Types Of Industrial Buildings in Commercial Real Estate

Industrial buildings may be a great investment, but they can be difficult to understand and assess. This can make it even more difficult to start investing in these flex industrial spaces.

For both the beginner and experienced real estate investor, multi-tenant flex space can be a gateway into the industrial real estate space. It is highly versatile in its use and the types of businesses these spaces can house.

What Is Flex Space?

Although similar, there are specific differences between commercial real estate and industrial real estate. While commercial real estate typically involves properties such as multi-family units, offices, or retail stores, industrial real estate involves properties where goods are made, stored, and shipped.

Flex space can be loosely defined as any building that combines a warehouse space and office or retail space. These units often have a warehouse door or loading dock and higher ceiling height. Normally, this maximum ceiling height is between 14 to 24 feet, allowing them to be used for additional storage. For example, there can be a designated showroom or retail space.

Industrial buildings come in all shapes and sizes. Because they have a wide variety of uses, these properties can be desirable to an array of businesses seeking a space for their operations. Potential occupants include a range of industries, from manufacturers to e-commerce companies. Another benefit is that is that businesses have the ability to expand in the same business park without having to relocate their entire facility. 

Because of this vast array of properties, it may be overwhelming for an investor looking to acquire this type of asset. To make it easier for commercial real estate investors, all industrial properties are split into three different asset classes: warehouses, manufacturing facilities, and flex space. These are also sometimes categorized as manufacturing, storage and distribution, and flex space. Within these categories, there are further sub-asset classes.

Warehouse Buildings

Warehouses are typically larger buildings with limited windows, many truck doors, loading bays, and docks, some include front office or retail space.

General warehouse/bulk distribution. When most people think of warehouses, they likely picture general warehouses. These may be one or multiple stories – usually through the addition of mezzanine levels – and could have small office or showroom spaces. Their general purpose, though, is to hold items for storage or reshipment. Bulk distribution centers serve a similar purpose but often are used to store large quantities of a single product. They usually have features such as conveyor belts, packing and shipping machines, and robotic arms. Most of these types are near transportation hubs like airports, ports, and railroads.

Cross-Dock/truck terminals. A truck terminal or cross-dock facility typically has little storage space, replacing them instead with a large number of truck docks. This allows trucks to be unloaded or reloaded, facilitating the movement of products along the supply chain.

Cold Storage. This type of facility is essentially a refrigerated warehouse. This is used to ship food and other perishable goods, so these properties have temperature control to keep items cool or frozen. In addition to food, cold storage can be used to hold agricultural products, artwork, or pharmaceutical items, among other things.

Hazardous Material Warehouses. This type of building is used to store flammable, corrosive, or otherwise dangerous materials. They often include special features to protect workers and the surrounding community from these hazards.

Specialized and distribution warehouses. Some properties are designed for specific types of materials, such as art, automobiles, or wine. These are specifically configured to the type of items they will hold.

Manufacturing Facilities

While manufacturing facilities frequently look like warehouses from the outside, they are built differently than the typical warehouse. Specialized buildouts and heavy power connections are not uncommon in this type of industrial property. Manufacturing can be further divided into two categories: heavy manufacturing and light assembly.

Heavy manufacturing

From factories to extremely complicated structures like chemical plants and oil refineries, heavy manufacturing facilities are a necessary part of our economy. Heavy-duty goods like cars or outdoor equipment begin in a heavy manufacturing building. These properties can range from hundreds to thousands of usable square feet and usually contain heavy-duty, customized equipment, three-phase electricity, and a lot of loading dock space.

Depending on the company’s needs, they may also have further customized features, such as specific drainage systems, ductwork, ventilation systems, chemical lines, and more. This type also tends to require top-to-bottom renovation when it changes tenants because of the permanent fixtures needed for specialized heavy manufacturing. Examples of businesses that might use this type of facility include aircraft and automobile parts manufacturing, furniture manufacturing, or outdoor equipment.

Light Assembly

Meanwhile, light assembly buildings are typically smaller and may even house multiple tenants. These tend to be simpler and easier to move into because the interior is often easy to reconfigure. Equipment used in these buildings is typically lighter and more portable because the parts being assembled here are smaller than those made in a heavy manufacturing facility.

Some might be built similarly to warehouses, as well. They may include some storage components to house the goods until they are shipped. Some examples of businesses that might use this type of manufacturing facility include electronics manufacturers, toy companies, and furniture assembly.

Flex Industrial Space

Other types of industrial buildings are called “flex spaces.” These properties are specially designed to serve multiple purposes and are often customized to the business needs. Office space tends to occupy more than 30% of these buildings and has more parking than other industrial buildings, making them a better fit for startups.

Examples of flex industrial spaces include warehouse/office combinations or showroom/warehouse combinations. Both feature a warehouse space, often at the back of the building, with client-facing areas at the front.

Within flex spaces, there are three subtypes of specialized properties: research and development, data centers, and showrooms.

Research and development, or R&D, is the process by which companies create new products and improve existing ones. Companies need specialized spaces to develop and test, which may include everything from clean rooms to light manufacturing space or open square footage. Many R&D spaces are converted to campus-like business parks with shared architecture design, lots of surface parking, and well-landscaped open spaces.

A data center is where a company keeps the equipment needed to maintain network connectivity and store its data or client data. These tend to be very large and require special wiring and cooling systems, as well as reinforced floors to hold the weight of the equipment. Another feature common to data centers is that they almost always include backup generators and extensive security systems.

Showrooms encompass what most people think of when they imagine flex industrial spaces. They are a combination of offices, warehouses, and formal showrooms for a company. In most cases, half of the area is used for showcasing and selling products to the public. The rest is often administrative offices and warehouse space used to store the products on display. Examples include kitchen and lighting galleries, large furniture showrooms, and car dealerships.

Invest In Flex Industrial Space

With so many types of flex industrial spaces and the various sub-asset classes within those categories, the process of choosing which property is right for your portfolio can be difficult. Investors looking to get into this part of the commercial real estate market could benefit from researching and understanding the type of tenants and work that goes into maintaining these properties.

For those who prefer a more passive approach to investing, a private equity firm can do most of the work for the investor. Avistone has been investing in a variety of commercial real estate markets since its founding in 2013. Since then, the firm has acquired over 4 million square feet of space in various states nationwide, including California, Texas, Georgia, Florida, Ohio, and Virginia. Our executive management team has more than 100 years of combined experience in the industry and has the unique ability to integrate extensive capital market knowledge with a boots-on-the-ground approach.

© 2024 Avistone, LLC. All rights reserved.

*IMPORTANT DISCLOSURES: This communication is intended exclusively for the private and confidential use of accredited investors. It is transmitted by the sponsor of the investment opportunity, Avistone, LLC, or one of its affiliates (referred to as "Avistone" or "Sponsor") and is provided solely for informational purposes. All information and opinions contained herein, including assumptions and projections (collectively referred to as "Projections"), are furnished by the Sponsor. The Sponsor and its affiliates make no representations or warranties regarding the accuracy of such information and disclaim any liability in this regard. None of the content in this communication is intended to create a binding obligation on the part of the Sponsor or its affiliates. This communication is fully qualified by reference to the comprehensive information regarding the offering set forth in the Sponsor's offering documents, including any private placement memorandum, operating agreement, and subscription agreement (collectively referred to as "Offering Documents"), which should be carefully reviewed before making any investment.

The Projections provided by the Sponsor, including target IRR, target cash-on-cash, and target equity multiple (referred to as "Targets"), are hypothetical and are not based on actual investment results. They are presented solely to provide insight into the Sponsor's investment objectives, outline anticipated risk and reward characteristics, and establish a benchmark for future evaluation of the Sponsor's performance. The Sponsor's Projections and Targets do not constitute predictions, projections, or guarantees of future performance. There is no assurance that the Sponsor will achieve these Projections or Targets. Forward-looking statements, including the Sponsor's Projections and Targets, inherently involve a variety of risks and uncertainties, and actual results may substantially and materially vary from those anticipated. Refer to the applicable Offering Documents for disclosures concerning forward-looking statements. Projections and Targets, including forward-looking statements, should not be the primary basis for an investment decision. Avistone and its affiliates do not provide any assurance regarding returns, or the accuracy or reasonableness of the Projections or Targets provided by the Sponsor. Past performance does not predict future results. The historical performance record of Avistone is not indicative of future outcomes. Third-party audits have not been conducted on the performance of Avistone's prior projects. Differing property offerings and commitment dates for individual property offerings resulted in varying returns for investors.

The metrics of the Full-Cycle Track Record on industrial properties are calculated based on weighted averages that treat investment dollars equally and are computed by aggregating the outcomes of all Avistone full-cycle industrial property investments, with weights corresponding to the respective capitalization amounts for each Full Cycle Investment. This real estate investment is speculative and involves substantial risk. There is a potential for a partial or complete loss of principal investment and should only be undertaken if you are prepared to bear the consequences of such a loss. Thoroughly review all of the Sponsor's Offering Documents, including any "Risk Factors" therein. For additional information concerning risks and disclosures, please visit https://www.avistone.com. None of the content in this communication should be considered investment advice, whether regarding a specific security or an overall investment strategy. Reproduction or distribution of this message to any individual or entity outside the recipient's organization is prohibited without the express consent of Avistone.