POLL RESULTS: WHICH INDUSTRIAL SUB-SECTOR WILL OUTPERFORM?

THE ANALYSIS

Camps Bay Capital and IOS List / Small Bay List have been collecting replies from real estate pros on which sub-sector of industrial will have the best 2025 performance. After receiving 380 votes, we can declare the winner is small bay industrial! The real estate community says small bay all the way!

Conducting polls like this is a good sentiment gauge, and we appreciate everyone’s participation which included a wide variety of voters from major real estate firms at all levels, right through the c-suite. It will be interesting to see how this poll shakes out come January 2026. We need to remember that as Benjamin Graham said, “In the short run, the market is a voting machine but in the long run it is a weighing machine."

2024 could be characterized as a monumental year for the IOS and small bay industrial sectors. Both industrial sub-sectors had the lowest industrial vacancy rates and elevated investor interest driven by strong underlying fundamentals. National data from October 2024 showed that IOS had a 4.2% vacancy rate and small bay industrial (<100K SF building sizes) had a vacancy rate of 4.3%. General industrial vacancy was 6.6%, while mid-bay industrial vacancy was in the 8.2%-8.6% range, and big box industrial vacancy was in the 8.8%-9.5% range.

Besides having the tightest vacancies, small bay industrial and IOS are very similar asset classes. The graphic below summarizes the similarities between the two subsectors.

In the IOS and small bay industrial segments, we have seen some large, monumental trades occur in each sub-sector such as the $490M Peakstone Realty Trust ($PKST) IOS portfolio acquisition (link) and Brookfield’s 15M SF multi-tenant light industrial portfolio acquisition (link). These large trades are just a couple of examples of recent milestone transactions that illustrate investor optimism for these two industrial sub-sectors.

At Camps Bay Capital, we are seeing increased interest from capital groups to partner with operators to aggregate assets in both strategies. There is also a desire by operators to reduce their cost of capital as these assets become more popular, and we are facilitating the formation of new partnerships and joint ventures using our unique perspectives as strategic real estate capital markets advisors. With strong property fundamentals (tight vacancy and no new supply) and strong capital market fundamentals (more efficient debt markets and strong property valuations), there will be more recapitalization and portfolio sales explored in 2025.

MID-BAY

Mid-bay industrial came in third in this recent poll. The community was more optimistic about mid-bay industrial than big box industrial. It is important to note that mid-bay industrial assets can be nuanced whereby these assets can be bigger in size but can have multiple 100K+ SF tenants. Smaller box sizes have had better leasing performance in recent years. Interestingly, tenant credit in mid-bay industrial tends to be better than small bay industrial, but there is less tenant diversification in the rent roll. 

According to Newmark / Costar, Q3 leasing activity for sub 300K SF accounted for 65% of total activity for Q3 2024 and leasing activity for <100K SF buildings and 100K SF-300K SF buildings were roughly in line with each other. However, <100K SF buildings make up 41.6% of total industrial stock compared to 27.1% for 100K SF-300K SF buildings. Mid-bay industrial product also tends to be newer than small bay industrial and might surprise the real estate community with stronger than expected performance. There is still considerable investor demand here, and we’ve been working with great operators investing in supply-constrained submarkets with robust leasing interest.

BIG BOX

Big box industrial came in last place here. Investors likely felt bearish on big box industrial due to elevated vacancy rates and a drop off in leasing volume. According to CoStar, 663 large logistics properties have been vacant longer than 18 months, which is the highest number they have recorded in the last 20 years (link). Big box industrial had a great run during and immediately after the COVID-19 pandemic as large tenants like FedEx and Amazon required large spaces to meet increased demand / supply chain needs. As increased development occurred, new supply entered the market while certain larger tenants have been rightsizing their big box corporate real estate. However, there are pockets of value here. Investors and operators have been exploring differentiated strategies with us especially when they believe that the capital markets pendulum has swung too hard here.

Once again, thank you for reading this poll report and feel free to reach out to either Lee Sager ([email protected]) or David Harris ([email protected]) to discuss your firm’s real estate capital market needs or to connect generally!

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