Tuesday, November 16, 2021

The Top 10 Markets for Investing in Smaller Industrial Properties

By Lauren Shanesy LoopNet

Industrial properties have emerged as a premier asset class with the surge in online shopping; e-commerce companies like Amazon are opening new distribution centers at an unprecedented pace. Chasing this swell in leasing and construction activity, international investment companies like Blackstone have made headlines by pouring more capital into the industrial space than ever before.

The industry was seeing a clear, strategic shift by institutional owners to prioritize industrial assets even before the pandemic. Since 2007, multi-asset investors owning more than $500 million of property have decreased their office ownership by 28% and increased their industrial share by 18%.

But with money rushing into the logistics sector from the world’s largest financial institutions, where should smaller investors looking to enter the space focus their attention?

Analyzing markets with an abundance of property sales priced under $20 million, CoStar's commercial real estate marketplace LoopNet, along with CoStar Analytics, developed a list of the top 10 markets that smaller investors should consider when purchasing industrial properties.

We based our analysis on three key factors for industrial investment:

Liquidity: The percentage of properties valued at less than $20 million that have sold since 2019.

Rent Growth: Year-over-year rent increases from the third quarter of 2020 to the third quarter of 2021.

Vacancy Rate: The portion of each market’s industrial inventory that is currently unoccupied (markets with low vacancy rates rank higher).

The 10 markets we selected are rife with opportunities, as a lot of them are located between major delivery ports for distribution access, yet removed enough from major markets to offer affordability. Moreover, that affordability will likely attract residents seeking a lower cost of living, leading to population growth and creating further demand for last-mile logistics facilities.

Based on our analysis, LoopNet identified these 10 markets as offering the most promising opportunities for smaller investors seeking industrial properties:

  1. Inland Empire, California
  2. Salt Lake City
  3. Phoenix
  4. Sacramento, California
  5. Philadelphia
  6. Atlanta
  7. Los Angeles
  8. Memphis, Tennessee
  9. Las Vegas
  10. San Antonio
... Philadelphia

Philadelphia has deep roots as a manufacturing hub, and its location right in the middle of the I-95 corridor stretching from Washington, D.C. to New York City make it a compelling choice for small- and mid-sized investors, said Adrian Ponsen, CoStar’s U.S. director of industrial.

The Philadelphia market has experienced the largest rent growth of any of the markets on our list, at 12.02% year-over-year. And it ranks among the fastest growing industrial markets, in terms of rental rates, in the United States.

While there is a lot of new construction underway in the metro area, smaller investors might find opportunities in the older industrial properties located throughout Philadelphia proper that are being acquired, renovated and successfully re-leased to tenants that run the gamut from local contractors to Amazon.

Liquidity: 11.83%
Rent Growth: 12.02%
Vacancy: 4.07%


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