Inland Empire and Los Angeles Named Top 10 markets for Investing In Industrial Properties
While many office towers and shopping centers are facing record-high vacancies resulting from the pandemic, a nationwide shortage of industrial space is taking hold across the country, according to data from CoStar, the parent company and publisher of LoopNet.
Industrial properties have emerged as a premier asset class with the surge in online shopping; e-commerce companies like Amazon are opening new distribution centers at an unprecedented pace. Chasing this swell in leasing and construction activity, international investment companies like Blackstone have made headlines by pouring more capital into the industrial space than ever before.
“The industry was seeing a clear, strategic shift by institutional owners to prioritize industrial assets even before the pandemic. Since 2007, multi-asset investors owning more than $500 million of property have decreased their office ownership by 28% and increased their industrial share by 18%,” said Peter Ferramosca, an analyst at CoStar.
But with money rushing into the logistics sector from the world’s largest financial institutions, where should smaller investors looking to enter the space focus their attention?
Analyzing markets with an abundance of property sales priced under $20 million, LoopNet, along with CoStar Analytics, developed a list of the top 10 markets that smaller investors should consider when purchasing industrial properties.
We based our analysis on three key factors for industrial investment:
- Liquidity: The percentage of properties valued at less than $20 million that have sold since 2019.
- Rent Growth: Year-over-year rent increases from the third quarter of 2020 to the third quarter of 2021.
- Vacancy Rate: The portion of each market’s industrial inventory that is currently unoccupied (markets with low vacancy rates rank higher).
The 10 markets we selected are rife with opportunities, as a lot of them are located between major delivery ports for distribution access, yet removed enough from major markets to offer affordability. Moreover, that affordability will likely attract residents seeking a lower cost of living, leading to population growth and creating further demand for last-mile logistics facilities.
Based on our analysis, LoopNet identified these 10 markets as offering the most promising opportunities for smaller investors seeking industrial properties:
- Inland Empire, California
- Salt Lake City
- Phoenix
- Sacramento, California
- Philadelphia
- Atlanta
- Los Angeles
- Memphis, Tennessee
- Las Vegas
- San Antonio
Inland Empire, California
As the top prospect on our list, the Inland Empire is one of the most critical stops in America’s supply chain, according to David Nusbaum, senior market analyst at CoStar. “The area offers direct freeway and rail access to the twin ports of Los Angeles and Long Beach, which are the nation’s two largest import hubs by a wide margin.”
The Inland Empire has one of the lowest vacancy rates in the country, and the lowest on our list, at 1.87%. It has a deep stock of industrial properties of all sizes, and has seen high trading volume over the past year. Combined with incredibly strong rent growth over 10%, this market is a top destination not just for large institutional investors, but small- and mid-sized firms as well.
- Liquidity: 19.34%
- Rent Growth: 11.44%
- Vacancy: 1.87%
Los Angeles
Los Angeles might be known as a favorite market among deep-pocketed institutional investors, but the city of angels also holds promise for the more entrepreneurial players as well.
“The city has an enormous stock of small industrial properties and has hosted by far the most industrial property trades under $20 million of any major market in the U.S. since 2019,” said Nusbaum.
Scarcity of open land for new development, and the presence of the nation’s two most critical ports for importing goods from East Asia, have helped to ensure tight vacancies and accelerated rent growth here for decades.
- Liquidity: 18.55%
- Rent Growth: 7.97%
- Vacancy: 1.93%
