With investment sales of industrial properties predictably having rung up one of the highest tallies among property sectors in 2020, it’s legitimate to ask whether there’s anything new under the sun. JLL Capital Markets has found one sub-class that is gaining significant interest amid increasing competition generally: multi-use logistics properties. The firms defines these as typically older multi-tenant assets with solid footprints within infill urban logistics markets that boast compelling rent growth profiles.
“The long-term outlook for multi-use logistics is strong, with clear industry momentum from ‘fabric of society’ tenants and growing investor demand for this sub-class,” said John Huguenard, co-head of JLL’s industrial capital markets group. “With new yield-focused investors entering into the industrial space, small-bay product is desirable as an alternative to the ever-tightening bulk industrial market.”
In a new report, JLL Research defines multi-use logistics assets as 20,000- to 100,000-square-foot multi-tenant industrial buildings in dense, infill locations nationwide. These buildings often contain distribution, flex showroom, industrial showroom, R&D, warehouse and/or manufacturing space and have a diversified, local tenant base.
Since they’re often older properties, they’ve witnessed population centers growing around them. JLL says this makes multi-use logistics properties not only almost impossible to replace but also highly sought-after as last-mile logistics locations close to end users.
Compounded by industry fundamentals driven by macroeconomic factors such reshoring and acceleration of e-commerce adoption, the increased demand for these smaller, multi-tenant industrial assets has significantly dropped vacancy rates nationwide, now holding at under 9%.
“This sub-class has huge potential upside on rent growth driven by low vacancy and limited new supply,” Huguenard said. “Multi-use logistics rent has grown more than 54% since 2010 and nearly 21% since 2017, outpacing the national average for the broader industrial market.”
JLL anticipates a nationwide 4.6% rent growth for triple-net-leased multi-use logistics between 2021 and 2024, compared to 3.8% for all U.S. multi-tenant industrial and 3.7% for the entire property sector. However, this sub-class accounts for only 15% of overall industrial product inventory.
The currently limited supply of product in this sector is reinforced by a lack of new construction. According to JLL’s report, construction activity for multi-use logistics properties is hovering between 0.1% and 0.3% of existing inventory this cycle, significantly below the broader national average of 1.6%. With little new product entering the market and increasing pressure from rising land-values to redevelop for other uses, tenants have few options outside their current space, thus helping constrain vacancy nationwide.
Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 15-20 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces.
Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and GlobeSt.com at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications.
Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).
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