Industrial assets continue to garner strong demand from investors, especially in Class A types in core growth markets, according to Cushman & Wakefield’s latest industrial and logistics investor outlook.
The average industrial cap rate is 6.29%, down 13 basis points from a year ago. Cap rates vary widely by asset class, with an 80 basis point differential between Class A and Class B properties and a 198 bps difference between Class A and Class C facilities, according to the report. Class A cap rates range from 4.5% to 6.5%, Class B's range from 5.5% to 7%, and Class C's range from 6% to 8.75%.
Class A assets with long-term credit tenants at market rent levels with escalations are on the lower end of the cap rate range. Short-term tenants with below-market leases in place in Southern California, Northern New Jersey, Dallas and Miami are also on the lower end, said Cushman & Wakefield. Additionally, Chicago, Houston, Seattle, Raleigh and Atlanta were identified as high-growth, high-demand markets, the report said.
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Class B and some Class C products appeal to investors seeking higher rent growth and greater yield expectations, especially if they have below-market leases in place and are located near population centers with access to a readily available workforce, said the CRE firm. Assets in urban areas are especially in demand due to reduced shipping and delivery times.
Class A cap rates have remained relatively constant over the past six months as interest rates have begun to normalize and the 10-year Treasury hovers in the low to mid 4% range, according to Cushman & Wakefield. Over the past year, Class A cap rates have declined slightly by 13 bps. Class B cap rates have declined by 12 bps, and Class C cap rates have fallen by 15 bps since the company’s year-ago report. However, investors are anticipating interest rates will subside by the second or third quarter, potentially reducing overall capitalization rates, especially in core markets, said the report.
The report said buyers and sellers have become more realistic with pricing expectations in the sector.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
