Industrial Real Estate Equity in 2025: Strategic Opportunities in Shallow Bay, Multi-Tenant Assets in the U.S. Southwest

As we progress through 2025, industrial real estate continues to offer compelling equity investment opportunities. Amid a recalibration period characterized by moderated growth and shifting dynamics, Shallow Bay, Multi-Tenant industrial assets in high-growth U.S. Southwest markets are emerging as particularly attractive investment opportunities.

Market Overview

Following a period of unprecedented growth, industrial real estate experienced an adjustment in early 2025. Net absorption declined to approximately 114 million square feet, down 42% year-over-year, and vacancy rates climbed modestly to 7.0%. However, this slowdown reflects a stabilization rather than a downturn, presenting strategic opportunities to acquire assets at attractive valuations.

Investment Growth Dynamics: U.S. Southwest and Shallow Bay Industrial

The U.S. Southwest, particularly markets in Arizona, Texas, Nevada, and Southern California, has been at the forefront of industrial real estate expansion. Key factors contributing to this region’s attractiveness include:

• Population Growth: Rapid demographic expansion and urbanization in cities like Dallas, Phoenix, Las Vegas, and Austin drive consistent demand for logistical facilities.
• Strategic Location: Proximity to major trade corridors, ports, and Mexico enhances logistical efficiency, appealing to tenants prioritizing speed and flexibility.
• Business-Friendly Environments: Favorable regulatory climates and lower operating costs compared to coastal markets attract diverse industries.

Unique Characteristics of Shallow Bay, Multi-Tenant Industrial Real Estate

Shallow Bay industrial properties typically feature smaller unit sizes (less than 25,000 square feet) and flexible configurations designed for multiple tenants. These facilities are uniquely positioned to benefit from current market trends:

• Diverse Tenant Base: Multi-tenant assets provide greater risk diversification compared to single-tenant facilities, reducing exposure to vacancies and tenant turnover risks.
• Higher Rent Growth Potential: Smaller tenants often pay higher per-square-foot rents compared to large distribution hubs, enhancing potential income streams.
• Flexibility and Agility: These properties can quickly adapt to tenant turnover or changing market demands, crucial in markets experiencing rapid economic shifts.

Contrasting Shallow Bay vs. Traditional Industrial Assets

Compared to traditional large-scale industrial warehouses, Shallow Bay multi-tenant facilities offer distinct advantages:

• Resilience: Less susceptibility to disruptions in single industries or tenants due to diversified tenancy.
• Stable Occupancy Rates: Consistent demand from small and mid-sized enterprises, local businesses, and e-commerce firms maintains occupancy stability.
• Location Advantage: Positioned closer to urban cores, these assets benefit from last-mile logistics demand, enhancing their value proposition amid growing e-commerce activities.

Strategic Investment Drivers

E-Commerce Expansion

Continued growth in e-commerce drives demand for strategically located distribution centers, particularly those capable of supporting rapid fulfillment.

Onshoring and Supply Chain Resilience

Geopolitical risks and global supply chain recalibrations encourage businesses to establish regional distribution networks closer to consumer bases, favoring Southwest U.S. markets.

Technological Integration

Advancements in automation and AI require modernized spaces. Multi-tenant facilities adaptable to technological upgrades can attract premium tenants seeking operational efficiency.

Investment Strategies

Value-Add Approaches

Targeting underperforming assets with below-market rents and short lease durations presents opportunities for repositioning and achieving enhanced rental income.

Core-Plus Investments

Acquiring stabilized Shallow Bay properties in high-demand Southwest markets provides steady cash flows with capital appreciation potential amid ongoing demand.

Development Initiatives

Reduced construction activity in 2025 enhances the attractiveness of developing Shallow Bay facilities in markets experiencing significant supply constraints and rising tenant demand.

Regional Highlights: Southwest Markets

• Dallas-Fort Worth: Leads in industrial sales volume, bolstered by a diverse economy and sustained population influx.
• Phoenix and Inland Empire: Attractive for ongoing industrial development, benefiting from proximity to major transport networks and rapid demographic growth.
• Las Vegas and Reno: Emerging as key logistical hubs due to strategic positions along interstate corridors and increased demand for local distribution.
  

Conclusion

In 2025, equity investments in Shallow Bay, Multi-Tenant industrial properties in the U.S. Southwest offer strategic advantages, combining stability, growth potential, and resilience. At Hanson Capital, we specialize in identifying and executing opportunities within this dynamic segment to achieve strong risk-adjusted returns.

For more information about our investment opportunities, please contact us.

Sources: CBRE, CommercialEdge, NAIOP, NAR, Colliers, EQT Group