Warehouse Classifications – A Primer
Before you dive right into warehouse shopping, remember that location is everything. Be clear on governing authorities for different jurisdictions and their potential impact on you, as a lessee or owner of a warehouse in those areas. Take note as well of whether a particular building is situated within a flood zone, and if so, which one. Are you clear on the difference between flood zones AE and X shaded? If not, consider it a sign that you should be consulting a professional who can shed some light on the differences and how they might impact your operations.
Warehouses are sorted into three classes, creatively called A, B and C. Pricing and amenities vary from class to class, and the goal is to find a facility in the right location that perfectly meets your needs, at a competitive lease rate and, ideally, with tenant-favorable terms.
Finding the right space is a challenge, but you’re starting off on the right foot when you have current market knowledge and a clear understanding of what you need in a warehouse.
Warehouse Class A
The Class A warehouse has the highest base rent and operating expense costs. And for that, you can expect the most upgrades and amenities. Typically, warehouses of this class can be found in the most desirable areas. They are usually REIT owned and professionally managed.
They tend to have have the tallest eave heights (30’ and up), the highest density of fire sprinkler systems, the widest column spacing, the most cost-efficient building systems, the most spacious truck courts and the most trailer parking spots. It’s also common for Class A warehouses to have a very high dock count with cross docking.
Warehouse Class B
The B Class warehouse has a moderately priced base rent and lower operating expense costs than class A, plus a few of the amenities found in class A. Locations are often in town, as well as in the older portions of Sparks and Reno.
Ownership is usually mixed between REITs, regional investment groups and private investors, which means variables when it comes to ownership and management quality. Eave heights are usually around 24’ and column spacing tends to be slightly closer than those in class A. Fire sprinklers are usually .33/3000 gpm, and ESFR is rare. Lighting may have been upgraded in the B class, but heating will likely be older. Truck courts are often shorter than in class A, with partial use of the street required for 53’ trailers and fewer dock counts with front or rear loading only as a general thumb. Trailer parking spots are uncommon.
Warehouse Class C
The C Class warehouse is the lowest priced. In many cases, these buildings are considered functionally obsolete properties for today’s logistical operations use. That makes them better suited for manufacturing operations that don’t require warehouse distribution features. These properties are rarely ever owned by REITs because they don’t quality as “investment grade” properties. Ownership is almost almost by private investors, and property management can sometimes leave much to be desired.
Choosing Your Warehouse
Whether you suspect that your operation requires class A properties or class C properties, you should work with a professional to find the right facility. And what’s more, you should expect that professional to consider your transaction to be of the utmost importance and offer a variety of options for your review. The bottom line is that your agent works for you, so don’t settle into an arrangement in which the tables are turned.
One last suggestion, should you be thinking you can handle warehouse hunting by yourself. Read our post, “Think You Don’t Need a Commercial Real Estate Agent? Think Again.” And if you’re thinking of calling off the sign on the building, we hope you’ll read “The Hidden Trouble with the Landlord’s Real Estate Agent” first.