • Also, warehouses tenants tend to sign longer leases.
  • Furthermore, industrial warehouse spaces are lower maintenance properties. Due to this, owners tend to deal with fewer maintenance costs.

Disadvantages

  • Compared to other commercial properties, warehouse properties tend to cost more. In addition, banks may ask for larger down payments.
  • Also, when an industrial tenant vacates, finding new warehouse tenants often takes longer than finding new retail or office tenants.
  • Changing technologies may make older warehouses obsolete.

Let CXRE Guide You

Investing in industrial real estate continues to be a safe bet for commercial real estate investors. Whether you’re looking to invest in your first commercial warehouse or expand your commercial industrial space portfolio, we can help. At CXRE, we know the industrial markets and can identify warehouse properties to fit your needs.

Alternatively, if you’re searching for industrial real estate to meet your company’s growing needs, we can also help you find suitable space. No matter what you need, our team can assist you. Contact CXRE’s team of commercial real estate professionals today for more information.

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