Industrial, Logistics Prime Yields Near Record Lows

Rapid e-commerce growth and modernizing logistics assets are attracting abundant capital to industrial real estate, which is pushing investment yields close to record lows, reported CBRE, Los Angeles.

CBRE said prime logistics properties have seen “steady” yield compression in most industrial hubs–47 of the 63 markets it tracks recorded lower yields in 2018 than in 2017.

“The logistics sector overall continues to show signs of growth amid rapid e-commerce expansion and positive fundamentals across most top-tier and secondary markets,” said CBRE Head of Industrial and Logistics Research David Egan. “This will continue to drive global demand and investment in industrial real estate.”

CBRE Global Head of Industrial and Logistics Jack Fraker noted the sector benefits from both online retailing and evolving consumer behaviors. “E-commerce operators require up to three times more space than traditional warehouse users due to a greater diversity in products handled and the need to have them immediately accessible,” he said. “Global investors have caught on and are keen on adding industrial assets to their portfolios.”

Currently, four U.S. markets rank among the lowest prime yields in the world: Los Angeles/Orange County, Calif., New Jersey, Oakland, Calif. and Seattle all return 4 percent yields.

In the Americas, prime logistics yields declined 24 basis points year-over-year to 5.47 percent on average. And industrial rental rates are growing at a record pace–rising by 7.4 percent last year in the U.S. and 10.8 percent in Canada, CBRE reported. “As a result, competition among institutional buyers for industrial properties has remained strong and more than half of North American industrial markets experienced yield compression year-over-year,” the firm’s Global Industrial and Logistics Prime Yields report said.

The report said prime logistics yields should hold steady through the year as investors’ appetite for core industrial assets continues.