This surprises a lot of owners. A 20,000 SF industrial building split into ten 2,000 SF units is almost always worth more per square foot than the same building as one big open space. Seems counterintuitive but the math is pretty clear.
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Unit Sizes: What’s your typical bay size? Are they standardized or mixed? -
Occupancy and Stability: What percentage is leased? How long have existing tenants been in place? Are they creditworthy? -
Rent Levels by Unit: Are some units generating premium rents (high-demand tenants) and others below-market (weak tenants or bad locations)? -
Common Area Costs: Who pays CAM? Is it building occupancy dependent, or is it recovered 100 percent from tenants?
More tenants, deeper demand pool
There are way more businesses looking for 1,500-3,000 SF than there are looking for 15,000-20,000 SF. The small tenant pool is massive. Contractors, service companies, small distributors, e-commerce operators. They all need a bay and an office. When one moves out, there are ten more waiting to take the space.
Multi-Tenant Economics Questions
Buyers evaluate multi-tenant buildings on these metrics:
- What percentage of total SF is leased right now? (Target: 90 percent+)
- What’s your longest remaining lease term? (Target: 3+ years)
- Are tenants independent operators (contractors, small mfg) or corporate? (Independent pays premium)
- How many tenants expire in each of the next 3-5 years? (Staggered maturity is best)
- What’s the average rent per SF by unit? (Premium units subsidize vacancy risk)
Bigger spaces? The tenant pool shrinks dramatically. Finding a tenant for a 20,000 SF industrial space might take 6-12 months. Finding a tenant for a 2,000 SF bay takes two weeks. I’ve seen this play out over and over in Raleigh and across the Carolinas.
Higher rent per foot
Small tenants pay more per square foot. That’s just how it works. A 2,000 SF unit might rent for $10-12 NNN while a 15,000 SF space in the same market rents for $6-8 NNN. The landlord does more management work but the total income is significantly higher.
On that 20,000 SF building: ten units at $10 NNN = $200K gross. One tenant at $7 NNN = $140K gross. That $60K difference in annual income translates directly into a higher building value. At a 7.5 cap, that’s an $800K difference in value. For the same building.
Related: Castle Hayne and the North Wilmington Industrial Corridor
The trade-off
More tenants means more work. More lease renewals, more maintenance calls, more turnover. You’re essentially running a small business managing the building. That’s why a lot of multi-tenant owners eventually get tired and sell. The income is good but the workload wears you down.
If you own a multi-tenant industrial building and you’re at that point, the good news is your building is in high demand from buyers. The small-bay industrial market in Columbia and across the Carolinas is as strong as it’s been.
Seller takeaway
Multi-tenant industrial is a cash flow business. If you own a multi-tenant flex or industrial building and want to know what your mix of units and tenants is worth, call Roth Capital at 704-600-3839.
Call me if you want to know what yours is worth. 704-600-3839.
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