Industrial Real Estate Fundamentals and Investment Outperformance

By: Chris Caton

Why is industrial real estate so attractive to the capital markets, and why is it outperforming other types of real estate investments?

INDUSTRIAL REAL estate is basking in the sun. Average annual returns have been 12.8 percent during the last five years on an unleveraged basis, according to data from the National Council of Real Estate Investment Fiduciaries (NCREIF), above the broader real estate industry average of 11.5 and above historical norms of about 10 percent for industrial properties. Returns for industrial real estate have been the highest or second highest of the main property types (including office, retail and apartments) in each quarter for more than three years.

Operating fundamentals are at their best in more than a generation. Vacancy rates have fallen to all-time lows in many markets and stood at 5.2 percent nationally in September 2016, according to CBRE. Rental rates have risen rapidly. Rents rose 9 percent in 2016 and are up 30 percent cumulatively in the last four years.

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