With capacity at historic lows and asking rents at a premium, locating usable real estate space can prove very challenging for industrial businesses. E-commerce fulfillment operations have dominated new industrial leasing over the past year, but they aren’t the only users of industrial real estate. Manufacturers, transportation providers, B2B distribution centers, data centers, and numerous other business types also need reliable access to industrial space to accommodate growth and modernize operations.
Industrial properties have become difficult to find—but not impossible. If your business can’t wait five years or more for supply to catch up with demand, finding a new home for your industrial operation may still be achievable for businesses willing to think outside the box. The following suggestions may help you find what you’re looking for.
Look for Blighted Urban Properties
Consider flipping an old, run-down factory the way some people flip houses. Most urban environments are rife with disused industrial facilities that were abandoned years or decades ago by a failed business. These buildings contribute to a phenomenon known as urban blight, eventually becoming havens for criminal activity, pests, and pollution. The further these buildings fall into disrepair, the more they drive down property values and quality of life in surrounding neighborhoods.
Municipalities are often amenable to partnership efforts for restoring these buildings. For buildings too far gone to save, it’s often cheaper and more effective to simply tear them down and rebuild from scratch. Though these projects require significant resources, the cost of the restoration project may be offset somewhat by the lower cost of the land itself. Blighted properties offer a means to develop new, usable industrial real estate while also giving back to the existing community by removing blight and creating local jobs.
Watch Out for Available Sublets
Many industrial businesses—especially e-commerce fulfillment operations—have been trading up for larger facilities or transitioning to third-party logistics (3PL) providers over the past year to accommodate soaring sales volumes. Most companies with time remaining on their old lease would rather sublet it to someone else than pay for empty space. Subletting is complex, but it can be a viable option when few industrial properties are available. In cases where the existing tenant’s lease allows, the property owner may simply recapture the space and lease it to you directly.
Convert a Commercial Property
While industrial vacancies may be low, office and retail space are only just beginning to recover from the pandemic. Conversions of this nature come with a host of challenges. Examples include:
- Not all commercial property is zoned for industrial use.
- Communities push back because they associate industrial operations with noise, traffic, or pollution.
- Many commercial properties don’t have appropriate physical infrastructure to support heavy machinery or high volumes of inventory.
- Most retail or office properties require significant renovation to make them suitable for industrial use.
- Available retail or office buildings are often centrally located in cities rather than near highways, railheads, and other transportation access points.
Though not insurmountable, these obstacles would turn away most industrial real estate seekers in a higher-capacity market. With demand set to outpace supply for years to come, however, both commercial real estate firms and industrial tenants will need to get increasingly creative in the pursuit of viable industrial space.
About Phoenix Investors
Founded by Frank P. Crivello in 1994, Phoenix Investors and its affiliates (collectively “Phoenix”) are a leader in the acquisition, development, renovation, and repositioning of industrial facilities throughout the United States. Utilizing a disciplined investment approach and successful partnerships with institutional capital sources, corporations and public stakeholders, Phoenix has developed a proven track record of generating superior risk adjusted returns, while providing cost-efficient lease rates for its growing portfolio of national tenants. Its efforts inspire and drive the transformation and reinvigoration of the economic engines in the communities it serves. Phoenix continues to be defined by thoughtful relationships, sophisticated investment tools, cost efficient solutions, and a reputation for success.