Industrial commercial real estate assets traded to the tune of nearly $96 billion in the United States in 2020, the second-best year on record, and the outlook for 2021 already looks bright. With increased competition among investors for industrial product, JLL Capital Markets has found one sub-class that is gaining big interest – multi-use logistics, which are typically older multi-tenant assets with solid footprints within infill urban logistics markets that boast compelling rent growth profiles.

“The long-term outlook for multi-use logistics is strong, with clear industry momentum from ‘fabric of society’ tenants and growing investor demand for this sub-class,” said Senior Managing Director John Huguenard, Co-Head of JLL’s Industrial Capital Markets group. “With new yield-focused investors entering into the industrial space, small bay product is desirable as an alternative to the ever-tightening bulk industrial market.”

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In a new report, JLL Research defines multi-use logistics assets as 20,000- to 100,000-square-foot multi-tenant industrial buildings in dense, infill locations around the U.S. These buildings often contain distribution, flex showroom, industrial showroom, R&D, warehouse and/or manufacturing space and have a diversified, local tenant base.

Given they are often older properties, they witnessed population centers growing around them, making multi-use logistics properties not only almost impossible to replace but highly sought-after as last-mile logistics locations close to end users. Compounded by industry fundamentals driven by macroeconomic factors such reshoring and acceleration of e-commerce adoption, the increased demand for these smaller, multi-tenant industrial assets has significantly dropped vacancy rates nationwide, now holding at under nine percent.

“This sub-class has huge potential upside on rent growth driven by low vacancy and limited new supply,” Huguenard said. “Multi-use logistics rent has grown more than 54 percent since 2010 and nearly 21 percent since 2017, outpacing the national average for the broader industrial market.”

JLL anticipates a nationwide 4.6 percent rent growth for triple-net-leased multi-use logistics between 2021 and 2024, compared to 3.8 percent for all U.S. multi-tenant industrial and 3.7 percent for the entire property sector. Yet, this sub-class accounts for only 15 percent of overall industrial product inventory. For trades in 2020 of over $5 million, these properties accounted for 1,973 transactions at $128 per square foot with an average cap rate of 6.62 percent (down from the five-year average of 6.72 percent), demonstrating their value.

Adding to the advantages are a limited supply and lack of new construction. Construction activity for multi-use logistics properties is hovering between 0.1 and 0.3 percent of existing inventory this cycle, which is significantly below the national average of 1.6 percent. 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 nationwide.

JLL Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether investment sales advisory, debt placement, equity placement or a recapitalization. The firm has more than 3,700 Capital Markets specialists worldwide with offices in nearly 50 countries.