Industrial real estate’s investment surge: 3 key trends

Editor's Note: This content was first published on The Real Deal. You can read the full article here.

Industrial assets—long the backbone of the economy—are now a hot commodity for investors. As e-commerce cements its dominance, these properties are increasingly recognized as essential portfolio staples. In an article for The Real Deal, Michael Sleece, Senior managing director, REIT investment banking at Capital One, shared his insights on what’s fueling this demand.

 

1. E-commerce 

The rise of e-commerce and mobile shopping has fundamentally changed consumer expectations, pushing demand for fast, local delivery. Younger generations have grown up immersed in digital commerce, and their comfortability purchasing everything from sneakers to groceries online has made large-scale warehouses and last-mile distribution centers increasingly attractive to investors.

“Consumers began to demand quicker delivery of items of all types,” says Sleece. “As such, the need for more locally based storage facilities accelerated.” 

Sleece predicts e-commerce will continue to boost rents and occupancy rates for industrial real estate, especially bulk distribution centers and last-mile logistics facilities. 

“The consumer will likely continue to be more demanding, particularly as the younger generation grows into its buying power,” he says. 

 

2. Resilience

Despite a recent uptick in vacancy rates, industrial properties continue to show resilience, with steady leasing and more properties being leased or sold than vacated. Factors like just-in-time inventory strategies, institutional investor interest, and limited labor requirements help insulate the sector from any factors that might hinder broader economic growth. 

“While market fundamentals are not as strong as they were from the early 2010s to the early 2020s, this is a sector that I expect will continue to prosper given the continued demand for just-in-time inventory and the desire from consumers to have quick and cost-efficient delivery,” Sleece says.

 

3. Local supply and demand

Proximity to major population centers and access to transit infrastructure are critical. Cities like Dallas, Houston, Phoenix, Las Vegas, and Columbus, as well as major ports, have seen significant growth in industrial properties. Investors are advised to weigh both location and acquisition costs carefully. For example, some higher-end build-to-suit assets were developed at costs that would not make economic sense outside of the original lease.

 

Looking ahead

While the market is evolving, industrial assets remain a strong play for investors focused on long-term fundamentals. Lease details—tenant information, payment history, expiration dates and property specifics—will become increasingly important in the near to medium term. Sleece cautions that investors should look beyond recent rent increases in evaluating industrial properties.   

“The incredibly strong market fundamentals that have been in place cannot be solely relied upon for space absorption and out-sized rent growth,” he says. “That being said, Capital One and Capital One Securities will likely continue to be a large source of public equity and debt capital, both on balance sheet and off-balance sheet, as we look to grow that aspect of the CRE business.”

 

 

Learn more about Capital One Commercial Real Estate solutions.