Outlook for U.S. Multitenant Distribution Warehouse Segment

The multitenant distribution warehouse segment is benefiting from the continued consumer migration to e-commerce.

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In recent years, multitenant distribution warehouse properties outperformed the broader commercial property market, a trend that is expected to continue, according to a special report released by Cushman & Wakefield. The study, Multitenant Distribution Warehouse Segment in the U.S. Outlook Summer 2016, examines the status of the segment nationwide and the drivers that are likely to result in future growth.

“Healthy demand and tight supply made multitenant distribution warehouse among the best-performing of all commercial real estate segments,” said Jason Tolliver, Cushman & Wakefield’s head of industrial research, Americas. “The historic and forecasted demographic and economic demand drivers indicate continued outperformance over both the short term and long term.”

Multitenant distribution warehouse properties are assets with smaller footprints—typically 200,000 square feet or less—often with column spacing of 40 feet by 40 feet and clear height of 24 feet or lower. Tenants in these facilities tend to be local and regional distributors seeking to operate in key industrial submarkets.

Multitenant distribution warehouse is the dominant industrial property type in the U.S., constituting 40 percent of the total 13.5 billion-square-foot industrial inventory. Of the 8.7 billion-square-foot investment-grade universe of industrial properties, multitenant distribution warehouse accounts for 61.5 percent. In addition to making up the largest share of U.S. industrial inventory, it comprises an even greater share of U.S. industrial investment-grade inventory.

The report outlines the drivers for continued growth, which include population trends and economic performance. It examines how the segment is benefiting from the continued consumer migration to e-commerce, and the rise in investor interest as a result of improved fundamentals. Highlights include:

  • In 2015, multitenant distribution warehouse boasted the highest year-over-year rent growth of any property type at 6.5 percent. Over the past decade, national rent growth for multitenant distribution warehouse averaged 1.9 percent per year, while the average for bulk distribution warehouse was 1.2 percent per year.
  • Demand for multitenant distribution warehouse product in markets proximate to growing populations will be strong and sustainable.
  • While most e-commerce tenants have requirements for bulk distribution warehouse, the growth of this shopping fulfillment channel is giving rise to a net new user who requires multitenant distribution warehouse buildings to fulfill the last-mile gap and support tighter delivery commitments.
  • Values for this segment today are about 20 percent higher than the broader warehouse market and pricing continues to increase. In 2015, multitenant distribution warehouse achieved a 5.3 percent income return and a 9.3 percent appreciation return for a total return of 14.6 percent, well ahead of the overall industrial market return of 12.7 percent.

“The segment will continue to see stronger long-term leasing demand and higher returns relative to other industrial types, primarily because warehousing plays such a pivotal role in the property markets and economy,” said Caroline Rooney, Cushman & Wakefield’s head of capital markets research, Americas. “With the continued growth of e-commerce and the structural importance of multitenant distribution warehouse product to last-mile distribution, we expect that values will continue to rise in concert with stronger investor demand.”