Industrial CRE 101

Industrial real estate encompasses properties used for warehousing, distribution, manufacturing, light assembly, and flex (office/warehouse) purposes. The sector is less consumer-visible than retail but moves a larger volume of capital annually in major commercial markets.

Product types include bulk distribution (large-format, single-tenant facilities typically over 200,000 SF), infill distribution (smaller facilities in dense urban or suburban locations serving last-mile delivery), light industrial (manufacturing, assembly, or storage in multi-tenant parks), and flex industrial (front-office with connected warehouse, 20–50% office finish).

Indiana sits at the center of the U.S. highway and rail network. The state has historically attracted significant industrial and logistics development because of its proximity to Midwest and East Coast population centers within a one-day truck drive. This structural advantage has intensified as e-commerce fulfillment demand accelerated after 2020.

Industrial leases are typically structured as triple net (NNN), though modifications are common. Long initial terms—10, 15, or even 20 years for build-to-suit facilities—with fixed rent bumps are standard for institutional-grade single-tenant assets.

Functional obsolescence is the primary risk in industrial acquisitions. A building with low clear height, inadequate dock loading, or poor truck court depth may lease well today but face significant re-leasing challenges as tenants' operational requirements evolve.

Location quality for industrial is defined differently than for retail or office. Freeway access, proximity to intermodal facilities or ports of entry, labor pool density, and truck routing restrictions all matter. An otherwise functional building in a location that restricts truck traffic has limited re-leasing optionality.

Cap rates for industrial tightened dramatically from 2019 to 2022. CBRE's H2 2024 Cap Rate Survey showed Class A bulk distribution trading in the 4.75–6.0% range nationally. Secondary market product and functional obsolescent buildings priced wider. Rising rates in 2023–2024 led to modest cap rate expansion from peak levels.

Overpaying for industrial during the 2021–2022 peak, particularly in secondary markets where rent growth assumptions proved aggressive, is an error that has worked through portfolios into 2024. The lesson: stress-test rent growth assumptions against historical averages, not peak-cycle performance.

Ignoring functional obsolescence risk in older multi-tenant industrial is another frequent error. Low-clear-height buildings face a narrowing tenant universe as modern logistics users require more operational capability. When a 22' clear height building sits vacant for 18 months while 32' clear buildings nearby are fully leased, obsolescence has done its work.

Buyers sometimes treat all industrial as equivalent. Bulk distribution, flex, and cold storage are distinct product types with different tenant profiles, leasing velocity, and capital requirements.

Following the exceptional 2020–2022 industrial cycle, vacancy began rising modestly in 2023 and 2024 as new development completed. CBRE reported U.S. industrial vacancy at approximately 6.6% in Q3 2024—elevated from 2022 lows but still below long-run historical averages.

The Indianapolis industrial market remains one of the more active secondary markets in the Midwest, driven by its logistics geography and growing advanced manufacturing base. Several large-format distribution centers were delivered in the metro in 2023–2024, creating some localized supply pressure in the bulk segment while smaller multi-tenant industrial remained tight.

Net absorption has moderated from the extraordinary 2021 pace. Rent growth has decelerated but remains positive in most Midwest industrial markets. Third-party logistics (3PL) providers, e-commerce fulfillment, and advanced manufacturing continue to drive demand.

Industrial brokerage requires technical knowledge of building specifications that most generalists don't carry. Clear heights, power service, dock configurations, ESFR requirements—these specifications determine whether a building works for a given user, and getting them wrong wastes everyone's time.

For investors, an industrial broker with active tenant relationships can provide early insight into upcoming lease renewals, tenant expansions, or subleases before they surface publicly. This information asymmetry matters in a sector where off-market deals are common.