Industry Overview

The industrial real estate sector includes properties used by businesses for operations, such as offices, warehouses, garages, and distribution centers—often equipped with docking bays for truck loading and unloading. Over the past seven years, this industry has grown significantly, with vacancy rates cut in half since 2010, reaching all-time lows.

Rental rates have shown steady growth, now averaging $5.53 per square foot with a 5.3% year-over-year increase. Top logistics markets are experiencing sub-3.0% vacancy rates, indicating sustained demand. Nearly 81% of industrial development in the U.S. involves small to midsize buildings (50,000–500,000 sq. ft), driven by leasing demand and limited availability of land for larger warehouses.

Though often seen as less prestigious than office towers, industrial properties have delivered excellent investment returns. The rise of e-commerce has fueled demand for warehouse and distribution space, making industrial real estate the only commercial sector to see increased transaction activity between January and November of 2017.

A key driver of this trend is the need for businesses to locate closer to consumers to overcome the “last mile” delivery challenge. This has increased demand for smaller distribution hubs near urban areas to improve delivery efficiency. So far in 2018, industry performance aligns with five-year averages, despite minor construction delays due to weather.

Future growth is expected to continue, supported by ongoing e-commerce expansion, a 35% increase in investor interest seen in 2017, and continued advancements in warehouse automation and robotics.