How smaller facilities can provide a more profitable investment.
E-commerce permeates our lives. Eric Schneider, a partner at Brit Properties says “my 11-year-old son recently discovered a passion for sports card collecting. He informed me that such cards, of course, required a plastic case to protect them. Five minutes later we had checked out of the Amazon Marketplace with a pack of card cases that would be delivered in two days.”
“We received my son’s protective card case from a nearby “big-box” Amazon warehouse via Sprinter van”—but an underlying, interesting question is what company actually produced and packaged those protective card cases?
That specific product is manufactured by a family business called Ultra PRO International. They design, manufacture, package, and distribute sports collectible accessories—such as protective cases. Ultra PRO occupies what is known as an “infill” industrial property in Southern California. Infill buildings are smaller and differ in many ways from the big-box warehouses.
Infill properties are defined as real estate in close proximity to urban centers and major airports. Companies locate within such areas to be near their labor with access to the highways and numerous amenities. From an investment perspective, these functional and well-located infill properties offer excellent opportunities to achieve higher yields than big-box warehouse space. Even during the COVID-19 pandemic, tenants are willing to pay premium rents for better locations.
Infill industrial property investments can be more than just profitable for their owners. They also generate positive economic and social benefits to their communities. Tenants in such infill locations create good-paying local jobs and contribute to the local tax base. Job creation, in turn, encourages further investment from vendors, suppliers and more. Real estate taxes paid by infill properties provide funding to local school districts, park districts, libraries, infrastructure such as roads, utilities, wastewater treatment and more.
According to commercial real estate firm CBRE, smaller industrial properties have seen rents rise by 30% in the past five years, whereas big-box rents rose by 15%.
Considering that high quality space is very limited in the smaller-size segment, rent growth is expected to continue to grow. Real estate analytics and data provider, CoStar, shows the current market rent for industrial properties in the Chicagoland infill locations under 200,000 square feet is $7.57 per square foot and carries a vacancy rate of just over 5%. This is compared to properties over 200,000 square feet with an average market rent of $6.15 per square foot and a vacancy rate of about 7%.
When you click to make your next online purchase and the delivery van heads to your home from the fulfillment center, it is highly likely that a local business working out of an infill property was involved in a critical aspect of the production process.