Direct Answer
Industrial REITs own and lease warehouses, distribution centers, and logistics facilities. Prologis is the global leader -- the largest REIT by market cap in the world. Industrial real estate has been the strongest-performing REIT sector since 2017, driven by e-commerce supply chain expansion (requiring 3-4x more warehouse space per item sold than traditional retail) and supply chain nearshoring. Lease rents on expiring leases have grown 50-100%+ above existing in-place rents in major markets, creating significant embedded rent growth as legacy leases roll.
E-Commerce Supply Chain: Why Online Shopping Requires More Warehouse Space
Traditional retail supply chain was highly efficient in warehouse space: a pallet of 100 televisions shipped from a manufacturer to a distribution center, then to a store's back room, was efficient at each stage. In e-commerce, the same 100 televisions must be individually picked, packed, labeled, and shipped to 100 different addresses -- requiring 3-4x more warehouse space per television sold compared to traditional retail channels. This "space multiplier" effect is the fundamental driver of industrial real estate demand growth: each dollar of spending shifted from physical retail to e-commerce requires roughly 3-4x more warehouse space.
The e-commerce supply chain requires multiple facility types: national fulfillment centers (1-2 million sq ft, serving 2-3 day shipping from central locations), regional sortation centers (processing and sorting packages for local delivery routes), and last-mile delivery stations (smaller urban or suburban facilities enabling same-day and next-day delivery to specific zip codes). The last-mile layer is the fastest-growing and most space-intensive element, driving demand for infill industrial locations near consumer populations -- exactly the location type in shortest supply and with the strongest rent growth.
Amazon is the single largest driver of US industrial demand: Amazon's US fulfillment and delivery network encompasses 200+ million sq ft of leased space, representing approximately 10% of all US industrial space. Amazon's periodic expansion phases (2020-2021 surge, then 2022-2023 pause and even some subleasing) directly impact industrial vacancy rates and rent growth across major markets. Prologis has Amazon as its largest customer (approximately 6-7% of revenue), creating significant Amazon-specific concentration risk and opportunity.
Rent Growth: Embedded Uplifts and Market Rate vs. In-Place Rents
Industrial REIT investors distinguish between in-place rent (the contractual rent currently being paid by existing tenants) and market rent (the current asking price for equivalent new leases). During the 2020-2022 demand surge, market industrial rents in high-demand markets (Southern California, New Jersey, Seattle, Chicago) rose 40-80% while in-place rents on existing multi-year leases barely moved. This created a "rent spread" or "mark-to-market" opportunity: as existing leases expired, REITs renewed them at dramatically higher market rates, providing automatic NOI growth without requiring new occupancy or new development.
Prologis and Rexford Industrial have been the primary beneficiaries of Southern California industrial rent growth: the Inland Empire (San Bernardino and Riverside Counties) is the primary US distribution hub for goods entering through the Ports of Los Angeles and Long Beach. Industrial rents in the Inland Empire increased from $0.60/sq ft/month in 2019 to $1.20+/sq ft/month in 2022-2023, doubling the effective economics of existing properties as leases rolled. Similar rent growth occurred in New Jersey (serving the New York metro), Seattle/Tacoma, and Chicago.
The rent growth moderated in 2023-2024 as a surge of speculative development (developers building speculatively in anticipation of continued strong demand) added supply while e-commerce demand growth normalized from the COVID surge. Vacancy rates moved from near-record lows (2-3%) to more normalized levels (5-7%), slowing but not reversing market rent growth and moderating but not eliminating the embedded rent spread from below-market in-place leases.
Nearshoring and Supply Chain Resilience: Structural Demand Driver
Supply chain disruptions during COVID (semiconductor shortages, port congestion, extended Asian supplier lead times) accelerated corporate interest in nearshoring (moving production closer to end markets) and "friend-shoring" (limiting supply chains to politically aligned countries). US manufacturing investments supported by the CHIPS Act (semiconductor fabrication), Inflation Reduction Act (clean energy manufacturing), and IIJA (infrastructure) are driving large new industrial facility construction in the US Sun Belt and Southeast -- generating demand for logistics and industrial facilities to support the new production clusters.
Mexico nearshoring (production moving from China to Mexico to leverage proximity to the US market, lower labor costs than China, and US-Mexico-Canada Agreement trade benefits) is driving significant industrial development in Monterrey, Saltillo, Guadalajara, and other Mexican industrial cities. This is an opportunity for US-listed industrial REITs with Mexican operations (Prologis has a substantial Mexico portfolio) and a structural trend that supports multi-year demand growth independent of e-commerce cycles.
Multi-story industrial is emerging in extreme-land-cost urban markets (New York, Los Angeles, Seattle): where land is too expensive for single-story industrial development, multi-story designs (ramps for forklift access to upper floors, or goods-handling lifts) enable logistics use in urban locations otherwise priced out of traditional warehouse economics. Prologis's Staten Island multi-story facility is an example of this format adapting to constrained urban supply.
Major Players: Prologis, EastGroup, Rexford Industrial
Prologis (PLD) is the world's largest REIT by market cap, owning 1.2+ billion sq ft of logistics real estate in 19 countries. Its global network serves the world's largest logistics users (Amazon, DHL, FedEx, UPS, Home Depot, Walmart) from North America through Europe and Asia. Prologis's scale allows development economics, customer relationships, and data intelligence (Prologis Essentials -- providing customers with logistics services, equipment leasing, clean energy) that smaller industrial REITs cannot match.
EastGroup Properties (EGP) focuses on Sun Belt industrial markets (Dallas, Houston, Atlanta, Phoenix, Los Angeles) with a strategy of smaller, 50,000-150,000 sq ft "last-mile" distribution facilities closer to population centers. Sun Belt population and business growth has supported consistent above-average rent growth and high occupancy in EastGroup's markets; its development pipeline continuously adds new supply in growing markets.
Rexford Industrial (REXR) focuses exclusively on Southern California infill industrial markets -- the Inland Empire, Los Angeles, Orange County, and San Diego. This geographic concentration in the most supply-constrained and rent-growth-strongest industrial market in the US has produced exceptional same-property NOI growth. Southern California's topography and zoning severely limit new industrial supply, making Rexford's existing properties extremely valuable.
Investment Considerations: Premium Valuations and Moderation Risk
Industrial REITs trade at premium valuations relative to other REIT sectors: Prologis at 25-35x FFO; Rexford at 30-45x FFO. These premiums reflect the sector's exceptional rent growth history, structural e-commerce demand tailwinds, and limited supply in high-demand markets. During 2020-2022, industrial REITs were the best-performing major asset class of any type; subsequent normalization (rising vacancies, moderated rent growth) tested the thesis but did not break the structural story.
Supply risk is the primary near-term concern: industrial development deliveries in 2022-2024 have been the largest on record as developers responded to the 2020-2022 demand surge. Some markets are seeing supply outpace demand absorption in the near term, requiring vacancy normalization before another round of strong rent growth. Markets like Dallas, Phoenix, and Atlanta with limited geographic supply constraints have seen more meaningful vacancy increases than supply-constrained markets like Southern California and New Jersey.
The long-term thesis remains intact: e-commerce penetration of retail sales will continue increasing from current levels, supply chain nearshoring requires new US/Mexico industrial capacity, and the infill industrial shortage in major metro areas creates a structural rent growth platform. Industrial REITs may be cyclically extended in the near term but represent the most structurally positioned sector within commercial real estate.
FAQ
Why does e-commerce require more warehouse space than traditional retail?
Traditional retail stores function as distributed inventory points: when you buy a TV at a Best Buy, the store's stockroom acts as the last-mile warehouse, and the TV went from manufacturer to regional DC to store to your car. In e-commerce, there is no store stockroom -- the TV must be individually picked from a warehouse shelf, boxed, labeled, and shipped to your home from a fulfillment center that might be 500 miles away. Each TV sold requires its own picking slot, packaging space, and outbound staging area rather than being packed in a pallet with 99 others to a store. Industry estimates suggest e-commerce requires 3-4x more warehouse space per unit sold versus traditional retail -- so each dollar of spending shifting online generates disproportionately more demand for warehouse real estate.
What is "last-mile" industrial real estate?
Last-mile industrial refers to smaller warehouses and distribution facilities located close to consumer populations, used for the final delivery leg of e-commerce orders. Amazon's delivery stations (typically 50,000-100,000 sq ft facilities from which delivery drivers depart to make 150-200 package stops per day) are the quintessential last-mile facility. Last-mile real estate is the fastest-growing and highest-rent industrial category because: proximity to consumers is extremely valuable for same-day/next-day delivery economics; urban and suburban locations near population centers are in limited supply (industrial zoning is often being converted to residential or mixed-use); and once established, last-mile networks require permanent geographic coverage, making these locations difficult to vacate. Urban last-mile facilities in New York, Los Angeles, and Seattle command rents 50-100%+ above non-infill industrial in the same metro area.
Why is Prologis the world's largest REIT by market cap?
Prologis earned its #1 REIT position through its dominant global logistics network (1.2+ billion sq ft in 19 countries), its massive investment in the e-commerce supply chain build-out, and the extraordinary rent growth in logistics real estate from 2017-2022. Its scale provides unique advantages: it can offer multinational logistics companies (Amazon, DHL, FedEx) a single global landlord relationship across 100+ markets, which no competitor can match. Its development pipeline (adding 50+ million sq ft/year of new development) creates organic growth beyond rent increases on existing properties. Its Essentials platform (providing customers with solar energy, LED lighting, forklifts, and logistics services through the Prologis relationship) generates additional high-margin revenue. The combination of scale, global reach, development pipeline, and services positions Prologis as a logistics infrastructure company as much as a real estate owner.
What is "nearshoring" and how does it benefit industrial REITs?
Nearshoring is the practice of moving manufacturing and supply chain operations closer to end markets, as opposed to "offshoring" (moving production to distant low-cost locations like China). After COVID supply chain disruptions demonstrated the risk of long, complex supply chains, many US companies are moving production from China to Mexico (near-shoring to a neighboring country) or the US itself (onshoring). Mexico's maquiladora manufacturing regions near the US border have seen massive new factory investment, requiring new industrial facilities for production, warehousing, and cross-border logistics. Prologis, with substantial Mexico operations, directly benefits from this trend. US domestic manufacturing investment (CHIPS Act, IRA clean energy manufacturing incentives) similarly drives demand for industrial facilities near the new production sites, supporting sustained industrial REIT demand growth beyond the e-commerce cycle.