An anthology is a published collection of writing.
In some ways, you could call this list an anthology – a collection of all the reasons we love Class B industrial real estate.
1
Limited Supply
Inventory of Class B industrial properties remains relatively flat given that construction costs have increased ~60%+ in 24 months.
2
Substantial Rent Growth
What’s rare has value, and with these properties in limited supply, rents have risen dramatically (~25% nationwide) in the past 24 months. A large percentage of existing leases are now below market and we see more opportunities to create value by increasing rents to market.
3
Tenant Demand/Low Vacancy
Thanks in part to onshoring, the increase in domestic production and inventory due to geopolitical and supply chain challenges, we see low vacancy time and time again in this space, (currently mid-3% and trending 0.5-1.0% lower than total industrial vacancy).
4
Short Term Leases
Class B industrial is not institutionalized like other triple-net (NNN) asset classes. Retail leases commonly have 15-20+ year terms. Class B Industrial leases are typically shorter (5-7 years). This means a larger percentage of properties can be increased to Fair Market Value in the near term.
5
Infill Locations
Dense urban areas feature convenient access to population base (consumers and labor) and mature industrial parks offer potential future redevelopment to highest and best use.
6
Fragmented Market
Class B industrial owners are predominately non-institutional, local/regional (>70% of owners (20k-150k SF) are private individuals or users). Why does this matter? More fragmented = more unsophisticated owners = inefficiencies and more opportunities to purchase at a discount to market.
7
Investor Favorability
Investors are moving away from the labor intensive spaces of multi-family, retail and office and into triple net (NNN) industrial. This increase in investor interest/demand for industrial = further cap rate compression as compared to other asset classes.
8
Predictable CapEx
Class B industrial real estate has some of the lowest CapEx cost requirements of all asset classes. Major expense items (roof, structure, and paving) are predictable, making it easier for landlords to manage risk.
9
Deal Size
Sub-$10 million price limits institutional competition, allowing us to differentiate ourselves as high surety of execution, compared to local investors.
10
Sticky Tenants
Tenants often stay longer term and don’t upgrade to Class A. When and if a tenant does need more space, there’s an opportunity to expand within Class B or follow an opportunity to find/build new space for current tenant and lease existing space to new tenant.