Industrial CRE Yield Compression Continues Globally

In a new study of 63 markets around the world, CBRE finds that 47 of them experienced a year-over-year decline in logistics real estate yields in 2018.
David Egan, Head of Industrial & Logistics Research, Americas and Global, CBRE. Image courtesy of CBRE

The global investment community’s strong attraction to the industrial real estate sector continues unabated and the numbers tell the story in CBRE’s new report, 2019 Global Industrial & Logistics Prime Yields. CBRE analyzed 63 markets across the globe and found that 47 of those markets experienced lower year-over-year yields in 2018.

“The logistics sector continues to benefit from structural changes, such as online retailing and evolving consumer behaviors, transforming global supply chains,” Jack Fraker, global head of industrial & logistics with CBRE’s Capital Market team, said in a prepared statement. “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. Global investors have caught on and are keen on adding industrial assets to their portfolios.”

Hong Kong recorded the lowest prime yield of any global market with 3.4 percent, followed by Vancouver and Tokyo, with respective yields of 3.75 and 3.9 percent. Then there was a six-way tie with German Hubs, London, Los Angeles/Orange County, New Jersey, Oakland and Seattle all recording a prime yield of 4 percent. Toronto completed the group at 4.25 percent.  

Regionally, prime yields dropped to 5.97 percent in Asia Pacific and 5.47 percent in the Americas. Europe, the Middle East and Africa logged prime yields of just 5.41 percent, following a drop of 35 basis points from 2017, the highest year-over-year decline among the three regions.  “To me, the most surprising takeaway from the report was the sharp decline in yields in EMEA to the point where it’s the lowest region in the world,” David Egan, CBRE’s head of industrial & logistics research, Americas and Global, told Commercial Property Executive. “One of the major narratives in the business has been around the growth of e-commerce and supply chain logistics in the European markets and these results support that story. Europe was a little late to the game, but the region has clearly caught up and is a major target of institutional global investment.”

No end in sight

Despite concerns over global economic uncertainties, CBRE expects prime logistics yields, or capitalization rates, to go unchanged for the most part in 2019. However, additional tightening is a possibility given the unflagging investor interest in core industrial assets. In North America, for example, CBRE anticipates that investors will expand their focus on logistics sub-sectors like cold storage and high flow-through truck terminals. And in Europe, while compression may slow in some markets that have already reached historic lows, yields may continue to compress in locations like Spain, Italy and Central and Eastern Europe.

“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. This will continue to drive global demand and investment in industrial real estate,” Egan said in a prepared statement.