Everything You Need to Know about Industrial Real Estate

The Industrial Revolution played a vital role in shaping the way our global economic system works today. Goods that had been previously crafted by hand started were being produced in some of the first factories with the aid of new machinery like the cotton gin. Furthermore, transportation improvements allowed producers to expand their consumer markets beyond their wildest imagination.

These innovations shaped the way our businesses operate and the way our cities were designed as the need for a larger workforce for factories emerging drove the need for denser urban populations. Buildings are built higher and more closely together in order to accompany the housing demand creating a synergistic growth between city expansion and industrial technology development. Industrial real estate is some of the most valuable property you can own because it is vital to the framework of our society.

What is Industrial Real Estate?

When people think of real estate, what typically comes to mind are homes, offices, retail stores, or favorite restaurant/bar. However, when they hear the words “industrial real estate” images of tall brick chimneys pumping out smoke or a Ford-esque assembly plant. While this vision of industrial real estate isn’t necessarily untrue, industrial businesses extend much further beyond assembly lines and smoke stacks. Nearly every item find in our homes, offices, and stores was likely produced, or stored, in an industrial building.

Defining Industrial Real Estate

Industrial Real Estate can be defined broadly as any/all land and buildings which accommodate industrial activities including production, manufacturing, assembly, warehousing, research, storage, and distribution. There are specific areas in every city designated to industrial properties shown on a zoning map, which describe where these spaces can be constructed and operate, so that the activity on these sites does not disrupt businesses or residencies that may be located nearby.

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Industrial Real Estate Classes

Every commercial building comes with a class grade attached to it. Buildings are labeled Class A, Class B, or Class C. When investing in industrial real estate property, it is important to consider which class of building makes most sense for your investment. What we mean by this is that in some cases the assets in which you’re investing will be more likely to see capital appreciation whereas in other cases the assets are better suited for capital preservation.

Class A Industrial Real Estate

Class A industrial buildings most commonly are the newest and highest-quality structures available in the market. The industrial assets built today are made of high-quality materials and feature amenities like tall ceilings and top of the line mechanical and utility systems. These top of the line industrial properties provide investors with the security that there are very few outstanding issues that will require them to invest further into their asset. They also typically have high-income earning tenants with low vacancy rates.

Class B Industrial Real Estate

Class B industrial real estate typically refers to buildings that are a little older, but can also refer to new buildings without all the top-of-the-line amenities. Rental income from Class B industrial properties is usually lower than Class A. However, Class B properties are usually well-maintained, which attracts investors who see these assets as “value-add opportunities” meaning these properties can be transformed/upgraded into Class A properties. It is sometimes easier to find an attractive deal, because these assets are viewed as a higher risk to buyers due to potential vacancy issues. It is sometimes easier to find an attractive deal, because these assets are viewed as a higher risk to buyers due to potential vacancy issues. However, Class B properties can be a great option for an investor who is looking to immediately cash flow and sit on their asset while the land appreciates, if the property is in a desirable location.

Class C Industrial Real Estate

Class C industrial real estate typically refers to buildings that are 20 years or older, need multiple maintenance issues addressed, and sometimes located in less desirable locations. The major drawback to Class C industrial real estate properties is that they offer the lowest rental rates on market, which makes passive income opportunities more difficult. Class C industrial properties are for the investor who is willing to put time, money, and creativity into revitalization of the property. These properties can be converted into higher value assets with significant upgrades, and do provide significant upside potential if executed well.

Why is there so much Demand for Industrial Real Estate?

Industrial real estate has been growing for decades, but with the rise of robotics in manufacturing, jobs that were previously done by hand are now being completed by automated systems, which significantly cut labor costs and drive the demand for industrial real estate. Due to the now reduced costs in human capital, more companies are looking to bring their operations back to the US where they will be able to produce their goods at a lower cost.

E-commerce is also contributing to the demand for industrial real estate. Companies like Amazon are now able to ship their product directly to consumers in some metropolitan areas in a matter of hours. This is only possible because of massive warehouses located in major cities’ industrial areas. Furthermore, almost every major retailer has an online component, and as technology develops, more of these large companies are cutting out the middle man, and are handling their operations from the inside, which is creating a larger demand for industrial space.

Casey Development, Ltd: Industrial Real Estate Developers in Central Texas

Beginning your industrial real estate investment is as easy as contacting an experienced industrial real estate developer. Whether a seasoned investor or just starting out, Casey Development, Ltd. is happy to assist you in your search for your first industrial property in Texas. Contact us today to get started.