Infill industrial real estate—industrial properties located close to densely populated urban centers—has emerged as one of the most promising sectors in today’s real estate landscape. Fueled by rising e-commerce demands, strong liquidity fundamentals, and both downside protection and upside potential, infill industrial properties are becoming top targets for investors seeking stable and lucrative returns. Here’s a look at why infill industrial properties are poised to outperform other asset classes.
High Growth in Net Operating Income (NOI)
Infill industrial properties are projected to see NOI growth rates that surpass other asset classes. Driven by the continuous expansion of e-commerce, which requires robust logistics and fulfillment infrastructure, infill industrial properties in strategic locations are expected to maintain strong rental demand. This demand is particularly robust in high-density urban areas, where proximity to consumers is essential for last-mile delivery operations.
For DHPH’s target geographies, projected annual NOI growth is expected to exceed the national industrial average. This NOI advantage is tied to the sustained demand for strategically located properties, especially as e-commerce growth shows no signs of slowing. As companies continue to prioritize fast, reliable delivery to urban customers, infill industrial assets near these populations are likely to remain in high demand.
Source: Green Street
Note: DHPH Infill markets include: NYC, Central & Northern NJ, Boston, Baltimore, D.C Metro, Miami, Fort Lauderdale, Palm Beach, Philadelphia, Richmond VA
Strong Liquidity Fundamentals and Investor Demand
The liquidity in the industrial real estate market is unmatched, with record-high investor allocations and capital reserves — “dry powder” — directed toward industrial assets. According to market insights from Green Street and Newmark, industrial real estate investments have delivered strong performance, particularly in infill locations, and have proven more resilient than investments in other asset classes, like retail or office.
Lenders, too, have taken note of this performance, which has left them feeling overexposed to other asset classes and increasingly focused on industrial assets. This liquidity advantage positions industrial real estate, and especially infill properties, as a sector with strong buy-in from both equity investors and lenders.
Downside Protection in Uncertain Economic Climates
Infill industrial properties offer significant downside protection, making them a solid investment choice even in volatile economic conditions. A key reason for this stability is that rent typically represents less than 5% of a tenant’s total expenses. This low expense proportion provides tenants with flexibility to absorb rental increases without major financial strain, leading to higher retention rates and lower vacancy risks.
Moreover, infill industrial leases are often structured as triple-net (NNN) leases, in which tenants cover most operating costs, including property taxes, maintenance, and insurance. This lease structure serves as an inflation hedge, protecting landlords from rising expenses while ensuring consistent income. Compared to other real estate sectors, infill industrial properties also require minimal tenant improvements (TIs) and concessions, reducing operating costs and enhancing scalability.
The Performance Premium of Smaller Industrial Buildings
Smaller industrial buildings (under 100,000 square feet) are highly sought after, offering a “small footprint premium” that drives strong rental income and occupancy rates. These smaller spaces are particularly valuable in urban infill areas, where development costs for large-scale properties can be prohibitive due to space constraints and zoning limitations. Smaller buildings not only achieve higher rents but also tend to have lower vacancy rates and higher tenant demand, offering strong income stability for investors.
The growing investor appetite for smaller infill deals highlights a notable trend: these properties offer the flexibility and adaptability needed to meet the diverse needs of modern tenants, from logistics and e-commerce to light manufacturing and distribution.
The Infill Premium and Long-Term Upside Potential
Industrial properties near major metro areas often face rezoning pressures, as municipalities see greater economic value in alternative uses such as residential or mixed-use development. This creates an “infill premium,” where properties close to urban cores appreciate due to limited supply and proximity to large consumer bases. Rezoning events can also lead to substantial value increases.
For instance, property owners in Gowanus, Brooklyn recently saw their industrial property values increase by two to three times after the area was rezoned for multifamily use. This potential for rezoning can provide infill industrial investors with an attractive upside opportunity, as their properties may appreciate in value over time due to growing demand for land near urban centers.
Meeting the Needs of a Growing E-Commerce Sector
The e-commerce boom has transformed how companies approach logistics, driving demand for industrial properties close to major cities. As online shopping continues to grow, infill industrial spaces are positioned to play an essential role in the supply chain, enabling companies to store, package, and distribute products quickly and efficiently. With faster shipping and delivery now a competitive necessity, the need for well-located, flexible industrial spaces will only increase.
E-commerce-driven demand is especially strong for last-mile distribution centers and warehouses, which allow companies to meet the needs of urban consumers with same-day or next-day delivery options. This trend shows no signs of slowing down and is expected to support sustained rental growth and high occupancy rates for infill industrial properties.
Industrial Asset Class: Downside Protection, Upside Potential
With robust NOI growth, unmatched liquidity, downside protection, and upside potential, infill industrial real estate is set to outperform other asset classes. For investors, the combination of reliable income, low vacancy risk, and the potential for property appreciation through rezoning makes infill industrial assets an attractive long-term investment. As consumer expectations continue to evolve, and with e-commerce driving up demand for efficient logistics infrastructure, infill industrial properties are positioned as a foundational asset class in the modern economy.
