As it becomes harder to find last-mile properties in core markets, investors start looking at smaller cities.

Investors are expanding their search for last-mile industrial product to secondary and tertiary markets from their previous focus on established locations near large population centers. “This is creating a ton of opportunities for investors,” says Joseph Yiu, managing partner at ElmTree Funds, which funds industrial projects, noting that last mile industrial sales are growing by 15 percent annually.

Due to extremely tight vacancies, last-mile facilities in all urban markets with a sizable population are generating much higher rents than traditional distribution centers in more suburban areas, according to James Breeze, global head of industrial and logistics research with real estate services firm CBRE. Breeze notes that the rental rates fluctuate depending on the market and quality of the facility.

Rapid e-commerce growth is expected to drive demand for last-mile facilities that will outpace supply. With lack of available land for development, retailers are considering all sorts of creative solutions for distribution space, including repurposing vacant big-box stores, Breeze says.