Transcript Search in video 0:00 – This video will be about 0:01 the basics of industrial real estate. 0:03 And I’ve got a really good hook 0:05 to get you interested in learning more. 0:08 That’s a terrible pun 0:09 but if you didn’t immediately click off 0:11 I know you’re interested in the topic. 0:14 Industrial real estate is a massive industry, 0:16 but it’s just not that well understood. 0:18 Take the Wikipedia page on commercial real estate, 0:21 for example, 0:22 which divides commercial properties into five categories 0:25 office, retail, multi-family, land and miscellaneous. 0:30 While we can’t expect Wikipedia to be the de facto source 0:33 for everything. 0:34 The omission of industrial real estate 0:35 as one of the main categories illustrates how it might not 0:39 be as highly thought after as office or retail might be. 0:43 It’s surprising when industrial real estate gets overlooked 0:46 because its contribution 0:47 to the overall economy is significant. 0:50 A recent report showed that there’s over 0:52 20 billion square feet of industrial real estate 0:54 in North America with the aggregate value 0:57 surpassing $1.5 trillion. 1:00 Having established that the industrial real estate market 1:03 is an important cog in the overall economy, 1:05 the next step is to break it 1:07 down into a few subcategories, manufacturing, 1:10 these are facilities used for the assembly, production 1:14 or manufacturing of raw, semi raw or finished materials. 1:18 If you can picture a big factory 1:20 that’s a good start. 1:22 Warehouse, 1:23 generally, this would include buildings used for storage, 1:26 distribution, logistics, and truck terminals. 1:29 Picture buildings with very high ceilings 1:31 and racks of materials, 1:33 going into a Costco will actually give you 1:35 a pretty good idea of what a warehouse looks like. 1:39 Flex, these are industrial buildings used for other purposes 1:42 than manufacturing or warehousing. 1:44 Examples include laboratory space, showroom, 1:47 or even straight office space. 1:49 Sometimes we’ll even see unique or specialized uses 1:52 for industrial properties, such as self storage, 1:55 bottle Depots and even some churches. 1:57 But the majority of industrial properties 1:59 can either be classified as manufacturing, warehouse 2:03 or flex, beyond the functionality of the building, 2:06 most municipalities will also have specific 2:08 zoning classifications for industrial properties. 2:11 The terminology and processes 2:13 will vary across different markets, 2:15 but the key element is to ensure your municipality 2:18 will permit the specific type of industrial operation 2:21 within the certain building. 2:22 Every company will also have a unique set of needs 2:25 which makes the act of choosing a location 2:28 which is sometimes called site selection, 2:30 a critical component of the overall process 2:32 of finding the right property. 2:35 A logistics company, for example, it might need 2:37 to ensure the building has adequate loading areas 2:40 for shipping or a certain ceiling height or proximity 2:43 to major thoroughfares and manufacturing company conversely, 2:47 will put more emphasis on electrical power 2:48 or proximity to customers or suppliers. 2:51 So there are a lot of elements that go into the equation, 2:54 but the process starts with having a solid understanding 2:57 of what a company needs combined 3:00 with finding a building that is compatible. 3:02 To summarize this all we can use something called 3:05 abductive reasoning, which is making a conclusion 3:07 based on a set of observations. 3:10 The most common example of this is the duck test. 3:13 If it looks like a duck, swims like a duck 3:15 and quacks like a duck, then it’s probably a duck. 3:18 Well, if a property looks industrial, 3:20 functions for industrial purposes 3:23 and is zoned industrial, 3:25 then it’s probably an industrial property. 3:27 What I find fascinating about industrial real estate 3:30 is that it quietly works out of the spotlight 3:33 and that spotlight hasn’t been overly kind 3:35 to some of the other asset classes, particularly of late. 3:38 Do a search for retail apocalypse 3:40 or the death of office space 3:42 and you’ll be inundated with news articles 3:45 by various pundits, somehow able to predict the future, 3:48 but industrial keeps chugging along. 3:51 I suspect we’ll even see more demand 3:52 for industrial real estate in the future 3:54 whether it’s companies increasing their inventory levels 3:57 to avoid running out of stock 3:58 or the continued rise of e-commerce or some office 4:01 or retail tenants being attracted 4:03 to the typically lower rates 4:04 an industrial property can offer. 4:06 I think there’s a good chance industrial outperforms 4:08 other asset classes for the foreseeable future, 4:11 who knows? 4:12 Industrial real estate might perform so well

A common example is a bulk distribution warehouse used by a logistics company to store goods before shipping them to retail locations or directly to consumers.

Industrial use refers to properties that are zoned and physically designed for activities like manufacturing, assembly, production, storage, and distribution of goods.

No. Industrial is a subset of commercial real estate. While “commercial” is the umbrella term that includes office and retail, industrial specifically refers to production and logistics facilities.

Investors typically look at Cap Rate and Cash-on-Cash return. You can use our return on equity real estate calculator or online real estate calculators for analyzing deals to run the numbers.