At Phoenix Industrial Redevelopment (PIR), we’ve spent years immersed in the world of industrial real estate. We’ve studied the nuances of different property types, analyzed market trends, and worked hands-on to reposition and manage industrial assets across the country. Along the way, we’ve developed a deep understanding of the unique characteristics and uses of various industrial properties, and how these factors can impact investment performance.
If you’re considering investing in industrial real estate, whether through our FixedFunds Program® or another vehicle, we believe it’s essential to have a foundational understanding of the different types of properties that make up this diverse and dynamic asset class. In this article we’ll break down the key categories of industrial real estate and explore how each type can play a role in a well-diversified investment portfolio.
Warehouses: The Backbone of Distribution
When most people think of industrial real estate, warehouses are often the first property type that comes to mind. These large, open buildings are designed for the storage and distribution of goods, and they play a critical role in the modern supply chain. Warehouses can range in size from less than 50,000 square feet to over 1 million square feet, depending on their location and the needs of their tenants.
One of the key advantages of warehouses from an investment perspective is their versatility. These properties can be used to store and distribute a wide variety of products, from consumer goods to raw materials to industrial equipment. This means that demand for warehouse space can come from a broad range of industries, providing a level of diversification that can help mitigate risk.
Another advantage of warehouses is their relatively low operating costs. These properties typically have simple, utilitarian designs with few frills or amenities. This means that they require less ongoing maintenance and capital expenditures than other property types, which can help support stable cash flows over time.
Manufacturing Facilities: Where Products Come to Life
Another major category of industrial real estate is manufacturing facilities. These properties are designed for the production of goods, and they can range from small, specialized plants to large, complex factories. Manufacturing facilities often have unique features like high ceilings, reinforced floors, and specialized power equipment that is tailored to the needs of specific industries.
From an investment perspective, manufacturing facilities can offer the potential for higher rental rates and longer lease terms than other industrial property types. This is because these properties are often mission-critical for their tenants, who may have invested heavily in customizing the space for their specific production needs. This can create a level of “stickiness” that can help support occupancy and cash flows over time.
However, manufacturing facilities can also come with higher risks than other industrial properties. These properties may be more vulnerable to economic downturns or shifts in specific industries, as tenants may be more likely to downsize or go out of business in challenging times. Additionally, manufacturing facilities may require more specialized knowledge and expertise to operate and maintain, which can impact investment returns.
Flex Space: The Best of Both Worlds
A third category of industrial real estate that has gained popularity in recent years is flex space. These properties are designed to offer a mix of office and industrial space, with the flexibility to accommodate a range of different uses. Flex space can include everything from research and development labs to showrooms to light manufacturing facilities.
One of the key advantages of flex space from an investment perspective is its adaptability. These properties can appeal to a wide range of tenants, from startups looking for cost-effective space to established companies seeking to combine office and industrial functions under one roof. This can help support occupancy and rental rates, as well as provide a hedge against shifts in specific industries or tenant types.
Another advantage of flex space is its potential for value-add repositioning. Because these properties are often older and less specialized than other industrial buildings, they may offer opportunities for investors to create value through targeted capital improvements and leasing strategies. By upgrading building systems, improving site layout and amenities, and targeting specific tenant types, investors can potentially drive rent growth and appreciation over time.
Small-Bay Industrial: The Sweet Spot for PIR
At PIR, our investment strategy is focused on a specific subset of the industrial real estate market: multi-tenant industrial parks with small-bay spaces ranging from 1,000 to 5,000 square feet. We believe these properties offer a compelling mix of stability, diversification, and growth potential, particularly in the current economic environment.
Small-bay industrial properties are typically located in infill markets with strong demographic and economic fundamentals. They cater to a diverse range of small and midsize businesses, from local contractors and distributors to specialized manufacturers and service providers. By aggregating multiple tenants in a single property, these assets can provide a level of diversification that can help mitigate risk and support stable cash flows over time.
Additionally, small-bay industrial properties often have lower capital expenditure requirements than larger, single-tenant buildings. Because these properties are designed for multiple users, they typically have simpler, more generic build-outs that can be easily adapted for different tenant types. This can help support higher occupancy rates and lower leasing costs over time.
At PIR, we take a hands-on approach to managing and repositioning our small-bay industrial assets. We work closely with our tenants to understand their needs and provide the services and amenities that can help their businesses thrive. We also invest in targeted capital improvements that can enhance the value and appeal of our properties, from upgrading building systems to improving site layout and accessibility.
The FixedFunds Program Opportunity
For accredited investors seeking to gain exposure to the industrial real estate market, our FixedFunds Program® offers a unique opportunity to benefit from our expertise in acquiring, repositioning, and managing small-bay industrial assets, while enjoying the stability of fixed returns.
The FixedFunds Program offers two investment options:
- Income Notes: 8% annual return, paid monthly
- Growth Notes: 8% annual return, compounded monthly
Both options have a 5-year term with a 2-year extension option and a minimum investment of $50,000. This structure provides investors with either a reliable stream of monthly income or the potential for compounded growth, depending on their financial goals.
We believe the small-bay industrial niche is particularly well-suited to the current economic environment, as the ongoing trend towards onshoring and the growth of e-commerce is driving demand for flexible, well-located industrial space. By focusing on properties that cater to the needs of small and midsize businesses, we believe we can create value for our investors while supporting the growth and resilience of local economies across the country.
The Bottom Line
Industrial real estate is a complex and dynamic asset class, with a range of different property types and uses that can impact investment performance. From large-scale warehouses to specialized manufacturing facilities to flexible, multi-tenant buildings, each category of industrial real estate offers its own unique set of risks and opportunities.
At PIR, we’ve chosen to focus our investment strategy on small-bay industrial properties, which we believe offer a compelling mix of stability, diversification, and growth potential. Through our FixedFunds Program®, accredited investors can gain exposure to these assets and benefit from our expertise in acquiring, repositioning, and managing industrial real estate, all while enjoying attractive fixed returns.
Whether you’re a seasoned real estate investor or new to the asset class, we believe that understanding the different types of industrial properties and their uses is essential to making informed investment decisions. We hope this article has provided a helpful overview of the key categories of industrial real estate and the unique investment characteristics of each. As always, we encourage investors to conduct their own due diligence and consult with their financial advisors before making any investment decisions.
