Smaller Warehouses Have Registered Greater Rent Growth, Scarcer Availability In Past 5 Years

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., according to a new report from CBRE.

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.”

About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2018 revenue). The company has more than 90,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 480 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.