Unlocking the Potential of Infill Industrial Properties in Commercial Real Estate

In the ever-evolving landscape of commercial real estate, a particular category of properties has captured the spotlight of the investment world: infill industrial real estate. To delve deeper into the sector, we turn to the insights of our commercial underwriting team - Nick Blazek, Senior Associate, and Senior Analysts Bryce Schaner and Harrison Bonney. These professionals offer their perspectives on the advantages of infill industrial real estate and why it’s been the belle of the ball for investors.

Understanding Infill Industrial Properties

Infill warehouses are strategically located within the inner city or in areas characterized by high population density. These locations are often characterized by limited available land for development. As articulated by Nick Blazek, "an infill location typically finds itself within an urban landscape proximate to population centers where available land is predominantly built out." The scarcity of developable land imposes a significant barrier to entry for tenants and developers.

Infill industrial properties tend to be in proximity to tenants’ end customers. According to Harrison Bonney, "the proximity to consumers in infill locations can lead to reduced transportation expenses for tenants, rendering them more amenable to paying higher rents." Consequently, last-mile warehouse demand remains robust, contributing to their escalating value potential.

The Benefits of Investing in Infill Industrial

From an investment perspective, Blazek notes that growth in asset value is entirely a function of cash flows and capital markets assumptions. As it relates to infill warehouses, he says the team does their best to develop a conviction around NOI growth through long-term occupancy and rental rate forecasts. Since infill warehouses have historically seen higher occupancy and rent growth driven by tenants’ desire to reduce transportation costs and limited space availability, appreciation in asset value has proven substantial.

Infill properties are in high demand among last-mile distributors and service providers, primarily due to their aforementioned offering of the critical proximity needed to serve densely populated urban areas effectively. This demand resiliency insulates infill properties from market downturns, ensuring they remain well-occupied throughout various market cycles.

Bryce Schaner underscores that the demand for infill is proving to distinguish itself from secondary and tertiary locations as we enter a turbulent market. While different markets may exhibit distinct transportation and distribution needs or manufacturing-based economies, both can derive considerable benefits from establishing their operations within these assets.

Evaluating the Quality of Infill Industrial Properties

When considering an investment in these types of buildings, Bonney emphasizes the importance of assessing macroeconomic elements, such as population growth and pro-business policies within the city.

Moreover, the condition and functionality of the building are pivotal considerations. Blazek adds that oftentimes the physical condition can be deficient due to age, or just functionally obsolete from current tenant demands. These factors could pose significant capital expenditure requirements and impair ownership’s ability to bring the asset to market standards.?

In addition to these factors, land value, access to thoroughfares, population density, nearby development activity, and zoning codes should all be carefully evaluated when assessing the potential highest and best use of an infill industrial property.

Market Trends and Dynamics

Schaner highlights that the sector has experienced high tenant demand and limited market vacancy in recent years. These strong market fundamentals have led to significant appreciation in asset values.

Schaner explains that many infill warehouses tend to be multi-tenant in nature, providing diversification in the rent roll and reducing risk when compared to larger, single-tenant buildings in more secondary locations.

In conclusion, infill warehousing has emerged as one of the more compelling asset classes in commercial real estate due to historically low vacancy rates, resilient tenant demand for last-mile locations, onshoring of supply chains, and barriers to entry creating limitations on competing supply. As tenants continue to seek proximity to customers and construction costs remain prohibitive, infill industrial is sure to continue producing stable, durable returns in the years to come.

Want more insights delivered directly to your inbox? Join our mailing list: SUBSCRIBE HERE

To learn more about Westmount Realty Capital or for additional information, contact us at [email protected] or find us at https://westmountrc.com/.

This article, and Westmount Realty Capital blogs in general, is intended for informational and educational purposes only, and does not constitute a solicitation or offer by Westmount Realty Capital, LLC to buy or sell any securities, futures, options, foreign exchange or other financial instrument or to provide any investment advice or service. Westmount is not your advisor or agent. Please consult your own experts for advice in these areas. Although Westmount provides information it believes to be accurate, Westmount makes no representations or warranties about the accuracy or completeness of the information contained on this article.

?