Bigger WareHouses Not Always Better

A new sweet spot is emerging in the industrial and logistics real estate sector: warehouses smaller than 120,000 square feet, reported CBRE, Los Angeles.

Smaller warehouses have registered greater rent growth and scarcer availability than large properties over the past five years, CBRE said in Bigger Not Always Better: The Case for Light Industrial.

The real estate services firm analyzed industrial buildings by size and found that light industrial properties outperformed other property types over the past five years. Specifically, light industrial warehouses measuring between 70,000 and 120,000 square feet performed best, with vacancy dropping nearly four percentage points and average rents growing more than 33 percent during that time.

“In recent years, the headlines and attention have gone to the big-box distribution centers measuring a million square feet or more to serve multi-state regions,” said CBRE Associate Director of Industrial and Logistics Research Matthew Walaszek. “But smaller warehouses–often positioned in densely populated markets–are some of the most coveted properties for investors and users alike.”

Walaszek called modestly sized industrial assets “the true last-touch warehouses from which merchandise is delivered directly to customers [in an e-commerce transaction].” 

A relative lack of construction of light industrial facilities has decreased their availability and boosted their rents, the report said. Since 1990, construction completions of sub-120,000-square-foot warehouses has averaged just one percent of overall stock. In comparison, construction completions of 250,000-plus-square-foot warehouses have averaged three 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,” the report said.

CBRE Senior Managing Director Chris Zubel predicted continued strong demand for light industrial facilities as e-commerce continues to grow. “[This] in turn means we can expect to see additional strong rent growth for these warehouses,” he said. “Light industrial is the hottest coal in the campfire.”