Subdividing Single-Tenant Industrial Warehouses Comes to the Fore

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Sep 26, 2024, 08:42 ET

Owners can meet robust demand from smaller tenants by splitting up vacant or underperforming industrial assets, advise architects from HFA Architecture + Engineering

FORT WORTH, Texas, Sept. 26, 2024 /PRNewswire/ -- Subdividing single-tenant industrial properties can enable owners to serve multiple lessees in growth areas such as cold storage and smaller-format data centers, advised architects from HFA Architecture + Engineering.

But multidisciplinary coordination is required to guarantee that these complex projects pencil out and function properly, write HFA's Marc Jennings and Andrew Akerhielm in the Fall 2024 issue of NAIOP's Development Magazine. Jennings, NCARB, is vice president of industrial and logistics and a leader in HFA's Fort Worth office. Akerhielm, AIA, NCARB, LEED AP BD+C, is a senior architect and client lead for Bentonville, Arkansas-based HFA.

Their four-page article, "Considerations for Subdividing Industrial Buildings," covers both the opportunities and challenges of switching from a single industrial user to multiple tenants.

While demand for new, single-user warehouses is still strong, they note, fewer occupiers are leasing the largest assets even as the availability of smaller-format industrial spaces has reached historic lows. "For owners of older, larger assets — especially industrial buildings that are vacant or on the cusp of becoming so — finding a single replacement user could be more difficult than in the past," write Jennings and Akerhielm. "Meanwhile, operators with more modest space needs are clamoring to do deals."

Creating separate entrances, installing partitions and adapting the layout can enable owners to accommodate multiple tenants. However, industrial users have varying needs for water, electricity and HVAC. "Each space must be properly submetered, with each tenant having independent controls," Jennings and Akerhielm note.

Current industrial trends—especially the growth of automation and data centers—call for a close look at utilities. "While the density of automated storage and retrieval systems (ASRS) means that some tenants will not need as large a space as in the past, their continuous use of this energy-intensive equipment could end up increasing the building's overall power requirements," the authors observe. Data centers, too, are notoriously power hungry.

As a result, Jennings and Akerhielm advise making sure the building has adequate electrical service to accommodate jumps in usage. It is also important to understand whether utility grid constraints could prevent the needed power upgrades.

Rezoning, such as moving to a medical research use or adding heavier manufacturing zoning permissions, can help ensure that the building remains versatile and appeals to a broader range of potential tenants, the authors advise.

And "upcycling" of the building for specific tenants or uses could be required as well. The industrial spaces used by today's smaller data centers, for example, typically must be kept within controlled temperature and humidity ranges, with precise approaches to ventilation.

And yet, many older industrial buildings were designed to maintain temperatures of 80 or 90 degrees Fahrenheit. "Introducing climate controls and better ventilation could require a detailed analysis of the building envelope and reinsulation of existing panels and the roof, along with assessments of rooftop mechanical equipment and the required addition of structural supports for the heavier HVAC system," write Jennings and Akerhielm.

Likewise, adding subdivided spaces for cold storage often requires the introduction of thermal breaks between freezer boxes and the parts of the building that surround them. "Typically, the floor must be torn out and replaced so that freezers can be properly isolated. Otherwise, cold can leach out from the boxes into the concrete, causing condensation and ice."

In the conclusion, Jennings and Akerhielm describe the importance of revisiting the building's entire fire safety and suppression system and studying how the subdivision project could affect overall operations in terms of traffic, parking and site/building flow. They highlight a project in the pipeline in Dallas-Fort Worth and offer potential costs for such projects.

"Subdivision might not be the best option for every asset, but it can be worth a second look, especially if vacancy looms or has already become an issue," the HFA authors conclude. "While massive, single-user warehouse distribution centers will continue to be prominent, demand is rising among smaller users too. Leveraging a subdivision strategy to meet these operators' needs could be a smart way to achieve full occupancy and higher ROI."

The full article is available (pp. 42-48) at:
https://www.naiop.org/globalassets/magazine/2024/fall-2024/2024_fall.pdf

Media Contacts: At Jaffe Communications, Elisa Krantz, (908) 789-0700, [email protected]

SOURCE HFA Architecture + Engineering