With increased competition among investors for industrial product, JLL Capital Markets has found an important sub-class that is gaining investor interest — multi-use logistics. Typically older multi-tenant assets with solid footprints within infill urban logistics markets, these assets often contain distribution, flex showroom, industrial showroom, R&D, warehouse and/or manufacturing space and are between 20,000 and 100,000 square feet.
According to a new report, multi-use logistics have witnessed population centers growing around them, making them not only almost impossible to replace but highly sought-after as last-mile logistics locations close to end users. Compounded by industry fundamentals driven by macroeconomic factors such reshoring and acceleration of e-commerce adoption, the increased demand for these smaller, multi-tenant industrial assets has significantly dropped vacancy rates nationwide, now holding at under nine percent.
Denver’s Larry Thiel, managing director, Capital Markets, JLL Denver, says, “We have definitely seen investor interest in multi-use logistics increase throughout the last year, but, the availability of these assets – along with infill sites for development — in the Denver area is scarce. These older vintage, multi-use tenant assets have accelerated rent growth due to this tight availability and last-mile delivery locations. As private capital aggressively looks for yield in high-growth markets like Denver, we will see valuations for these assets in Denver rise to stratospheric levels.”
JLL anticipates a nationwide 4.6 percent rent growth for triple-net-leased multi-use logistics between 2021 and 2024, compared to 3.8 percent for all U.S. multi-tenant industrial and 3.7 percent for the entire property sector. Yet, this sub-class accounts for only 15 percent of overall industrial product inventory. For trades in 2020 of over $5 million, these properties accounted for 1,973 transactions at $128 per square foot with an average cap rate of 6.62 percent (down from the five-year average of 6.72 percent), demonstrating their value.
“The long-term outlook for multi-use logistics is strong, with clear industry momentum from ‘fabric of society’ tenants and growing investor demand for this sub-class,” said Senior Managing Director John Huguenard, co-head of JLL’s Industrial Capital Markets group. “With new yield-focused investors entering into the industrial space, small bay product is desirable as an alternative to the ever-tightening bulk industrial market.”