Advertise Sign Up Log In BY LAUREN SHANESY PUBLISHED ON NOVEMBER 02, 2021 CATEGORY BUYING FOR INVESTMENT INDUSTRIAL & WAREHOUSE The Top 10 Markets for Investing in Industrial Properties The Best Opportunities for Investors With Budgets Up to $20 Million Salt Lake City, Utah is one of the best places in the country for investors to purchase industrial properties. (Getty Images) 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% Salt Lake City An increasingly popular destination for young professionals, Salt Lake City’s population growth has been driven by its relatively low cost of living compared to major nearby cities and those across the country. This growth has led to a need for more last-mile distribution facilities to meet its quickly growing e-commerce needs. While construction activity is at one of its highest points in the city’s history with 8.7 million square feet currently underway, market conditions have remained tight. “The resultant high rent growth and low vacancy rate highlight a good opportunity for investors to enter this landlords’ market,” said Michael Petrivelli, associate director of market analytics at CoStar. Liquidity: 18.99% Rent Growth: 10.86% Vacancy: 2.89% Phoenix Phoenix has seen a wave of in-migration from California as residents and businesses leave the Golden State in search of more affordable housing, a lower cost of living and reduced business expenses. Plus, the city has seen significant job growth in the manufacturing sector, creating new demand for industrial and warehouse facilities. Just like the surge Salt Lake City is experiencing, Phoenix’s status as one of the fastest-growing major metro areas in the U.S. means there is plenty of demand for last-mile logistics facilities to keep up with the burgeoning e-commerce industry. Meanwhile, as industrial space runs low in Southern California, Phoenix has become a critical hub for tenants transporting imported goods to the Midwest and East Coast after they arrive at the Ports of Los Angeles and Long Beach, explained Petrivelli. Liquidity: 16.89% Rent Growth: 11.19% Vacancy: 5.34% Sacramento, California Located within a two-hour drive from both San Francisco and Silicon Valley, Sacramento is a vital location for distributors delivering goods into the Bay Area. Even during the three years prior to the pandemic, industrial rent growth averaged 9% annually in Sacramento, as skyrocketing housing and business costs along the Pacific coastline continued to push new residents and industrial tenants this market’s way. Even with a significant amount of new construction in the city, inventory is being leased up at an accelerated clip by companies such as Amazon. The market’s vacancy rate of 3.8% is a historical low, said William Austin, director of market analytics at CoStar, citing that the high demand and lack of available supply “is accelerating rent growth, with lease rates up 8% since the third quarter of 2020, sitting at a market high of $9.72 per square foot as of the third quarter of 2021.” Liquidity: 21.15% Rent Growth: 8.01% Vacancy: 3.80% Philadelphia Philadelphia has deep roots as a manufacturing hub, and its location right in the middle of the I-95 corridor stretching from Washington, D.C. to New York City make it a compelling choice for small- and mid-sized investors, said Adrian Ponsen, CoStar’s U.S. director of industrial. The Philadelphia market has experienced the largest rent growth of any of the markets on our list, at 12.02% year-over-year. And it ranks among the fastest growing industrial markets, in terms of rental rates, in the United States. While there is a lot of new construction underway in the metro area, smaller investors might find opportunities in the older industrial properties located throughout Philadelphia proper that are being acquired, renovated and successfully re-leased to tenants that run the gamut from local contractors to Amazon. Liquidity: 11.83% Rent Growth: 12.02% Vacancy: 4.07% Atlanta Demand for industrial space in Atlanta stems from its location along the densely populated and fast-growing I-85 corridor, as well as its proximity to ports in Savannah, Georgia and Charleston, South Carolina. Even as construction of new logistics facilities is accelerating in Atlanta, developments are leasing up faster than most major markets in the Sun Belt region, said David Kahn, director of market analytics at CoStar. Leasing volume here has surpassed the pre-pandemic average, and fast absorption has compressed the metro’s vacancy rate to a historic low of 4%. “The lack of available industrial space is allowing owners to raise rents at an impressive pace. Year-over-year rent growth in Atlanta is now in double-digit territory for the first time ever,” said Kahn, citing data as of the third quarter of this year. Liquidity: 16.13% Rent Growth: 10.27% Vacancy: 4.00% 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% Memphis, Tennessee Home to the busiest cargo airport in the United States, Memphis holds an important place in the logistics industry as a hub for distribution within the Southeast, one of America’s fastest-growing regions, said Kahn. Additionally, the low pricing compared to other Sun Belt markets limits barriers to entry for investors, making it a favorable choice for those looking for properties under the $20 million mark. “Memphis’ tight vacancies and above-average rent growth will also likely be augmented over the next few years by Ford’s electric vehicle manufacturing facility, which opens in 2025, and should drive additional leasing for the plant’s suppliers and contractors,” said Kahn. Liquidity: 12.21% Rent Growth: 8.34% Vacancy: 5.20% Las Vegas Las Vegas has experienced one of the fastest expansions in industrial leasing of any market in the U.S. during 2021, according to Petrivelli. As available industrial space runs low in Southern California, distributors and retailers bringing imports in through the Ports of Los Angeles and Long Beach are increasingly using nearby logistics facilities in Las Vegas to sort goods before driving them across the country. Meanwhile, similar to the other markets that top our list, the Las Vegas metro area’s population has grown by an average of more than 42,000 people annually since 2015 — driving plenty of leasing by last-mile distributors trying to satisfy the demand for delivered goods. Liquidity: 16.93% Rent Growth: 8.34% Vacancy: 5.20% San Antonio While San Antonio often takes a backseat to larger Texas markets such as Dallas and Houston, the market and its nearby neighbor Austin both rank among America’s top five major metro areas for population growth since 2010, said Daniel Khalil, senior market analyst at CoStar. Like many of the other markets we’ve highlighted in this list, that means that demand for last-mile logistics facilities is on the rise. The city’s growing auto and high-tech manufacturing industries and its location less than three hours from the Port of Corpus Christi and Port Laredo at the U.S./Mexico border further drive demand for industrial space and provide multiple growth drivers in this market. Liquidity: 13.65% Rent Growth: 6.84% Vacancy: 5.50% Was this article helpful? 13 of 15 found this helpful LAUREN SHANESY DIGITAL CONTENT EDITOR Lauren is a Digital Content Editor for LoopNet, and has been writing about the real estate industry for more than five years. Prior to joining LoopNet, she specialized in covering the residential construction, housing and multifamily industries. Contact her at Lshanesy@costar.com. 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