Industrial Flex Buildings: Meeting the Challenges of Modern Commerce
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Modern commerce has changed dramatically since the pandemic, with many businesses shifting to online commerce models, more consumers shopping online, and more complex supply chains.
As a result, businesses need fast and adaptable industrial space that meets the demands of today's highly dynamic and ever-changing market.
That's where flex industrial space comes in. Here, we'll cover the main benefits and use cases of industrial flex space.
We'll discuss examples of flex space, its advantages and disadvantages, and how flex space can serve as an excellent commercial real estate investment in today's e-commerce-driven economy.
Let's get started.
What Are Industrial Flex Buildings?
Industrial flex buildings are commercial real estate that combines components of industrial real estate with office or retail real estate. The “flex” in industrial flex space refers to the flexible and multi-use nature of these properties.
Common features of industrial flex properties include warehouse features, such as loading docks, high ceilings, loft storage, and clear-span construction for storing goods. Some flex industrial buildings include cold storage systems, as well.
Typically, flex industrial space is zoned for light industrial use, but it might also be zoned for commercial and retail space. Note that zoning determines what kinds of activities can and can't occur on the property: The light industrial zoning status used for most flex industrial space might allow for some types of manufacturing but not others.
What Are Examples of Industrial Flex Buildings?
Below are some common examples of industrial flex buildings.
#1 – E-commerce Warehouses
Demand for flex space in the e-commerce industry has exploded in recent years thanks to the growing need for effective logistics in supply chains.
E-commerce fulfillment centers need warehouse space for storing goods and office space for conducting retail order operations.
#2 – Light Manufacturing
Light manufacturing operations prefer the open floor plan commonly found in flex industrial space: It allows for the assembly and rearrangement of machine manufacturing parts in addition to storage space for produced goods.
#3 – Food Production
Food and beverage producers often purchase and outfit flex industrial space with commercial-grade kitchens and temperature-controlled storage for food production and distribution.
#4 – R&D Facilities
Similarly, R&D businesses might prefer industrial flex for tech, pharmaceutical, and biotechnological research. Flex space can be outfitted with specialized lab equipment and cold storage for specific research applications.
#5 – Auto Repair
Body shops also tend to favor flex space: The industrial side is used for car repair, and the office side is used for conducting business and seating waiting customers.
How Much Does Flex Industrial Space Cost to Buy?
The average sales price for flex industrial space in the US was $136 per square foot as of 2023. Note that flex industrial sales prices can vary heavily depending on the state.
For example, flex space in Philadelphia averages $53 per square foot, while flex space in Los Angeles averages $322 per square foot. That's quite the difference.
We highly recommend working with a commercial real estate broker when searching for industrial flex properties. Aside from providing general commercial real estate advice, brokers can handle the most essential parts of the commercial real estate buying process, including:
- Searching for properties;
- Drafting letters of intent;
- Analyzing market data and comparables;
- Scheduling inspections;
- Exploring financing options;
- Providing mortgage information; and
- Negotiating sales contracts.
A broker on your investment team can be an invaluable asset when navigating the ever-changing and dynamic industrial real estate market.
What Are the Advantages of Investing in Industrial Flex Properties?
Flex industrial real estate is a good gateway into the commercial investment world. Below are a few reasons why flex industrial space makes an ideal real estate purchase.
#1 – Cost-Effective
Industrial flex space is typically less expensive than traditional office or industrial space thanks to its simpler design and floor plan.
For example, the average median cost for flex space in Houston is $81.82 per square foot, while the average cost for office space in Houston is $125 per square foot.
#2 – Flexible Property
Regarding their layout and use, flex industrial space is highly, well, flexible. Tenants from a wide range of industries can use flex property for retail, office, and manufacturing services, meaning industrial flex property owners have a large pool of potential renters.
#3 – High Demand
Industrial and warehouse financials are stronger today thanks to rapid demand growth in recent years, particularly among logistics and e-commerce companies.
Although demand for net lease industrial space has leveled off in the first half of 2023, demand remains well above pandemic levels. Moreover, new technologies, like AI software and robots, are increasing warehouse productivity and lowering costs, reducing total overhead for owners.
Downsides of Flex Industrial Properties
Like any commercial property, flex industrial space also has its drawbacks.
#1 – Management & Upkeep Costs
Flex industrial space often features complex machinery and temperature control systems that result in high utility bills. For instance, utilities account for about 15% of the average warehouse's operating costs, most of which is split between heating and lighting.
The combination of office and industrial space also raises management and upkeep costs.
#2 – Appearances
Flex industrial buildings are by no means low-quality properties, but they often have a more utilitarian and ‘unfinished' look than traditional retail or office space.
In that sense, some business owners might hesitate to rent the space.
#3 – Single Tenant
Unlike offices or retail shopping centers, flex industrial spaces are usually single-tenant. Since rental income only comes from a single tenant, vacancies can significantly disrupt your monthly cash flow.
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