Few property sectors have realized the significant gains of the industrial sector since the beginning of the pandemic. Investors have been quick to get in the game — industrial investment sales in 2021 through November jumped up by 58%, even compared to a record 2020. But is now the right time to make your first industrial investment? What property aspects and characteristics separate the strong opportunities from the weak?

A Strong Market Getting Stronger?

Although e-commerce businesses had been growing for years prior to 2020, the abrupt drop in on-site retail activity caused e-retailer growth to surge worldwide. In 2021, an estimated 19.6% of global retail sales were handled online, according to a Statista report. That’s a huge leap from the 13.8% reported two years earlier, and online retail sales are only expected to continue surging.

As shoppers continue to choose web browsers over shopping malls, industrial real estate investors will reap the rewards. A January 2022 report from CommercialEdge highlighted that industrial rents have increased by 5.1% year-over-year, driven by surging demand for storage and distribution space alongside incredibly tight vacancy rates — particularly in coastal markets.

Of course, as rents climb, so too does the value of industrial real estate. Average sales prices on a per-square-foot basis jumped nearly 30% from 2020 to 2021, which could represent a significant barrier to entry for would-be investors. However, the gains have been largest in modern, Class A properties. While Class B and C assets have also increased in value, not all facilities are created equal. So, what factors set a strong industrial investment apart?

It’s All About Location

As always, the old location adage rings true. However, industrial investors should consider certain, unique aspects of a warehouse’s location that may be irrelevant in other sectors. First of all, how close is your prospective investment to a highway? While having railroad access or a port nearby can play a critical role, highways are the backbone of the transportation industry and should be considered accordingly. Also, are there any public infrastructure improvements underway in the metro area you’re considering? Anything that improves access to and from your property — whether today or in five years — will drive value.

Of course, that is not to say that investments far from an interstate can’t offer a significant investment upside. Consider the spike in demand for last-mile distribution space in the past few years. Because transportation costs tend to outweigh storage costs, a number of small warehouses in a major metropolitan area could be a much cheaper option for tenants compared to renting one large space in a mega warehouse well outside a city.

To Dizzying Heights

One of the most important measurements in the sector is a building’s clear height — defined as the height on the interior of a structure that can be used for product storage. Most properties constructed before the 1980s had clear heights of less than 20 feet, but today’s modern distribution centers commonly offer 36-foot clear heights or more, dramatically increasing the amount of cubic space available in the facility.

For this reason, while square footage does play an important role in industrial real estate, cubic footage is just as important. Consider this: A 50,000-square-foot property with 36-foot clear heights has 50% more cubic space than a structure with the same footprint but only 24 feet of clearance. As clear heights are not easily changed — you would need to rebuild the structure, essentially — pay close attention to this figure when looking at an investment opportunity.

It’s What’s Inside That Counts

Beyond its height, the physical characteristics of an industrial building can vary widely depending on a structure’s age and initial purpose. Some questions to ask yourself:

• How many loading doors does the building have? 

• Are the docks equipped with bumpers and levelers to ensure smooth operations for your tenants? 

• How spaced out are the columns throughout the facility? 

• Is there enough office space built out? 

While newer assets — particularly those built in the past two decades — may meet most smaller tenants’ requirements, it is important to assess the needs of your market’s industrial users in defining your investment criteria.

Most interior characteristics of an industrial facility — columns generally notwithstanding — can be upgraded or reconfigured. While not a small expense, making meaningful improvements to a dated property by updating ventilation systems, adding LED lighting, or even increasing office space can mean the difference between an older vacant warehouse and an older occupied warehouse. 

But the Outside Is Also Crucial

Elements on a property’s exterior are a key determining factor in a good industrial investment, as is the land itself. Does the facility’s loading area offer sufficient space for a truck — or multiple trucks — to maneuver? Is there ample parking on-site? If necessary, are truck courts secured and fenced off?

While a lack of exterior space may inhibit some improvements, understanding what’s possible and what’s not is critical in assessing a property’s long-term investment viability. For example, ask yourself: Could parking spaces be added later if necessary? Is there room to even expand the building itself? Technological and energy-efficiency improvements, like solar panels atop a structure’s roof, could also be an effective way to boost your asset’s value.