Industrial Warehouses and Distribution Centers: Invest Smart
Key takeaways:
- Industrial warehouses store goods for longer periods, while distribution centers focus on rapid product movement
- Location is crucial: warehouses can be in remote areas, distribution centers need proximity to transportation hubs
- Distribution centers require more advanced technology and automation systems
- Real estate investors should consider the specific needs of potential tenants when choosing between these property types
- Both asset classes offer strong potential returns in the Spokane market due to growing e-commerce demand
Industrial warehouses and distribution centers are two distinct types of commercial real estate that play crucial roles in the supply chain. While they may seem similar at first glance, these properties have key differences that real estate investors should understand. Let's break down the main contrasts between industrial warehouses and distribution centers to help you make informed investment decisions in the Spokane market.
What are industrial warehouses?
Industrial warehouses are large facilities designed for long-term storage of goods and materials. These buildings typically feature high ceilings, wide open spaces, and loading docks for trucks. In Spokane, you'll find many industrial warehouses along major highways like I-90 and US-395.
Purpose and function
The primary purpose of an industrial warehouse is to store inventory for extended periods. Companies use these spaces to keep excess stock, seasonal items, or bulk materials until they're needed. Warehouses often serve as a buffer between manufacturers and retailers, allowing businesses to maintain steady supply levels.
Design and layout
Industrial warehouses are built with storage in mind. They usually have:
- Tall ceilings (often 24 feet or higher) to maximize vertical storage
- Large, open floor plans for flexible racking systems
- Minimal office space (typically less than 10% of the total area)
- Basic lighting and ventilation systems
- Simple concrete floors designed to support heavy loads
Location considerations
Warehouses don't need to be in prime locations since they're not focused on quick distribution. In Spokane, you'll find many warehouses in more affordable areas like the West Plains or Spokane Valley. These locations offer lower land costs while still providing decent access to transportation routes.
What are distribution centers?
Distribution centers, on the other hand, are designed for rapid product movement and order fulfillment. These facilities act as hubs in the supply chain, receiving goods from manufacturers and quickly shipping them out to retailers or end customers. In Spokane, you'll see distribution centers clustered near the airport and along major interstates.
Purpose and function
The main goal of a distribution center is to efficiently process and ship orders. These buildings are set up to handle high volumes of incoming and outgoing goods, often with same-day or next-day delivery targets. Distribution centers are crucial for e-commerce operations and just-in-time inventory management.
Design and layout
Distribution centers have more complex designs than warehouses:
- Advanced conveyor systems and sorting equipment
- Dedicated areas for order picking, packing, and shipping
- More office space and employee amenities
- Sophisticated inventory management systems
- Multiple loading docks and truck courts for quick turnaround
Location considerations
Location is critical for distribution centers. They need to be close to major transportation hubs like airports, highways, and rail lines. In Spokane, prime spots for distribution centers include areas near Spokane International Airport and along I-90. These locations allow for fast, efficient delivery to customers across the Inland Northwest.
Key differences between warehouses and distribution centers
Understanding the distinctions between these property types is crucial for real estate investors. Here are the main factors that set warehouses and distribution centers apart:
Storage duration
Warehouses are built for long-term storage, often holding goods for months or even years. Distribution centers, by contrast, aim to move products out as quickly as possible, often within days or even hours of receiving them.
Technology and automation
Distribution centers typically have more advanced technology systems than warehouses. They use sophisticated inventory tracking, automated sorting equipment, and real-time order management software. Warehouses may have simpler systems focused on inventory tracking and basic order processing.
Labor requirements
Warehouses generally need fewer workers, as their main function is storage. Distribution centers require larger workforces to handle picking, packing, and shipping operations. This means distribution centers often have more extensive employee facilities like break rooms and locker areas.
Building specifications
While both property types need high ceilings and loading docks, distribution centers have more specific requirements. They often need:
- More loading docks per square foot
- Larger truck courts for maneuvering
- Higher power capacity for automation equipment
- Better insulation and climate control for worker comfort
Operating costs
Distribution centers typically have higher operating costs due to their more complex systems and larger workforces. Warehouses, with their simpler operations, usually have lower ongoing expenses.
Factors to consider when investing in warehouses vs. distribution centers
As a real estate investor in Spokane, you'll need to weigh several factors when deciding between warehouse and distribution center properties:
Tenant needs
Consider the types of businesses operating in the Spokane area. Are there more companies needing long-term storage, or is there high demand for rapid distribution facilities? Understanding the local market will help you choose the right property type.
Location availability
Spokane has limited prime real estate near major transportation hubs. If you're considering a distribution center investment, you'll need to carefully evaluate available locations and their potential for future growth.
Initial investment
Distribution centers often require a higher upfront investment due to their more complex designs and technology requirements. Warehouses may offer a lower barrier to entry for investors.
Potential returns
While distribution centers can command higher rents, they also come with higher operating costs. Carefully analyze potential cash flows for both property types in the Spokane market.
Future adaptability
Consider how easily the property could be converted to other uses in the future. Warehouses may offer more flexibility, while highly specialized distribution centers could be harder to repurpose.
The Spokane market outlook for industrial real estate
Spokane's industrial real estate market has been growing steadily, driven by increased e-commerce activity and the city's strategic location as a regional distribution hub. Here's a quick overview of the current market conditions:
| Metric | Warehouses | Distribution Centers |
|---|---|---|
| Vacancy Rate | 3.2% | 2.8% |
| Avg. Lease Rate ($/sq ft/year) | $6.50 | $7.75 |
| New Construction (sq ft) | 500,000 | 750,000 |
| Absorption Rate (last 12 months) | 350,000 sq ft | 600,000 sq ft |
Both warehouses and distribution centers are seeing strong demand in Spokane, with low vacancy rates and steady rent growth. However, distribution centers are experiencing slightly faster absorption and higher lease rates due to the booming e-commerce sector.
Financing options for warehouse and distribution center investments
When investing in industrial properties like warehouses or distribution centers, you'll need to consider your financing options. Here's a quick rundown of common loan types for these investments:
- Conventional commercial mortgages
- SBA 504 loans (for owner-occupied properties)
- Bridge loans for quick acquisitions or renovations
- Construction loans for new development projects
- CMBS loans for larger, stabilized properties
As a hard money lender specializing in real estate investments, PMC Money offers flexible financing solutions for warehouse and distribution center projects in Spokane. Our team understands the local market and can provide quick approvals and closings to help you capitalize on opportunities in this growing sector.
Environmental considerations for industrial properties
When investing in warehouses or distribution centers, it's important to consider environmental factors:
Energy efficiency
Both property types can benefit from energy-efficient upgrades like LED lighting, improved insulation, and solar panels. These improvements can lower operating costs and make the property more attractive to tenants.
Stormwater management
Large industrial properties often have extensive paved areas, which can lead to stormwater runoff issues. Implementing green infrastructure like bioswales or permeable pavement can help manage runoff and meet local regulations.
Air quality
Distribution centers, with their higher truck traffic, may face more scrutiny regarding air quality impacts. Consider investing in properties with good ventilation systems and space for electric vehicle charging stations to future-proof your investment.
The impact of e-commerce on industrial real estate
The rise of e-commerce has significantly changed the industrial real estate landscape, especially for distribution centers:
Increased demand
Online shopping has driven up demand for both warehouses and distribution centers. Companies need more space to store inventory and fulfill orders quickly.
Last-mile facilities
There's growing demand for smaller distribution centers located closer to urban areas. These "last-mile" facilities help companies offer faster delivery times to customers.
Technology integration
E-commerce operations require more advanced technology systems, pushing property owners to upgrade their buildings with better power supplies and data connectivity.
Challenges in the industrial real estate market
While the industrial sector is strong, there are some challenges to be aware of:
Land scarcity
In Spokane, finding suitable land for new industrial development can be difficult, especially for large distribution centers needing prime locations.
Construction costs
Rising material and labor costs have made new industrial construction more expensive, potentially impacting investment returns.
Changing tenant needs
As technology and supply chain strategies evolve, tenants may require different building specifications. Investors need to stay adaptable to meet changing market demands.
The role of third-party logistics providers
Third-party logistics (3PL) companies are becoming increasingly important in the industrial real estate market:
Flexible space users
3PLs often lease large amounts of warehouse or distribution center space, providing stable tenants for property owners.
Specialized knowledge
These companies bring expertise in supply chain management, which can inform property design and improvements.
Market drivers
The growth of the 3PL industry is creating new opportunities for industrial real estate investors in Spokane and beyond.
Future trends in industrial real estate
Looking ahead, several trends are shaping the future of warehouses and distribution centers:
Automation and robotics
More facilities are incorporating advanced automation systems, which may change building design requirements.
Multi-story warehouses
In areas with limited land, multi-story warehouses and distribution centers are becoming more common.
Sustainability focus
Tenants and investors are increasingly prioritizing environmentally friendly building features and operations.
Cold storage demand
The growth of online grocery shopping is driving demand for specialized cold storage facilities.
Making informed investment decisions
Choosing between warehouse and distribution center investments in Spokane requires careful consideration of market trends, tenant needs, and property characteristics. Both asset types offer strong potential in the current market, but they come with different risks and opportunities.
By understanding the key differences between warehouses and distribution centers, you'll be better equipped to make smart investment choices in Spokane's growing industrial real estate sector. Whether you're looking at existing properties or considering new development, PMC Money is here to help you navigate the financing process and capitalize on the opportunities in this dynamic market. For more information, you can visit our website or contact us.