Why Invest in Shallow-Bay Industrial?
Multi-tenant industrial real estate is an asset class in which multiple suites can be leased to various commercial tenants, from small to enterprise-level businesses. These units make cost-effective operating spaces for small and medium-sized enterprises, but larger, more established businesses may also take advantage of the flexibility this real estate solution offers.
This blog looks at shallow-bay industrial or light industrial buildings, why they are in such high demand, and the types of tenants who occupy them.
What Is Shallow-Bay Industrial?
Shallow-bay industrial properties are also called business parks, business centers, industrial parks, or multi-tenant industrial parks. The majority of tenants in these properties are smaller, local businesses that use them as auto shops, offices, or for inventory storage, manufacturing, or distribution.
They also provide local real estate solutions for national and international businesses. Shallow-bay industrial buildings are typically located in urban or suburban areas and strategically positioned near consumer markets.
Why Are Shallow-Bay Industrial Buildings in Demand?
Small and medium businesses contribute to 44% of the US economy. Multi-tenant industrial properties provide a cost-effective solution to house the operations of such companies.
Here are a few of the reasons shallow-bay industrial buildings are in demand.
Steady Income Stream
With multi-tenant industrial, you have five to 50 tenants, whereby no single tenant makes up more than five to ten percent of the project. This provides a stable income base for investors.
The tradeoff for this steady stream of income is an increase in management duties. Managing twenty leases means more need for a property manager, common area maintenance, HVAC maintenance, and enhanced tenant relations.
Reduced Vacancy Risk
This asset type enjoys lower vacancy rates when compared to single-tenant real estate. Housing commercial tenants from a diverse range of industries play a pivotal role in reducing the chances of high vacancy rates in this asset class.
Low Risk of Debt Service Default
The diversity of tenants and the certainty of cash flow they provide enable a low risk of debt service default. This certainty of cash flow is unlike single-tenant IRE, where the tenant has a steady cash flow but could easily go out of business during a recession or a bear market and be hard to replace during that same time.
Flexibility and Scalability
Shallow-bay industrial buildings are known for their flexible and scalable design. Designed with customizable layouts and adaptable spaces, they can be tailored to suit specific business requirements, easily accommodating a variety of tenants.
Proximity to Consumer Markets
Shallow-bay industrial buildings are typically located in urban or suburban areas close to major consumer markets. This enables national and international businesses to establish a localized presence, minimizing transportation costs and reducing delivery times. By positioning fulfillment centers near customers, companies can optimize logistics operations and streamline the last-mile delivery process.
Adaptability to E-commerce Trends
The e-commerce landscape constantly evolves, and businesses must adapt to stay competitive. Shallow-bay industrial buildings offer the flexibility needed to accommodate emerging trends in e-commerce. Their modular design allows for easy reconfiguration and integration of new technologies, ensuring businesses stay at the forefront of industry advancements.
Triple-Net Leases
It is easier to lease a multi-tenant industrial real estate on an absolute-triple net lease. This agreement is also known as an NNN lease, where the tenant takes responsibility for most of the maintenance of the property.
In a NNN lease, the tenant takes responsibility for the taxation, insurance, and common area maintenance. This is in sharp contrast to many assets, like residential real estate, where the investor has to offer janitorial and other managerial expenses.
Key In-Demand Property Features
The configuration of a shallow-bay building has to make loading and unloading easy to meet the demands of the e-commerce industry. Features like drive-through bays with clearance heights in the range of 25 to 35 feet facilitate the loading and unloading of delivery trucks. Some areas only offer properties with lower ceiling heights. In that case, lower clearance is still desirable.
Building depths ranging anywhere from 32 feet to 200 feet provide flexible, accessible space.
One of the most in-demand features is adequate parking for semi-trucks. Location is equally important since proximity to consumers is what makes these properties so useful. Easy access to highway systems and major interstates is desirable since it reduces transportation time and costs.
Even major e-commerce companies that own millions of square feet of industrial properties are seeking shallow-bay buildings to meet the skyrocketing consumer demand for local on-time deliveries.
Demand Creates Opportunity
For commercial investors seeking opportunities in the industrial real estate market, shallow-bay industrial presents an exciting avenue for growth. With its flexible layout and proximity to consumer markets, these properties align perfectly with the evolving needs of the e-commerce industry.
Commercial investors can tap into a wide financial base of small to large businesses that need cost-effective, flexible office and storage space, as well as the expanding e-commerce market.
If you are a commercial investor looking to capitalize on the evolving needs of businesses for well-located, flexible property for a variety of applications, connect with us to find the right shallow bay industrial property in the right location.
