The industrial real estate crunch shows no signs of relief any time soon, with some experts now saying we can expect low availability through 2023.
With industrial demand soaring and rents still climbing, industry stakeholders have explored numerous ways to create new industrial inventory.
One way involves converting underutilized commercial real estate properties from other verticals for industrial use.
With no shortage of unused office or retail space on the market, desperate industrial tenants may wonder why those properties can’t be used as warehouses or factories.
Though industrial conversions may seem like a simple answer to the industrial real estate shortage, these projects must overcome some unique hurdles.
We’ll explore some of the challenges of industrial real estate conversions below.
1. Zoning Out
Zoning requirements usually stand as one of the largest obstacles to industrial conversion projects. Big box stores, shopping malls, or large office space properties require commercial zoning that encompasses typical business use and traffic. However, there are multiple reasons why many cities and towns have separate designated industrial areas.
Industrial zones stand out for their higher noise concessions, larger lot sizes, deeper setbacks, and allowances for heavier traffic. As a result, convincing a city council or zoning board to rezone a retail or office space for industrial use may prove difficult, especially if the area is close to schools or residential areas.
2. Wrong Neighborhood
What works for a shopping mall or office building in terms of site selection may not work well for an industrial facility. For example, locating a retail store in a central location within a population center makes good business sense. However, a warehouse needs quick and easy access to the highway network to keep goods flowing as quickly as possible. A long line of semi-trucks in downtown traffic doesn’t present an ideal scenario for anyone involved.
However, accommodations can be made in some scenarios. For example, to operate in a centralized location, a fulfillment center, warehouse, or factory might limit its receiving or shipping hours to off-peak periods to avoid jamming up local roads. In addition, a fulfillment center could convert to electric equipment to keep noise levels and pollution down. Finding the right adjustments may involve extensive discovery with the local government, nearby businesses, and residents.
3. Bad Bones
Commercial buildings aren’t designed with industrial use in mind. By their nature, industrial operations tend to have fairly intense requirements that many commercial structures cannot meet. For example:
Despite the reasons above, converting properties for industrial use has potential. The key to a successful conversion will involve finding the right property.
At a minimum, a good conversion candidate should have the following:
Barring the above factors, a space with a good location and the right zoning can be torn down and rebuilt to suit industrial use. But, ultimately, you’ll need to work closely with your broker to find a good industrial conversion candidate.
Founded by Frank P. Crivello in 1994, Phoenix Investors and its affiliates (collectively “Phoenix”) are a leader in the acquisition, development, renovation, and repositioning of industrial facilities throughout the United States. Utilizing a disciplined investment approach and successful partnerships with institutional capital sources, corporations, and public stakeholders, Phoenix has developed a proven track record of generating superior risk-adjusted returns, while providing cost-efficient lease rates for its growing portfolio of national tenants. Its efforts inspire and drive the transformation and reinvigoration of the economic engines in the communities it serves. Phoenix continues to be defined by thoughtful relationships, sophisticated investment tools, cost-efficient solutions, and a reputation for success.