Why Industrial Real Estate Still Outperforms in a High-Rate Market
Why Industrial Real Estate Still Outperforms in a High-Rate Market
Rising interest rates have cooled off many segments of commercial real estate—but not industrial. While office vacancies spike and multifamily margins shrink, industrial properties remain a top performer. Why? The answer lies in the powerful convergence of e-commerce, supply chain restructuring, and the enduring need for speed in logistics.
Despite tighter lending conditions, investor appetite for distribution centers, warehouses, and logistics parks has barely slowed. In fact, industrial real estate is proving remarkably resilient, with cap rates compressing in top markets and rent growth outperforming expectations.
The E-Commerce Engine Isn’t Done Yet
The pandemic may have accelerated e-commerce, but the momentum didn’t stop when stores reopened. Demand for faster delivery windows and consumer expectations around convenience continue to push companies to expand their logistics footprints. According to Prologis’ latest insights, the e-commerce boom is far from over—and that means warehouses and fulfillment centers near urban hubs are still seeing high absorption rates.
Even legacy retailers are rethinking their footprints, converting or supplementing stores with micro-fulfillment centers to get closer to the consumer. The industrial sector isn’t just surviving in today’s market conditions—it’s adapting and thriving because of them.
Last-Mile and Small-Bay: Underrated but Critical
One of the biggest drivers of industrial growth is last-mile delivery—the final stretch between a fulfillment center and a customer's doorstep. That’s where small-bay industrial comes in. These properties, typically under 50,000 square feet, are becoming essential real estate for e-commerce brands, local distributors, and service providers who need flexible space near high-density areas.
Small-bay assets have historically flown under the radar, but investors are taking notice. Their lower price points, shorter lease-up times, and strategic locations make them ideal for mitigating the risks associated with interest rate volatility. In a market where many are scaling back, small-bay industrial offers high-velocity leasing and relatively low exposure to macroeconomic shocks.
Institutional Capital Is Staying Put
What’s most telling is that large institutional investors and REITs are still doubling down on industrial—even with elevated borrowing costs. That confidence isn’t just based on past performance; it’s a bet on continued growth in automation, logistics tech, and global trade realignment.
Investors are also looking beyond the major markets, targeting secondary cities with growing populations, better infrastructure, and strategic access to rail, highway, and port systems. In these locations, the returns on industrial assets still justify the cost of capital—especially when compared to less resilient asset classes.
Strategy Over Sentiment
In a high-rate environment, smart capital follows performance—not sentiment. Industrial real estate offers just that: consistent rent escalations, strong tenant demand, and tangible relevance in a shifting global economy. While others wait on the sidelines, those investing in logistics and supply chain infrastructure are already benefiting from the steady climb in industrial valuations.
Looking to get in while industrial still outperforms? At Estates of Elysium, we help investors access high-potential assets—even in challenging interest rate environments. From capital sourcing to strategic partnerships, we bring institutional tools to private investors. Visit www.estatesofelysium.com to learn more and position your portfolio for long-term industrial growth.