Key takeaways
- Clear height, loading configuration, and truck court depth determine which tenants can use a building.
- Location is measured in drive time to population and to freight infrastructure.
- Industrial leases are typically long-term triple net with annual escalations.
- Functional obsolescence in older buildings is the primary value risk.
The specifications that matter
Clear height — the unobstructed vertical distance to the lowest overhead obstruction — governs how much a tenant can store per square foot. Modern distribution buildings run 32 to 40 feet clear; older stock at 18 to 24 feet cannot compete for the same tenants at the same rent.
Loading configuration matters equally. Dock-high doors with levelers, adequate dock door count per thousand square feet, drive-in ramps, truck court depth for trailer maneuvering, and trailer parking all determine functional usability. Column spacing, floor slab thickness, and power capacity round out the list.
Location as drive time
Industrial location is evaluated by drive time to population centers for last-mile distribution, and by proximity to interstates, intermodal rail, ports, and airports for regional distribution. Labor availability within a reasonable commute is increasingly decisive.
Infill industrial near dense population commands substantial premiums for last-mile logistics, and supply is constrained because land near cities is expensive and zoning is unfriendly. That scarcity has driven much of the sector's performance.
Underwriting and lease structure
Industrial leases are typically triple net with terms of five to fifteen years and fixed annual escalations of 3% to 4%. Because the tenant handles most operating costs, landlord expense exposure is limited primarily to structure, roof, and capital items.
The main risks are functional obsolescence, single-tenant vacancy exposure — a large box going dark creates a long re-lease period — and tenant credit quality. Underwrite re-leasing at market, not in-place, rent, and check whether the building's specifications will still be competitive when the lease rolls.
Frequently asked questions
What is flex space?
A hybrid combining office finish with warehouse or light manufacturing, typically lower clear height with grade-level loading. It serves smaller local tenants and has different demand drivers than big-box distribution.
Why do industrial cap rates trade below office?
Investors have priced industrial as lower risk due to structural e-commerce demand, long net leases, and limited landlord operating exposure. Pricing varies by cycle and submarket.
What environmental diligence is required?
A Phase I Environmental Site Assessment is standard, with Phase II sampling if the Phase I identifies recognized environmental conditions. Prior industrial uses make this essential.
Sources & further reading
- NAIOP industrial development benchmarks
- CBRE and JLL industrial market reports
- ASTM E1527 Phase I Environmental Site Assessment standard
Figures and rules change. Verify current requirements with the issuing agency or a licensed professional before acting.