Last Wednesday, CoStar Group Inc (NASDAQ: CSGP)'s Randyl Drummer published an article detailing how the lack of supply of light industrial space in the United States is being reflected in rising rates for leases.
CoStar's research pointed out that major industrial developers, such as Prologis Inc (NYSE: PLD), have been building larger distribution/warehouse and e-commerce fulfillment facilities.
However, facilities between 100,000–300,000 square feet, which often house operations for small- to mid-size companies, are in high demand and are commanding rising rents.
Additionally, smaller "logistics" facilities, which support same-day delivery for retailers and manufacturing supply-chains, are also in high demand.
Related Link: Cowen Likes Industrial REIT Terreno Realty
One example of a smaller industrial REIT that actively is developing for this market is Sunbelt-focused EastGroup Properties Inc (NYSE: EGP).
Source: EastGroup - Madison II & III Tampa, Florida
EastGroup has ~1.1 million SF actively being leased, ~1.1 million SF under construction and another 5 million SF available for future development.
Show Me The Money
Notably, during the first half of 2015, light industrial facilities had the highest year-over-year increase in rents at 5.7 percent, followed by logistics, office and apartments at 5.4, 4.0 and 3.9 percent, respectively.
"In fact, light industrial is so hot that even older, lower-functioning buildings – many located on infill properties in supply constrained markets like the San Francisco Bay Area, San Jose, Denver and Orange County – posted annual rent growth of 6.1 percent, the strongest rent growth within the entire industrial spectrum," according to Drummer.
These type of older, smaller, yet well-located properties often support "the last mile" for same-day deliveries.
A Big Fish In A Small Pond
Colony Capital Inc (NYSE: CLNY) CEO Richard Saltzman is now bullish on the sector, according to CoStar. During Colony's 2Q15 earnings call, Saltzman reported that Colony's light industrial platform was 90 percent leased with net effective rents on new leases and renewals averaging more than 10 percent above underwriting.
The Colony Light Industrial Portfolio (CLIP) owns 322 properties, totaling 34 million square feet, located across more than 25 U.S. markets. The multi-tenant properties can accommodate smaller tenants in the range of 10,000 to 50,000 SF.
Source: Colony Capital
CLIP was very active during 2Q15, acquiring 13 facilities for $151 million, and subsequent to the end of the quarter, adding another seven acquired for $57 million.