Industrial real estate encompasses a broad range of property types that facilitate commerce: giant fulfillment centers that stockpile products for e-commerce delivery, warehouses and distribution hubs that supply retail stores, manufacturing plants where goods are produced, and flex spaces that can accommodate light assembly or R&D.
In recent years, the industrial sector has seen a surge in demand and investor interest, largely driven by e-commerce and logistic innovations. To put this into perspective, online retail sales in the U.S. have roughly tripled their share of total retail over the past decade. By early 2024, e-commerce accounted for about 15.9% of all retail sales, nearing its all-time high. (naiop.org)
This digital shopping revolution directly translates into real estate needs: warehouses and distribution centers. Studies have shown that for every $1 billion increase in e-commerce sales, an additional 1.25 million square feet of warehouse space is required to handle that volume of goods. Moreover, e-commerce operations typically use about three times as much warehouse space as traditional brick-and-mortar retail per dollar of sales, because of the need to store a wide variety of products and manage returns and individual shipping logistics. (naiop.org)
These facts underscore why companies like Amazon, Walmart, and FedEx have been aggressively expanding their logistics footprints – and why industrial vacancies in many markets reached historic lows in recent years.
The pandemic accelerated some of these trends: suddenly, consumers were buying everything from groceries to gym equipment online, and companies raced to bolster their supply chains. Industrial real estate absorbed this shock with record-setting performance. In 2021, net absorption of industrial space (essentially, the net amount of space leased up) hit unprecedented levels – hundreds of millions of square feet – and vacancy rates in U.S. warehouses fell to record lows (in some prime logistics hubs, vacancy dropped to 2-3%).
This feverish pace has since cooled slightly as of 2023-2024, but the market remains fundamentally strong. Developers responded by constructing new warehouses, and vacancy nationally has edged up from its extreme lows. By mid-2024, the average industrial vacancy rate was around 5.9%, up from about 4.2% a year prior, yet still below the 6.3% long-term average. Importantly, even with more space available, rents have continued to climb – rising roughly 4% year-over-year–reflecting that demand has kept up with the increasing supply. (naiop.org)
In fact, the latter half of 2024 saw positive net absorption quarter after quarter, and forecasts suggest that as long as the economy avoids a severe downturn, the industrial sector will keep expanding to meet businesses’ needs. (naiop.org)
Industrial leases often span many years (5, 10, or even 15-year terms are common), especially for big distribution centers where tenants invest heavily in setting up their operations.
These leases frequently include built-in rent escalations (e.g., 2-3% per year) to account for inflation. A notable characteristic of industrial deals is the prevalence of triple-net (NNN) leases, meaning tenants handle property expenses like maintenance, insurance, and taxes. For investors, this structure can mean more predictable net income and fewer management responsibilities – essentially, the tenant takes care of the property’s day-to-day needs, and the owner primarily collects rent and ensures the tenant is meeting lease obligations.
Of course, having a single tenant on a long lease introduces a different kind of risk: if that tenant were to default or leave, the property could sit vacant. That’s why tenant creditworthiness and the property’s re-leasing prospects are critical factors in evaluating industrial investments. On the flip side, the stability of a well-chosen industrial property (especially one leased to a strong company in a prime location) can be akin to owning a bond – reliable income over the lease term – but with the upside of property value growth as rents increase over time and the land becomes more scarce or valuable.
Falcon Capital’s focus in the industrial realm is on assets that align with enduring and emerging economic trends.
This includes large distribution centers near major transportation arteries (interstates, ports, rail hubs) that are vital for regional and national supply chains, as well as smaller “last-mile” facilities on the edges of big cities where companies stage goods for quick delivery to local customers. We carefully assess market dynamics such as proximity to population centers (for labor availability and demand), infrastructure quality (access to highways, proximity to airports or seaports), and local supply indicators (is the area underbuilt or overbuilt for warehouses?).
Another key aspect is the industries served: we favor properties leased to tenants in resilient sectors like food distribution, consumer essentials, or third-party logistics providers with diverse client bases, as these tend to be more insulated from economic swings. When evaluating an industrial acquisition, Falcon Capital conducts in-depth due diligence on the tenant’s financial health (or, if the property is vacant or multi-tenant, on the market’s tenant demand and rent levels).
We also explore value-add angles: for instance, can we extend a major tenant’s lease term to secure longer income, or make capital improvements (like adding loading docks or upgrading truck courts) that could justify higher rents or attract higher-quality tenants? By investing with both present income and future potential in mind, our goal is to generate stable cash flows from industrial properties while positioning them
for appreciation as the backbone of the e-commerce and logistics economy continues to expand.