Why Industrial Real Estate Stayed Resilient During COVID (And What It Means for Future Investments).

 While many sectors of the real estate market faced severe challenges during the COVID-19 pandemic, industrial real estate not only weathered the storm but thrived. With companies struggling to maintain operations and tenants facing uncertain futures, industrial spaces emerged as a reliable and resilient asset class.

But why? And more importantly, what does this resilience mean for future investments? As someone who has spent over a decade in industrial and small-bay flex real estate, I’ve seen firsthand how this sector operates under pressure.

Having navigated past recessions and market downturns, I can confidently say that the pandemic reinforced the value of industrial real estate for both investors and businesses alike. During COVID, all my properties remained fully leased, and every tenant paid on time. But the story of industrial real estate’s resilience goes beyond my personal experience—it's rooted in structural advantages that kept this asset class strong.

The Rise of E-Commerce and Logistics.

 One of the driving factors behind the stability of industrial real estate during COVID was the rise of e-commerce. As the pandemic pushed consumers online, the demand for distribution centers, warehouses, and last-mile delivery hubs skyrocketed. According to the U.S. Census Bureau, e-commerce sales increased by 43% in 2020 compared to the previous year. This rapid shift put pressure on retailers to expand their logistics networks, and industrial spaces became crucial to their operations.

For investors, this trend meant that tenants in industrial properties were more likely to stay, even as other sectors, like retail and office, saw businesses closing or downsizing. In my portfolio, tenants not only stayed but were eager to renew their leases, given the strategic importance of location and the stability of the industrial sector during a time of crisis.

Occupancy Rates: A Key Indicator of Stability.

 The industrial sector's low vacancy rates throughout the pandemic highlight its resilience. National industrial vacancy rates remained at 4.6% in 2021, compared to 10% or more in other sectors, like office spaces. Even with disruptions to supply chains, industrial properties continued to serve essential functions in logistics, manufacturing, and warehousing. As someone deeply involved in this market, I’ve witnessed this firsthand.

In 2020, when other sectors struggled to maintain tenants, my industrial properties were 100% occupied. Businesses that rely on strategic locations for logistics, like manufacturing companies and e-commerce hubs, couldn’t afford to downsize or relocate, making industrial real estate a stable asset class even during unpredictable times.

What This Means for Investors.

The strength of industrial real estate during COVID has significant implications for the future. Investors looking for a stable, cash-flow-generating asset class should consider industrial properties due to their long-term potential. Factors like e-commerce growth, increasing demand for logistics infrastructure, and stable occupancy rates make industrial real estate a compelling opportunity moving forward. In my own investments, I focus on properties with strong tenant demand and long-term stability, often located in markets with logistical advantages, such as proximity to major highways and dense population centers.

The success of industrial real estate during COVID has only further cemented my belief in the strength of this asset class. For investors looking to build portfolios with resilience and reliability, industrial real estate offers a strategic way to diversify and capitalize on long-term trends. While other sectors may face ongoing volatility, industrial spaces continue to demonstrate why they are an essential part of modern economies—and why they will remain a solid investment moving forward.

The #1 Mistake Investors Make When Evaluating Industrial Properties.

When it comes to industrial real estate, many investors fall into a common trap: they focus on the wrong metrics. Specifically, they often prioritize internal rate of return (IRR) above all else, thinking that this single figure will tell them everything they need to know about an investment. But in reality, relying solely on IRR can obscure the true health of an industrial real estate deal. The most critical factor—and the one that I’ve built my investment strategy around—is cash flow. As someone who has spent over a decade in industrial real estate, I’ve seen how misleading IRR can be. While it’s a popular metric, especially for projecting future returns, it doesn’t always account for the risks and challenges that come with any real estate investment. In contrast, focusing on cash flow from day one provides a more stable and reliable way to assess a property’s performance.

Why Cash Flow Trumps IRR.

IRR is a useful metric, but it’s often based on assumptions about future market conditions, rent increases, or eventual sale prices. This creates a significant level of uncertainty. In the industrial sector, where tenants often sign long-term leases, betting on future projections doesn’t capture the immediate value of the property. Cash flow, on the other hand, provides a clear picture of the property’s financial health today.

When I evaluate a property, the first question I ask is: What’s the in-place cash flow? This figure tells me whether the property can sustain itself and provide returns immediately. If it’s not generating cash flow from the start, I’m less likely to proceed with the deal. Industrial properties, particularly small-bay flex spaces, tend to be more stable in terms of tenant demand, making cash flow a more reliable metric than speculative projections.

During the COVID-19 pandemic, cash flow was a lifeline. While other sectors struggled, industrial properties with strong tenants and consistent cash flow thrived. In my portfolio, not a single tenant missed a rent payment. This was a direct result of focusing on properties that could generate income from day one, without over-leveraging or banking on speculative market appreciation.

A Real-World Example.

A recent deal I closed is a perfect example of why cash flow matters more than IRR. The property was a multi-tenant industrial building in a prime logistics market. While the IRR projections looked solid, I knew from experience that cash flow was the real determinant of success. The in-place cash flow was strong, driven by tenants in logistics and manufacturing—two industries that are critical to the supply chain and unlikely to relocate or close in a downturn. This immediate cash flow allowed me to secure favorable financing and, more importantly, ensured that my investors began receiving returns from the first quarter. By focusing on cash flow rather than IRR, I could deliver stability and reliability—key factors that build trust with investors.

The Long-Term Benefits of Cash Flow.

Focusing on cash flow doesn’t just mitigate risk—it also allows you to plan for long-term growth. In industrial real estate, properties with consistent cash flow can weather economic fluctuations, adapt to rising operating expenses, and avoid the pitfalls of over-leveraging. For investors, the lesson is clear: while IRR can be a helpful tool for long-term projections, it’s cash flow that truly determines the success of an industrial property. By prioritizing cash flow, you’ll have a clearer picture of your investment’s health and can make more informed decisions that lead to sustained success. As an investor who has successfully navigated market cycles for over a decade, my advice is simple: look at the cash flow first. It’s the best way to ensure your investment is not only profitable but sustainable in the long run.

5 Key Factors That Make Industrial Real Estate a Hidden Gem for Investors.

Industrial real estate is often overlooked in favor of more mainstream asset classes like multifamily or office properties. However, the industrial sector has quietly become one of the most resilient and attractive spaces for investors looking for stable, long-term returns. With over a decade of experience in industrial and small-bay flex properties, I’ve seen firsthand how this asset class offers unique benefits that many investors don’t fully understand. Here are the five key factors that make industrial real estate a hidden gem for savvy investors:

Resilient Tenant Demand. One of the most significant advantages of industrial real estate is its stable tenant demand, even during economic downturns. The rise of e-commerce, logistics, and supply chain operations has fueled demand for industrial space, with companies needing warehouses, distribution centers, and manufacturing facilities to keep their businesses running. In fact, e-commerce grew by 43% in 2020, driving demand for industrial properties even as other sectors, like retail and office, faced high vacancy rates. During COVID-19, my industrial properties remained fully leased, and every tenant continued to pay rent—a testament to the stability of this asset class. When tenants are deeply integrated into their supply chains, they are far less likely to move, ensuring consistent occupancy.

Lower Vacancy Rates. The industrial sector consistently boasts some of the lowest vacancy rates in real estate. In 2021, industrial properties maintained an average vacancy rate of 4.6%, far lower than office spaces, which hovered around 15%. The key to this stability is that many industrial tenants, such as manufacturers or logistics companies, rely on the unique location of these spaces to support their operations. In my portfolio, I focus on properties with proximity to major transportation hubs like highways and rail lines. These strategic locations make it challenging for tenants to relocate, which keeps vacancy rates low and demand high.

Industrial real estate offers several advantages. It has a diverse tenant base, which ensures demand remains strong across economic cycles. This diversity helps insulate industrial properties from sector-specific risks. Industrial properties also provide strong cash flow opportunities, often outperforming other sectors like multifamily or retail in terms of immediate income potential. Small-bay flex spaces, which combine industrial, warehouse, and office spaces, are particularly attractive for tenants seeking flexibility.

These spaces are in high demand and are often fully leased for extended periods, providing consistent cash flow. Industrial tenants tend to stay longer due to the capital-intensive nature of their operations, making it easier to maintain consistent occupancy and generate steady cash flow over the long term.

One of the key drivers of industrial real estate's value is the limited supply of suitable properties, especially in strategic locations near major cities or transportation hubs. As demand for warehousing, last-mile delivery centers, and logistics facilities continues to grow, the supply of industrial properties remains constrained, creating a favorable supply-demand dynamic. In regions like the Midwest and the Southeast, where I frequently invest, barriers to new industrial development—such as land availability and zoning regulations—further increase the value of existing properties. Investors who can identify these high-demand, limited-supply markets are well-positioned for long-term success.

Industrial real estate is a hidden gem in the investment world, offering a unique combination of resilient tenant demand, low vacancy rates, strong cash flow, and limited supply. As an investor who has spent years refining my approach in this sector, I can confidently say that industrial properties provide a level of stability and security that's hard to match. For those looking to diversify their portfolios and capitalize on long-term trends, industrial real estate presents an unparalleled opportunity.