Industrial Real Estate Faces Change: Key Features Become Obsolete
Industrial real estate is undergoing significant transformation as many once-standard features become obsolete. In a recent discussion on *The Industrial Real Estate Podcast*, hosted by fellow broker Chad Griffiths, the evolution of property types and their declining relevance was a focal point. With over 60 years of combined experience, Griffiths and Allen C. Buchanan, a principal at Lee & Associates Commercial Real Estate Services, explored the impact of changing market demands.
Reflecting on their decades in the industry, both professionals noted the increasing frequency of buildings that no longer meet modern standards. As the landscape of industrial real estate shifts, it is essential to identify what has become obsolete.
Declining Standards for Industrial Structures
Once the standard for small- to mid-sized warehouses in Southern California, concrete block structures were favored in the 1960s and 70s for their affordability and durability. However, as the decades passed, these buildings fell out of favor due to their susceptibility to cracking and limited design flexibility. Today, investors often evaluate the costs of retrofitting these structures for earthquake safety or deem them unworthy of investment altogether.
The height of warehouse clearance has also undergone a dramatic shift. In the 1980s, a clearance of 16 to 20 feet was considered adequate for traditional distribution. However, with the rise of e-commerce and advanced racking systems, 20-foot clear heights are now inadequate. Modern expectations demand a minimum clearance of 24 feet, with many facilities now exceeding 32 to 36 feet to accommodate new logistics needs. As a result, properties with lower clearance are often relegated to niche uses, such as small distributors or repurposed spaces like breweries and gyms.
Loading Dock Requirements Evolve
Loading dock standards have transformed significantly as well. Previously, dock-high loading was satisfied with a few wells situated at the back of a building. Now, tenants require expansive truck courts, multiple dock positions, and a minimum of 130-foot depth to maneuver 53-foot trucks effectively. Properties lacking sufficient loading capabilities are swiftly disqualified from consideration, with clients often abandoning functional options due to inadequate logistics infrastructure.
The trend of converting warehouses for specific industries also raises concerns about obsolescence. During the telecommunications boom of the 1990s, many warehouses were retrofitted into telecom facilities. Following the market crash, many of these repurposed buildings became costly liabilities, proving difficult to revert to their original function as warehouses. These structures exemplify the risks associated with over-specialization in industrial real estate.
Similarly, early data centers created before the dot-com crash faced similar fates. Designed for a burgeoning market that did not materialize, these facilities featured oversized chillers and outdated cabling. While the demand for data centers eventually surged, only the next generation of purpose-built, highly efficient facilities gained traction, leaving earlier models to languish or face demolition.
R&D flex buildings, once heralded in the 1980s and 90s, also illustrate the shifting landscape. Originally designed to accommodate a mix of office, light manufacturing, and laboratory space, these buildings attracted startups and tech companies. However, as industry needs evolved, many of these structures became harder to lease. The market increasingly favors either fully dedicated warehouses or high-quality creative office spaces, leading to the repurposing or removal of many flex projects.
Understanding the lifecycle of industrial properties is crucial for stakeholders in the real estate market. What was once considered state-of-the-art may now represent a liability. Brokers, investors, and tenants must remain vigilant in recognizing when features have become outdated, allowing them to adapt proactively rather than reactively.
As Buchanan eloquently summarizes, “Buildings have life cycles just like everything else.” The capacity to identify when a feature ceases to be an asset is paramount in navigating the ever-evolving landscape of industrial real estate.
