It’s no surprise that the industrial real estate sector is CRE’s prized “boom” sector with the lowest vacancy rate on the record, in spite of 109 million square feet of new supply coming up on the market.1
The Industrial Real Estate Hype
With so much hype about fulfilling demand for e-commerce distribution centers and “lean distribution” centers (focusing on efficiency and requires smaller warehouses closer to highly populated areas), developers are still working overtime to meet the need for warehouse space of approximately 50,000 – 200,000 square feet.
In secondary and tertiary markets, such as my home-base, Las Vegas, NV, we are seeing an unsatiated investor demand for these types of assets. However, as a creative investor, I like to look at asset classes that are growing and producing record-breaking returns, and asking the question: “What part of this market is being left unnoticed?” That’s what we tackle.
In my home market, Las Vegas there is a real need for high quality “flex” space, part office, part warehouse, for small businesses who need very light industrial uses. In the fastest growing part of our valley, right near where the new Raiders stadium is set to be built, there are virtually no small spaces for rent that offer a quality finished area with 50% or so warehouse for light storage uses. Showroom spaces are also difficult to come by.
I’m developing 72,000 square feet of industrial in the southwest valley. The demand is huge, and the need is unmet. While there is lots of distribution space under construction all over the place, there is very little new, true “flex” space being built.
E-commerce and Logistics
E-commerce and logistics are the two industries that dominate this asset class. It is important for developers and investors alike to see opportunity within opportunity. Not all companies that require warehouse space are large-scale operations. At this pace, regardless of the rate of increase of the rental rates, these manageable “flex” space developments will fill quickly as mid-sized companies often find themselves stuck in the middle, staring at a market with either huge warehouses and very little office, or purely office with not enough warehouse.
1Breeze, J. (2017). U.S. Research Report Industrial Market Outlook Q2 2017.