Multi-Use Logistics Rediscovered
Why older multi-tenant infill industrial is increasingly garnering renewed investor interest
For this analysis, JLL used the following set of criteria in determining “multi-use logistics”, as this loosely defined yet increasingly important sub-sector of industrial commercial real estate lacks standardized definition:
- Multi-Tenant Space
- Building Size between 20,000 - 100,000 s.f.
- Currently Existing, Under Construction, or Under Renovation Buildings only
- Space Use: Distribution, Warehouse, Shallow/Small Bay, Flex/Industrial Showroom, Research & Development, High-Office Finish Flex
Often multi-use logistics buildings and business parks were constructed on the periphery of urban populations decades ago. As urbanization continues to accelerate, many of these assets are now engulfed by population centers, making them ideal for infill supply-chain networks. New construction of multi-use logistics assets is extremely limited, making the overall inventory stagnant. As urban sprawl begins to encroach on several multi-use logistics business parks and buildings, inventory in several markets decreases as higher-and-better uses compete for sites. As vacancy rates continue to decrease for the industrial sector as a whole, increased competition for all space is driving rents ever higher.
Supply is helping to stabilize rent growth in modern warehousing, however rental growth is accelerating quickly for small bay industrial due to supply limitations. An ever-increasing number of investors are attracted to multiuse logistics assets due to the guiding fundamentals within the performance of the asset class. Multi-use logistics buildings are some of the only industrial assets that can yield double-digit IRR in this highly competitive investment environment. Further premiums on infill industrial assets continue to drive values in multi-use logistics higher as proximity to population density is increasingly important for tenants.
Often still held by the companies that built them decades ago, Private regional and local developers and real estate management companies are the largest owners of multi-use logistics buildings. The decentralized ownership of the asset type creates issues for investors looking to build footprint at scale, however, it can create potential opportunities for partnering with owner/operators that have dedicated acquisition teams that has been building footprint in key markets.