Industrial Real Estate: The Rise of Logistics and Warehousing

Industrial real estate has emerged as the star performer of commercial property sectors. What was once considered a boring, stable asset class has become the most sought-after investment in CRE.

The E-Commerce Revolution

The Numbers Tell the Story

E-commerce as % of Retail Sales:

• 2010: 4.2%
• 2015: 7.4%
• 2020: 15.7% (pandemic surge)
• 2024: 18.3%
• 2030 Projection: 24-26%

What This Means for Industrial:

• Every $1 billion in e-commerce = ~1.25 million SF of warehouse space
• Amazon alone leases over 400 million SF globally
• Last-mile delivery centers proliferating in urban areas

Why E-Commerce Needs More Space

Traditional retail: 1,000 SF per $1M in sales
E-commerce fulfillment: 3,000-4,000 SF per $1M in sales

The difference?

• Inventory storage in multiple locations
• Reverse logistics (returns processing)
• Packaging and shipping operations
• Last-mile staging areas

Property Types in Industrial Real Estate

1. Bulk Warehouse (200,000+ SF)

Characteristics:

• Located in industrial parks, near highways
• Clear height: 28-36 feet
• Dock doors: 1 per 10,000 SF
• Sprinklered throughout

Tenants:

• 3PLs (third-party logistics)
• Regional distribution centers
• Manufacturing operations

Cap Rates: 5.5-7.5%
Lease Terms: 5-10 years

2. Last-Mile Delivery Centers (20,000-100,000 SF)

Characteristics:

• Urban/infill locations
• Proximity to dense population centers
• Higher land costs
• Lower clear heights acceptable (18-24 feet)

Tenants:

• Amazon Delivery Stations
• FedEx/UPS hubs
• Local delivery services
• Grocery delivery staging

Cap Rates: 4.5-6.0%
Lease Terms: 10-15 years (credit tenants)

3. Flex Industrial (10,000-50,000 SF)

Characteristics:

• Office/warehouse combination (20-30% office)
• Suburban business parks
• Lower clear heights (14-20 feet)

Tenants:

• Small manufacturers
• Light assembly
• Tech companies needing shop space
• Contractors/wholesalers

Cap Rates: 6.5-8.5%
Lease Terms: 3-5 years

4. Cold Storage

Characteristics:

• Refrigerated warehouses
• Higher construction costs ($150-250/SF vs. $75-100/SF dry)
• Specialized systems and insulation

Tenants:

• Food distributors
• Pharmaceutical companies
• Meal kit services

Cap Rates: 5.5-7.0%
Lease Terms: 10-15 years

Top Industrial Markets in 2025

1. Inland Empire, California 🔥

Why It's Hot:

• Serves LA/Orange County metro (18M+ people)
• Port proximity (LA/Long Beach)
• Land availability vs. LA Basin
• Established transportation corridors

Fundamentals:

• Vacancy: 3.2%
• Avg Rent: $1.45 PSF/month
• New Construction: 25M+ SF annually
• Key Players: Amazon, Target, Home Depot

Investment Profile:

• Cap Rates: 5.0-6.5%
• Land: $15-30 PSF
• Risk: Overbuilding concerns

2. Dallas-Fort Worth, Texas 🚀

Why It's Growing:

• Central US location (optimal for 1-2 day shipping)
• No state income tax attracts businesses
• Available land and lower costs
• Strong population growth (100K+ annually)

Fundamentals:

• Vacancy: 5.8%
• Avg Rent: $0.85 PSF/month
• New Construction: 30M SF (2024)
• Key Players: FedEx mega hub, Amazon

Investment Profile:

• Cap Rates: 5.5-7.0%
• Land: $5-10 PSF
• Opportunity: Still room for growth

3. Phoenix, Arizona ☀️

Why It Works:

• Near West Coast but lower costs
• Free trade zone benefits (Mexico proximity)
• Tech company migration (TSMC fab)
• Strong population growth

Fundamentals:

• Vacancy: 4.7%
• Avg Rent: $1.05 PSF/month
• New Construction: 15M SF annually
• Key Players: Amazon, Walmart, Chewy

Investment Profile:

• Cap Rates: 5.5-6.5%
• Land: $8-15 PSF
• Watch: Water concerns long-term

4. Atlanta, Georgia 🍑

Why Logistics Hub:

• Hartsfield-Jackson airport (world's busiest)
• I-85/I-20/I-75 corridor convergence
• East Coast distribution node
• Affordable cost structure

Fundamentals:

• Vacancy: 5.2%
• Avg Rent: $0.70 PSF/month
• New Construction: 20M SF annually
• Key Tenants: UPS headquarters, Home Depot

Investment Profile:

• Cap Rates: 6.0-7.5%
• Land: $4-8 PSF
• Strength: Diverse tenant base

5. Columbus, Ohio 🌽

Underrated Midwest Play:

• 1-day truck reach to 50% of US population
• Low cost of living attracts workers
• Ohio State research partnerships
• Stable, long-term industrial base

Fundamentals:

• Vacancy: 3.8%
• Avg Rent: $0.55 PSF/month
• Modest new construction (3-5M SF)
• Key Tenants: Amazon (4 facilities), L Brands

Investment Profile:

• Cap Rates: 6.5-8.0%
• Land: $2-5 PSF
• Value: Higher yields, lower risk

Investment Strategies

Build-to-Suit Development

Partner with developer on pre-leased facility:

• Pros: Locked-in tenant, predictable NOI, lower cap rate
• Cons: Development risk, timing uncertainty
• Target IRR: 9-12%

Value-Add Repositioning

Buy older industrial, upgrade:

• Upgrade: LED lighting, ESFR sprinklers, dock doors
• Reposition: Flex space to pure warehouse
• Expand: Add mezzanine for increased SF
• Target IRR: 15-18%

Core-Plus Stabilized Assets

Buy well-leased, Class A property:

• Strategy: Cash flow + modest appreciation
• Hold Period: 7-10 years
• Financing: 60-70% LTV at ~6.5%
• Target IRR: 10-13%

Last-Mile Portfolio Play

Assemble 5-10 last-mile facilities:

• Market: Single MSA for operational efficiency
• Size: 25,000-75,000 SF each
• Tenants: Mix of credit and local
• Exit: Portfolio sale or REIT
• Target IRR: 16-20%

Underwriting Considerations

Rent Projections

• Conservative: 2-3% annual growth
• Moderate: 3-4% growth (historical average)
• Aggressive: 5%+ (hot markets only)

Watch out for:

• Supply pipeline (can suppress rents)
• Concessions (free rent, TI allowances)
• Operating expense pass-throughs

Construction Costs (2025)

• Tilt-up concrete: $75-100/SF
• Steel frame: $90-120/SF
• Cold storage: $150-250/SF
• Land development: $10-20/SF

Add 20-30% contingency for delays and cost overruns

Tenant Quality Evaluation

Credit Tenants (Amazon, FedEx, UPS):

• Lower cap rates justified
• Watch for special-use build-outs
• Termination clauses in leases

Non-Credit Tenants:

• Higher cap rates needed
• Demand personal guarantees
• Shorter lease terms acceptable
• Simpler build-outs for re-tenanting

Risks to Monitor

1. Overbuilding

Many markets saw record construction 2021-2024:

• Watch vacancy rates trending up
• Rent growth slowing = warning sign
• Pipeline analysis critical

2. E-Commerce Maturation

Growth will slow from peak rates:

• 18% → 24% takes longer than 4% → 18%
• Efficiency improvements reduce space needs
• Physical retail isn't dead

3. Automation and Robotics

Warehouses becoming more productive:

• Same SF handles more volume
• Vertical storage systems maximize space
• Reduces space needs per $ sales

4. Recession Risk

Industrial is cyclical:

• Retailers cut inventory in downturns
• 3PLs downsize
• Vacancies rise to 8-12% in recessions

The Bottom Line

Industrial real estate offers:
✅ Strong fundamentals - E-commerce secular trend
✅ Attractive yields - 5-8% cap rates in quality markets
✅ Lower maintenance - Simple construction, fewer issues
✅ Scalable - Can own 1 or 100 buildings
✅ Resilient - Essential to economy

But requires attention to:
⚠️ Market selection - Supply/demand balance critical
⚠️ Location within market - Highway access non-negotiable
⚠️ Building specifications - Clear height, column spacing matter
⚠️ Exit timing - Don't overstay the cycle

At USLand, we curate industrial listings with detailed rent comps, market absorption data, and tenant credit analysis to help you invest with confidence.

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