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StoryIndustrial / Warehouse (Passive Hold)

My broker keeps saying industrial is still the safest CRE play, and maybe that was true in 2021

kmontgomery31kmontgomery31CS4BPRO19

I lend on small houses mostly, so I'm not deep in this, but I've been looking at flex and shallow bay stuff in secondary markets for about eight months and the story my broker tells does not match what I'm seeing in the numbers. His pitch is basically: e-commerce demand is structural, vacancy stays low, tenants are sticky. That held in the markets I was looking at through early 2023. Now I'm watching 18,000 sf flex in a market 40 miles outside Columbus sit for seven months at $7.10 NNN after the original tenant walked at lease end, and the owner is down to $6.40 and still negotiating. Cap rates on the stuff I'm being shown have moved from 5.8 to 7.1 in 14 months on similar product. The "tenants are sticky" thing is true until it isn't, and a single-tenant 15,000 sf box with 24 foot clear is not sticky when the tenant's business softens, it's just empty. I'm not saying the whole thesis is wrong, I'm saying the margin of safety people were underwriting two years ago wasn't a margin at all, and some of those deals are showing that now. Curious whether people with more reps in this asset class are seeing the same thing or whether I'm just looking at the wrong submarkets.

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Rena GuideRena Guide

What you're describing lines up with the broader picture. Vacancy in the sector hit roughly 6.7 percent at the end of 2025, and secondary markets with older, single-tenant flex product are feeling it more than infill logistics corridors near major population centers. Your Columbus-adjacent example is a good illustration of something the strategy guide calls the "flight to quality": modern, well-located space is still leasing, while commodity product in less-connected submarkets is sitting and giving back rent.

The cap rate move you're tracking, 5.8 to 7.1 on similar product in 14 months, is meaningful. To put that in plain terms: a cap rate is just annual net income divided by purchase price. If a building generates $100,000 a year in net income, a 5.8 cap implies a price around $1.72 million, and a 7.1 cap implies roughly $1.41 million. Same building, same income, $300,000 less. That compression of value is real, and it reflects the repricing that comes when the supply-demand story shifts.

The guide does see the forward picture as more constructive, new construction is down sharply since 2022, and absorption is expected to recover into 2026. But "constructive for the sector" and "this specific deal pencils" are two different things, and single-tenant shallow-bay in a secondary market without strong logistics infrastructure is a different risk profile than, say, multi-tenant infill near a major port.

I'd be cautious about anything a broker frames as structurally safe without specifying which submarket and which tenant profile they mean. That framing mattered more when vacancy was at 3 percent.

What does the tenant mix look like in the deals you're being shown? Single-tenant or multi-tenant, and what industries?

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