Industrial
Real Estate

Sub-types

• Bulk distribution / warehouse. 250,000–1M+ sqft. Regional distribution, long-haul logistics hubs. 32–40 ft clear height. Amazon, Walmart, FedEx, UPS as anchor tenants.
• Last-mile logistics. 80k–200k sqft, infill urban or near-urban location. Same-day and next-day delivery fulfillment. Premium cap rate (4–5.5%) due to location scarcity.
• Flex / light industrial. 20k–80k sqft. Multi-tenant. Office component (15–30%) mixed with warehouse/shop. Small business tenants. 6.5–8.5% cap rates.
• Manufacturing. Owner-occupied or single-tenant lease. Custom build-outs, specialized power, floor load. Sale- leaseback opportunities.
• Cold storage. Specialized refrigerated (0–32°F) or frozen (-10°F). Heavy capex, high utility cost, barrier-to-entry yields 5.5–7.5% cap rates.
• Data centers. Separate institutional sector. Massive power (megawatts), cooling, fiber. Yield 5–6% on long-term NNN tenant leases to hyperscalers.

Key physical metrics

• Clear height. 24–28 ft older, 32 ft modern, 36–40 ft newest. Higher clear supports racking to 7–9 levels — more pallets per sqft, higher rent.
• Dock doors. Ratio 1 dock door per 8,000–10,000 sqft. Under-docked buildings struggle to lease to logistics tenants.
• Truck court depth. 130–185 ft. 130 ft supports 53-ft trailer turning. Under 130 ft limits tenant set.
• Trailer parking. Ratio 1 trailer spot per 5,000–10,000 sqft for logistics tenants. Short on parking = difficult to lease.
• Column spacing. 50×50 ft modern vs. 30×30 ft older. Wider spacing = racking flexibility.
• Power. 2,000–4,000 amps standard. Manufacturing needs more. Cold storage and data center needs much more.
• Office-to-warehouse ratio. 5–10% office typical. Flex industrial higher (15–30%).

Lease structures

Industrial is overwhelmingly NNN or absolute NNN:

• Term. 5–15 years. Logistics tenants often 7–10 years. Long-term manufacturing 15+ years.
• Escalations. 2.5–3% annual, or 10% steps every 5 years. Some CPI- indexed.
• TI (Tenant Improvement). $5–15/sqft for basic warehouse, $30–100/sqft for office or specialized build-out.
• Free rent. 3–6 months typical on new leases, amortized into effective rate.
• Guarantees. Corporate guarantee from investment-grade credit; personal from franchisees; letter of credit on weaker credit.

Tenant credit

• Investment grade (S&P BBB+ or better). Amazon, FedEx, UPS, Walmart, Target, major manufacturers. Premium pricing, 50–100 bps cap rate compression.
• Non-rated corporate. Mid-market companies without public rating. Pull credit reports, tax returns, financial statements.
• 3PL (Third-Party Logistics). XPO, J.B. Hunt, Performance Team, GXO. Strong but contract-dependent — cash flow follows customer contracts.
• Small business. Flex industrial tenants. Personal guarantees from owner, letter of credit for weaker.

Major industrial markets

• Inland Empire (Riverside/San Bernardino) — largest US market, LA port feeder
• New Jersey (Exits 7A–12) — port of NY/NJ, highest rents nationally
• PA 81 corridor / Lehigh Valley — NY/NJ/Philadelphia gateway
• Dallas/Fort Worth — central US distribution hub
• Atlanta — Southeast hub, strong growth
• Chicago — Midwest distribution center
• Houston — Gulf ports, energy, chemicals
• Phoenix — fastest-growing major industrial market
• Memphis — FedEx hub
• Columbus — central Midwest logistics
• South Florida — Miami port, LatAm gateway
• Savannah / Charleston — East Coast port growth

Environmental risk — CERCLA

Industrial environmental liability is substantial and long-tail. Former uses of an industrial parcel — even decades prior — create owner liability under CERCLA (Superfund) regardless of who caused the contamination. Mandatory diligence:

• Phase I ESA. AAI (All Appropriate Inquiries) compliant per EPA ruling. Reviews historical aerial photos, regulatory database, chain of title, interviews. $2,500–5,000.
• Phase II ESA. If Phase I identifies recognized environmental conditions (RECs), Phase II confirms via soil and groundwater sampling. $15,000–75,000.
• Remediation. If Phase II confirms contamination. TCE/PCE plumes (chlorinated solvents from former dry cleaners, metal finishing) can cost $500k–$5M+.
• Innocent-purchaser defense. Available only if proper AAI diligence performed pre-purchase. Documents must be preserved.

Environmental insurance (pollution legal liability PLL) available at $10k–50k/year premium depending on risk — worthwhile on any property with industrial history.

Common pitfalls

• Functional obsolescence. Low clear height (under 24 ft), shallow truck court, limited trailer parking, bad column spacing. These attributes kill leasability in modern logistics market.
• Tenant credit deterioration. Fortune 500 tenant spins off a division into a non-rated entity. Lease assignment without your consent. Read anti-assignment clauses.
• Zoning / truck restrictions. Municipality bans truck traffic or imposes noise ordinance limiting overnight operations. Destroys logistics value.
• Concentration risk. Single-tenant NNN with 2 years of term remaining. If tenant doesn’t renew, value drops 30–60% to market re-leasing basis minus TI costs.
• Environmental surprise. Adjacent property contamination migrates onto yours. You become responsible party.
• 2025–2026 supply wave. Record construction 2022–2024 delivering in 2025. Tertiary markets now over-supplied. Primary markets remain tight but with rent growth compression.
• Rail-dependence. Some older industrial was built for rail access. If rail line abandons, distribution economics change.