I have been researching on converting malls and retail space for last-mile facilities. My biggest question is how to find distributors to rent the space? Unlike residential, this type of property is usually single-tenant and NNN lease. Is it possible to get a lease first before the conversation/construction?
Distribution and warehousing properties may experience oversupply in 3-5 years. This will likely correspond with any kind of downturn in the economy coupled with overbuilding. On the other hand, I think the outlook for cold-storage and small bay industrial (under 50k SF) will be very favorable moving forward. Unlike distribution or warehousing, which is basically four walls and a roof, cold-storage facilities have much higher barriers to entry, are structurally complex, and will gain traction as e-grocery sales grow. Similarly, small bay industrial properties will be an interesting sub-asset type to watch. Much of the new supply is catered to 3PL and e-commerce tenants, but the overwhelming majority of industrial tenants do not need to lease so much space. Historically, the rent growth of small bay industrial has appreciated faster than their larger counterparts this past cycle. This will likely continue since it is economically unfeasible to build smaller industrial properties in most metro areas.
@@shahahsan1323 but aren’t small bay industrial also 4 walls and a roof? I agree with your assessment btw, although those are very pricey and unless rent go up a lot, an investment in that space may not lead to good returns. I think most investors have already missed the boat on the small industrial stuff. It’s already very expensive.
Great overview of the risks and opportunities for industrial real estate. To your point #3, differentiating between the sub-categories is critical, particularly as each individual market will have its own unique blend of industry.
Absolutely agree with you on understanding the business. I think industrial real estate, as an asset class, likely has some of the most diverse set of tenants. Based on what I have looked at, I have seen everything from valve manufacturers to regional franchise contractors and even some tech companies. Understanding the underlying business is especially true if you are looking at STNL properties. At that point, it is arguably less about the real estate, and more about the credit quality of the tenant occupying the space.
I have no idea how you can convert retail into a distribution asset in Manhattan? I don’t think a conversion like that can happen in very dense areas like manhattan
My guess would be the combination of supply constraints and demand stemming from increased port traffic. Some of the nation's largest ports are located in LA, NYC, and SF, which probably drive a lot of demand for distribution and warehouses. Anything manufactured from East Asia would like have to go through one of the West Coast ports before it reaches its final customer in a secondary inland market.
