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Page 24 — Office & Industrial Quarterly — March 2021 www.crej.com INDUSTRIAL TRENDS I ndustrial real estate had the sec- ond-best year on record in 2020 with transaction volume nearing $96 billion in the United States, and 2021 is off to a positive start. As competition among investors for industrial product stays strong, our capital markets research isolated one subclass that is gaining investor inter- est: multiuse logistics. The profile for multiuse logistics assets includes those older 20,000- to 100,000-square-foot multitenant build- ings that have a solid footprint within infill urban logistics markets across the U.S.These assets can contain a mix of distribution, flex showroom, industrial showroom, research-and-development, warehouse and/or manufacturing space and often have a diversified, local tenant base. Multiuse logistics assets boast com- pelling rent growth profiles and a strong long-term outlook.With new yield-focused investors jumping into the industrial space, multiuse logistics product is desirable as an alternative to the bulk industrial market, which is getting tighter. Given multiuse logistics assets often are older properties, they witnessed population centers growing around them, making them not only almost impossible to replace but also highly sought after as last-mile logistics loca- tions close to end users. Compounded by industry fundamentals driven by macroeconomic factors such as reshoring and acceleration of e-com- merce adoption, the increased demand for these smaller, multitenant indus- trial assets has dropped vacancy rates nationwide significantly, now holding at under 9%. An example of this property type recently trading in Colorado was the $16 million sale of Commerce Square, a 44,464-sf light- industrial facility leased to 13 diverse tenants within suites ranging from 4,000 to 14,000 sf in Aurora. From a logistics perspective, the property allows tenants to occupy space in Denver’s primary logistics submarket typically known for bulk distribution, and its proximity to the entire Front Range and the region’s major highways – Interstates 225 and 70 and E-470 – makes it a short drive to major population centers in and around Denver. We believe this subclass has an enor- mous potential upside on rent growth, which is driven by low vacancy and limited new supply. Multiuse logistics rent has grown more than 54% since 2010 and nearly 21% since 2017, out- pacing the national average for the broader industrial market. Based on the historical five-year compounded annual growth rate, our firm anticipates a nationwide 4.6% rent growth for triple-net-leased multiuse logistics between 2021 and 2024, com- pared with 3.8% for all U.S. multitenant industrial and 3.7% for the entire prop- erty sector.Yet, this subclass accounts for only 15% of overall industrial prod- uct inventory. For trades in 2020 of over $5 million, these properties accounted for only 1,973 transactions at $128 per sf with an average cap rate of 6.62% (down from the five-year average of 6.72%), demonstrating their value. For the Denver industrial market, the subclass accounts for 22% of the 223 million sf of industrial inventory.This current multiuse logistics inventory of 49.25 million sf has a low vacancy of 6.6%, which is down significantly from the 12% it was in 2010, demonstrating the growth in tenant demand for this space. Adding to the advantages are a limited supply and lack of new con- struction. Construction activity for multiuse logistics properties is hover- ing between 0.1% and 0.3% of existing inventory this cycle, which is signifi- cantly below the national average of 1.6%.The Denver market, for example, has only 207,250 sf under construction, which is 2.5% of the total industrial square footage under construction in the market. With little new product entering the market and increasing pressure from rising land values to redevelop for other uses, tenants have very limited options outside their current space – helping constrain vacancy not just in Denver but nationwide. This is also an asset subclass that, at 55%, is primarily owned by local or regional noninstitutional investors, providing a unique opportunity to build a footprint from a large, decen- tralized set of owners. Given the highly fragmented ownership within the sub- class, it’s challenging for investors to amass scale. Partnership with proven and trust- worthy owner-operator platforms that have consistently executed on transactions within the multiuse logis- tics asset class is vital for investors looking to gain exposure within this subclass; however, these partnerships are increasingly being offered at pre- miums, as consolidation of ownership within the multiuse logistics space is trending upward within high-growth markets. ▲ Multiuse logistics assets become investor darling Peter Kroner Manager, national industrial capital markets research, JLL JLL The need for proximity to population hubs around the country has contributed to ten- ant activity in the multiuse logistics space, driving vacancy for these assets to their lowest recorded levels.