Industrial commercial real estate assets traded to the tune of nearly $96B in the United States in 2020, the second-best year on record, and the outlook for 2021 already looks bright. With increased competition among investors for industrial product, JLL Capital Markets has found one sub-class that is gaining big interest – multi-use logistics, which are typically older multi-tenant assets with solid footprints within infill urban logistics markets that boast compelling rent growth profiles.
In a new report, JLL Research defines multi-use logistics assets as 20KSF-100KSF multi-tenant industrial buildings in dense, infill locations around the U.S. These buildings often contain distribution, flex showroom, industrial showroom, R&D, warehouse and/or manufacturing space and have a diversified, local tenant base.
Given they are often older properties, they witnessed population centers growing around them, making multi-use logistics properties not only almost impossible to replace but 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%.
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. Yet, this sub-class accounts for only 15% of overall industrial product inventory. For trades in 2020 of more than $5M, these properties accounted for 1,973 transactions at $128/SF with an average cap rate of 6.62% (down from the five-year average of 6.72%), demonstrating their value.
Adding to the advantages are a limited supply and lack of new construction. Construction activity for multi-use logistics properties is hovering between 0.1% and 0.3% of existing inventory this cycle, which is significantly below the 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 very limited options outside their current space – helping constrain vacancy nationwide. (Source)