People tend to use the terms “warehouse space” and “industrial space” interchangeably, but they are actually two different types of facilities. Even business owners assume that there is little to no difference between warehouse and industrial spaces. It can be difficult to differentiate the two, especially if you are not familiar with industrial real estate.
The difference comes down to how each space is used. By learning how each space is utilized, an investor can better understand which properties are better suited to their goals and overall portfolio.
Warehousing space is often thought of as storage space, especially for e-commerce sites such as Amazon. While this perception is not wrong, warehouses can be home to other activities, too.
Storage and distribution centers are the most common type of warehouse property, but warehousing also requires integrating people, software, and machinery to run smoothly and with little error. In addition to pallets or boxes, commercial warehouse spaces may also house machinery, offices, a loading dock, and other elements that allow it to operate per the company’s needs. Commonly, the machinery involved is tailored to packing and shipping needs, though, unlike manufacturing plants.
Warehouse infrastructures must be efficient and accurate and are often optimized for maximum productivity and performance in order to keep up with ever-changing demands. This makes them essential for any successful business operations.
Industrial space is the term more commonly used to identify a building used for manufacturing, production, fabrication, assembling, and conducting meetings. A warehouse can be considered an industrial space, but not all industrial spaces are warehouses. The property can also include warehousing tasks, but that does not mean it is a warehouse property either.
Many industrial spaces tend to be flex industrial properties, meaning they combine the features of an office with the features of a warehouse. Most of the time, this type of building only houses one business at a time, too. The company is able to run much of its business operations out of this one property, which can improve efficiency. Examples of this include showrooms with offices in the back or offices with space to store a limited amount of goods for the business.
Knowing the distinction between the two assets can help an investor figure out which space is better suited to their goals. The type will also affect what markets and locations are available for investment, as some areas are zoned for industrial buildings but not warehouses.
Another important reason includes marketing to potential tenants. Some warehouses might be marketed as industrial properties, but this can pose a problem for prospective tenants and property managers if the space is too large for the tenants’ needs. The tenant may then choose to move elsewhere, to a space that is better suited to their specific business needs and one that is already outfitted to be a flex industrial space.
Choosing the wrong type of asset can end up costing you money, especially if you or the tenants choose to retrofit warehouses to fit certain needs. It tends to be far better to find a building that suits exactly what you are looking for in an industrial space than try to fix one.
When it comes to choosing warehouse spaces, it is important to consider the benefits that come with investing in this asset. Warehouses can be great for those investors looking to take advantage of the e-commerce industry. The demand for storage and distribution centers has risen in recent years due to an increase in online shopping activity, making this asset a popular option.
This is also a great option for investors looking to attract companies willing to spend money to turn the warehouse into unique and creative office spaces. Larger and more well-established companies can make for great tenants and offer potential stable income for the savvy investor. The use of triple net leases can also relieve investors from some of the financial burdens of retrofitting the entire building.
This asset is great for investors looking to target several tenants or a variety of different businesses. Individual spaces may be rented out to tenants, providing more potential streams of income for the investor. Space can also be allocated based on each tenant’s needs and demands.
They are also great for attracting manufacturing companies. Oftentimes, warehouses are not big enough for manufacturers to house all the necessary machinery and finished products, on top of any offices needed to oversee the entire production process. With an industrial space, the business can put their offices in one space and use the rest for their equipment and storage. It also provides employees with designated meeting rooms and break areas away from the manufacturing floor.
It can be confusing to know which property to choose as an investor new to the industrial commercial real estate market. These properties can also be a hassle to manage on your own, leaving you in charge of managing the property or hiring a property management company.
With Avistone, investors can still invest in industrial properties but do not need to worry about managing everything themselves. Since its founding in 2013, Avistone has acquired and managed more than 4 million square feet of flex industrial properties and 387 hotel rooms located across the nation in California, Georgia, Ohio, Virginia, Texas and Florida. Our executive management team has years of experience in acquisitions, dispositions, operations, structured finance, appraisal, land use, and portfolio management, too.
We have the unique ability to integrate extensive capital market knowledge with a boots-on-the-ground approach to successfully acquire and operate a variety of properties that offer our investors attractive potential yields and strong potential total returns with relatively low risk. If you are interested in investing in industrial commercial real estate, contact us today to learn more about our offerings!