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As modern industry continues to segment itself by well-defined specialties, it becomes increasingly important for companies to choose facilities that fit their particular needs well. There will always be the giants of commerce, but most companies function within relatively specific boundaries, making their choice in physical operating space essential to overall efficiency and success.
TenantBase has prepared a guide to help companies choose between eight main types of industrial space, categorized by three subsets -- manufacturing, warehouse, and flex space. When selecting new space, companies must examine the different types available and, just as importantly, make a decision based on both current and future needs. While exceptional growth is a good problem to have, there’s nothing efficient about outgrowing new space within a year or two. Choosing the most appropriate space between these eight types requires one eye to focus on current needs and the other to constantly look down the road.
By simple definition, manufacturing facilities are sites where companies produce and assemble goods. Although there are a handful of common factors amongst them -- less than 20% of total square footage devoted to office space, loading docks for trucks, clear heights of 10 feet or more -- there are many variations available. Those differences primarily revolve around the size of the equipment and the type/amount of materials used throughout the manufacturing process.
Heavy manufacturing facilities are those that fit the more traditional image of a large plant with a vast footprint, massive machinery, and huge quantities of needed resources to produce heavy-duty products and materials. Likewise, three-phase electrical power, ample dock space for a steady stream of trucks or trains, and a considerable amount of customization are all mainstays in heavy industry manufacturing sites.
Common uses of heavy industry sites include a variety of refineries, utilities, meatpacking companies, semiconductor producers, and other key industries. Given the specialized equipment required for these types of manufacturers, heavy industry space isn’t quickly interchangeable between companies. Often times, months of work is necessary to transform the facilities to meet the needs of a new tenant.
Light industry manufacturing sites are far more flexible and agile requiring significantly less square footage and customization. These facilities typically assemble products that are manufactured elsewhere and exist further down the supply chain. After assembly, many light industry sites store the products until they are ready to be shipped either directly to a vendor or to the final customer in streamlined logistics systems. Since light industry facilities are more readily adaptable to a wide range of companies and sectors, they have greater market availability than heavy industry sites.
As the Amazon Effect continues to take root and reinvent modern supply chains, warehouses occupy an even more pivotal role in the economy. Defined as a planned space for the efficient storage and handling of goods and materials, warehousing as a concept has become more of a convergence between traditional storage and distribution centers. While those lines will continue to intersect in the future and create a more homogeneous type of warehouse space, companies still have three primary types available to fit their specific needs.
Distribution warehouses function as critical hubs in logistics networks. Their location is of utmost importance allowing them to serve a predetermined region efficiently. They often work as part of an overall web of evenly spaced distribution facilities, coordinating with one another. When choosing distribution warehouse space, the location matters just as much as the facility itself. The space must allow companies to effectively serve their customer base and add efficiencies to the overall process through automated technologies, sufficient dock space, and proximity to freeways, railways, or airports if needed.
Truck and railway terminals are a subset of distrubtion centers and exist for the sole purpose of transferring inventory from one truck, railcar, or shipping container to another. Storage within a terminal facility is minimal if existent at all since the products are only at the space for a brief amount of time. Terminals are intermediary sites and exclusively serve transportation purposes. Distance to freeways is an important consideration when choosing terminal space along with extensive truck docks and plenty of open room for inventory to be transferred from one vehicle to another.
When most people think of a warehouse, they think of general warehousing. There’s still tremendous demand for space that meets those traditional ideas of warehousing geared specifically towards inventory storage.
The layout and design of a general warehouse differ substantially from the other types featuring lower door to square footage ratios and less importance placed on location. This type of warehouse space doesn’t need countless rows of rolling doors or specialized machinery since it is an indefinite holding center for product as it waits to proceed further along the supply chain. Price points for general warehouse space typically don’t place a significant premium on proximity to transportation corridors or target customer clusters since agility is a secondary concern to sufficient size and storage capacity.
There can be a fair amount of specialization in general warehouses depending on the nature of the business or industry. Food manufacturers require cold general warehouse facilities to refrigerate or freeze their products before distribution. Companies storing environmentally sensitive material like cleaning products, lithium batteries, pharmaceuticals or any number of potentially hazardous goods often require specific safety equipment, security or both depending on the nature of the inventory.
Flex space is designed to provide a tenant flexibility in its usage. Such adaptability can be a particularly important factor for small to mid-size companies that have a need for both office and warehouse space but don’t have the budget or staff to support two separate leases and properties. Since the spaces themselves tend to be purposely plain in construction and design to maximize usefulness, price points are also lower in comparison to similar square footage in other types of industrial space.
To demonstrate the utility of flex space a company can add or remove features to make the space adhere to their specific needs. If a small furniture company manufactures and sells their own products, flex space can be used to segment offices needed to run the company devoting the remaining square footage to warehouse space that the business further segments into a manufacturing facility and showroom. The furniture company can run the business, manufacture the product, and display it to the consuming public, all from the same facility.
Such flexibility in space creates both operational and cost efficiencies by leveraging the square footage to serve the most applications possible while still only requiring a single lease. From an operations perspective, having all company employees within the same facility can pay significant dividends in improved communication between departments and better camaraderie. Like both manufacturing and warehouse facilities, flex space can be categorized into specialized subsets that cater towards particular needs and industries.
Better known as R&D these facilities are often the most specialized of the eight types of industrial and warehouse space. The amount of customization required depends on the company and industry. R&D facilities in the pharmaceutical, biological or chemical space need to meet stringent environmental codes in their research space.
R&D facilities are an extremely specialized version of flex space typically requiring lower ratios of office space to total square footage but usage varies from company to company. While research and development includes laboratory testing in many different fields, R&D space can also take the form of massive silos particularly when absolute secrecy is required to test a new product. In the earlier stages of development, automobile manufacturers use massive indoor testing facilities to test new models or functions before the cars are ready for a road test.
Given the highly digitized nature of modern commerce, most companies require some degree of data storage that requires specific facilities to house the storage equipment, run IT systems, and facilitate cloud storage and computing.
For those requiring their own facilities for such purposes specialized space is needed for climate control and security protocols. Of the eight types of industrial and warehouse office space data centers have seen the most growth in both availability and price in recent years as more companies understand that data storage and security should be a mainstay of operational strategy rather than an afterthought like in years past.
Showrooms are an important type of flex space that allow companies to showcase their products in a controlled environment. As briefly referenced in our flex space example, furniture manufacturers frequently use showrooms as well as many other types of companies. Car dealerships are another prominent example of flex space that uses a substantial portion of square footage strictly for showcasing automobiles.
While this is a generalized list of the most common types of industrial and warehouse office space, it's certainly not comprehensive. As businesses evolve towards a more specialized approach to manufacturing, distribution, and sales, industrial space will evolve along with them. Advanced supply chains will only further push industrial space towards a greater number of categories and subsets particularly in flex space and highly customizable facilities.
TenantBase is here to serve your industrial office space needs and will continue to be a leader in forward-looking, innovative solutions. When it's time to find new industrial space, no matter how far industry evolves and space specializes, working with an expert CRE advisor can help you determine what type of space will best suit your needs both now and in the foreseeable future.
Market trends come and go as does the popularity of certain types of industrial space. The need for due diligence to fully understand a company's needs coupled with a highly qualified broker with extensive knowledge of the local commercial markets will always be essential building blocks for future success.
