In the final installment to this series, we’ll discuss important location linkages as they pertain to industrial real estate. Unless an investor has previous experience in industrial real estate, this asset type can be a little intimidating for some. To add further complications, industrial real estate can be further divided in warehousing/distribution, manufacturing, flex, R&D, and storage. Each of these different subcategories can carry completely different linkages than another; therefore understanding the type of use and the tenant’s businesses are key to understanding the linkages that accompany them. Let’s take a look at some of the most important aspects of industrial.
-Access to important transportation arteries
-Adjacent to public infrastructure
-Access to appropriately skilled labor pool
-Close proximity to suppliers, raw goods, and customers
Access to important transportation arteries is typically the largest linkage for almost all industrial groups, especially for warehouse/distribution uses. Depending upon how an industrial building is configured and what the tenant’s use is, they could need ease of transport to rail service, highways, airports, or waterways/ports. For example a 3PL (third-party logistics company) that provides mostly air-based cargo shipping will absolutely have to be located near a major airport. Companies moving raw materials nationally will most likely need easy access to rail transportation, or even a rail spur directly to the building in some cases. Ease of access lowers costs for tenants and allows them to remain competitive in a low-margin industry.
Being adjacent to public infrastructure typically has to do with manufacturing. Depending upon the use, a company may need access to increased power from utilities, large volume water and sewer capacity, or chemical disposal. Manufacturing facilities that don’t have access to infrastructure are often put at a disadvantage because it forces a tenant to make adjustments to their production operations. This will ultimately stunt growth for your tenant, increasing the likeliness that they will be looking for another facility as they grow. Food production facilities need water and sewer access that typically goes far beyond traditional capacities and therefore is a large consideration for these types of companies.
Access to an appropriately skilled labor pool is similar to what we’ve discussed in previous articles. The type of business will drive whether they need white-collar (R&D, manufacturing) or blue-collared employees within a certain radius of the location. The more access to these employees, the more likely a business will maintain its location in your building.
In order to remain competitive, industrial users need to be in close proximity to suppliers, raw goods, and their customers. This linkage is similar to the first and can be accomplished simply by having easy access to transportation routes. Other times, their customers can be in specific locations or there may be specific suppliers that are integral to their operations. Ultimately understanding a tenant’s use can determine whether they will be successful in a location.
Industrial is another asset type that continues to evolve. With disruptions from e-commerce, transportation costs, and changing demographics, it’s important to understand what linkages industrial users need and then match them up to an appropriate building. Locating a building that has as many of these linkages as possible means that you have a competitive building in a good location that can keep rents coming in.