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Real Estate - OCTOBER 11, 2019

Bigger not always better: The case for light industrial

by Andrea Zander

Demand for well-located, small light-industrial properties—less than 120,000 square feet, continues to outpace that for larger warehouses, largely driven by local economic activity, urban population growth and same-day delivery expectations of consumers, according to CBRE.

Light-industrial properties account for more than half of total U.S. warehouse inventory. The availability rate for those between 70,000 and 120,000 square feethas dropped by nearly 4 percentage points to 7.4 percent over the past five years. Consequently, their rents have climbed more than 30 percent to an average of $6.67 per square foot. By comparison, warehouses of more than 250,000 square feet had rent growth of 16 percent over the same period.

New development has been extremely limited, with completions accounting for just 1 percent of total light-industrial warehouse inventory since 1990. This dearth is attributable to challenges in developing smaller parcels in densely populated areas, including competition with other uses and high land values.

Strong demand for smaller warehouse properties will continue as retailers and logistics operators expand their networks to increase their proximity to consumers. As such, rent growth likely will continue outpacing that of large bulk warehouses.

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