Industrial properties consist of three major groups: warehouse and distribution, factories and manufacturing, and Research and Development (R&D). Typically, these buildings contain 10% office space, except R&D which is usually half laboratory and half storage. Customers will indicate the type of building they need. Be sure to advise customers if the office area differs from the norm.

 In recent years another term has been added to descriptions of industrial buildings in some areas, flex buildings. It is not a building but rather a type of zoning. Over the years products have gotten smaller and overnight delivery of most products is now possible. Consequently, demand for some of the warehouses in the 75,000 – 100,000 SF range has been reduced. With no tenants or buyers interested in these buildings, the owner cannot afford to pay their mortgage and the real estate taxes are not getting paid as well. The local municipality needs their real estate tax revenue, so they rezone the property from industrial to flex zoning allowing multiple uses in the building. Now the building may be used in part for offices, part retail showroom, some self-storage or even apartments, restoring the tax revenue.

 With warehouses the ability to store and stack goods changes the focus from square footage to cubic space; ceiling height being a significant measurement.  Under steel (US), i.e. 24’US, twenty-four feet under steel is the measurement from the floor to the bottom of the steel girders that support a flat metal roof. Goods may not be stacked higher than the bottom of the roof supports. Columns hold up the girders, the distance, (span), between the columns is important to many businesses especially if they also store trucks or vehicles in the building.

 Traditional Distribution centers may hold goods for a short period of time, often having access from two sides of the building. Visualize a food distribution center having trucks delivering full loads of one type of product, meats, dairy or produce on one side and other trucks on the other side picking up portions of all the products for delivery to grocery stores.

 The advent of e-commerce developed another type of distribution center that offers bulk storage and acts as a “last mile fulfillment center” with small trucks making local deliveries. Amazon has 110 fulfillment centers in the U.S. ranging in size for 600,000 SF to 1,000,000 SF. At the peak of industrial requirements in 2023, finding strategic locations for building became more important than price!

Other industrial companies may be somewhat flexible as to the location of their facility, but need to consider access to major highways, transportation expenses, labor availability and labor costs. Key concerns of industrial “users” include amperage (power in the building), sprinklers, floor load in multi-story buildings (literally how much weight can a floor support) technology and internet access.

 Tenanted industrial buildings may also be sold as investments. These investments tend to have less turnover and longer leases. Many are Triple Net (NNN) single tenant leases with the tenants responsible for maintenance, real estate taxes and all other expenses.

 CommercialCafe reported in 2025 sales of industrial buildings reached their highest price level since 2022, with the average sales price per square foot (PSF) increasing 10% from 2024 to $135 PSF nationwide.

What is going on today?

 After years of record expansion and growth the industrial sector is now experiencing significant changes. A recent analysis also by CommercialCafe reported rents have dropped 4.7% from 2023, to a nationwide average of $8.87 PSF at the end of 2025. The vacancy rate of industrial properties at the start of 2026 is 9,2%.

 Another problem that exists is that 70% of industrial buildings were built before the 21^st Century and a third of these buildings are over 50 years old. New construction was halted or delayed during the heart of the pandemic due to building materials and labor shortages. Last year new construction of industrial properties was at its lowest point since 2017. Tariff uncertainty also continues to plague the building industry.

 According to CompStak, 31% of industrial leases in major markets will expire by 2027. Most of those tenants are currently paying less than market rent.

 Presently the largest demand is for warehouses under 20,000 square feet, within eight miles of major metro centers. Larger buildings, over 500,000 SF have also been in demand, but the mid-size industrial building market has slacked.

 Plus, the search and competition for industrial zoned land is increasing due to data center growth driven by AI and digital infrastructure. A recent CoStar report indicated that spending on data centers is expected to surpass spending on traditional warehouse development.

 Investor activity reflects challenges of opportunity verses risk. Concerns today include the high cost of capital, a slowdown in rent growth and tenant performance.

Tenants are concerned with the economy and their businesses performance. Consequently, they seek shorter terms with flexibility in their leases, ability to sub-lease and other escape clauses. This makes financing difficult at best.

 Available labor is another issue because of deportation policies and recent visa bans. Goldman Sachs has predicted an 80% drop in net immigration, which will adversely affect job growth. Historically starting in 2010, a million or more people moved to our country each year. Net immigration was down to 500,000 people in 2025 and is expected to plummet to only 200,000 in 2026. Creating additional problems of finding workers for farming and manufacturing and distribution companies in industrial buildings.