Five Characteristics of an Industrial Property

Joe Hauman Senior Associate

One question I often get asked by prospects is, “What is considered industrial real estate?” Like many things in real estate, the true answer is that it depends. Here are five things I consider when determining whether a property falls within the industrial sector of commercial real estate:

  1. Zoning: When it comes to classifying commercial real estate, the simplest way would be through local zoning. The way I think about zoning is, “What will the local government allow me to build on this piece of land?” Often times, the buildings are already constructed and thus previously zoned for a specific use. Languages that I see in local communities when referencing industrial real estate are “general industry,” “light industry,” or “light manufacturing.”
  2. Ceiling Height: A key factor, although dependent on the property’s age, is ceiling height. I usually classify anything with a ceiling height of over 13 feet as industrial. Office buildings do not have a need for higher ceilings, whereas industrial real estate usually needs taller ceilings to maneuver forklifts and install racking. Modern industrial warehousing often features ceilings higher than 30 feet.
  3. Docks and Drive-Ins: The number of docks or drive-ins is usually a clear indicator when it comes to identifying industrial real estate. Except for larger retail centers, multiple docks on a property generally signify an industrial nature. During property assessments, I pay attention to the quantity and size of dock-high doors and drive-in doors. Industrial properties, particularly those involved in heavy shipping or receiving, tend to have more than one dock door.
  4. Space Ratio: Although specific to each building, I generally classify anything with <50% of the space built as warehouse or industrial space. This scenario is common in smaller multi-tenant buildings where tenants occupy 10,000 square feet or less, conducting both office and warehouse operations under one roof.
  5. Lease Structures: There are many different kinds of lease structures. True industrial properties often use a triple-net (NNN) lease basis. Other property types may take on this lease structure because it is usually easiest on the landlord, but it is commonly used in the industrial sector.

For the most part, even a novice can decipher a commercial building sector just by looking at the building. I only use these criteria in the event of a building that may be in the middle of two sectors, such as a flex building or a property that is difficult to classify into one of the major groups.

These five criteria are just a glimpse into the evaluation process when defining a property type. Working with an experienced broker is crucial for navigating challenges and gaining insights into optimizing your business through real estate. If you have any questions, feel free to reach out via email at joe.hauman@naipvc.com.