According to new research from CBRE, even as the growth of e-commerce has lifted the entire industrial & logistics real estate sector, a sweet spot has emerged: warehouses smaller than 120,000 sq. ft.
CBRE analyzed U.S. industrial buildings by size and found that "light industrial" properties outperformed the other property types over the past five years. Specifically, light industrial warehouses measuring 70,000 to 120,000 sq. ft. registered the biggest decline in availability, down 3.9 percentage points, and the largest gain in average rents, 33.7 percent.
"In recent years, the headlines and attention have gone to the big-box distribution centers measuring 1 million sq. ft. or more to serve multistate regions," said Matthew Walaszek, CBRE Associate Director of Industrial & Logistics Research. "But smaller warehouses often positioned in densely populated markets are some of the most coveted properties for investors and users alike. These are the true last-touch warehouses from which merchandise is delivered directly to customers."
A relative dearth of construction of light industrial facilities has helped curtail availability and boost rents. Construction completions of light-industrial warehouses smaller than 120,000 sq. ft. have averaged 1 percent of the category's overall stock since 1990, according to CBRE. In comparison, construction completions of warehouses larger than 250,000 sq. ft. have averaged 3 percent of overall stock since 1990. The shortfall for light industrial properties results mostly from high land prices in dense markets as well as competition for space from other uses, like lofts and offices.
"We'll continue to see strong demand for light industrial facilities as e-commerce grows, which in turn means we can expect to see additional strong rent growth for these warehouses," said Chris Zubel, a Senior Managing Director leading CBRE's representation of Industrial & Logistics investors in the Americas. "Light industrial is the hottest coal in the campfire.