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June 22, 2024
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Prime Logistics Yields Across Globe near Historic Lows, Spurred by Growth of E-Commerce


The rapid rise of e-commerce has pushed investment yields on prime logistics properties across the globe close to record lows – indicating high property values -- with North American markets accounting for seven of the 10 lowest prime logistics yields globally, according to a new report from CBRE Group Inc.

The 10 individual markets with the lowest prime yields in the world include the Inland Empire and Los Angeles/Orange County, as well as New Jersey and Oakland at 4.25 percent; Seattle at 4.5 percent; and Vancouver, B.C., at 4.75 percent. Each recorded a decline of 25 to 50 bps from the previous year.

In its inaugural Global Industrial & Logistics Prime Yields report, CBRE notes that strong demand and limited supply helped to compress prime yields, also known as capitalization rates, in each region for the 12 months ended September 30, 2016.

Yield measures the rate of income a property produces for an acquirer relative to the price paid for it by dividing the property’s net operating income by the purchase price. Thus, a lower yield indicates a higher purchase price. Additionally, a market’s prime yield is that for the highest quality property in the best location in that market.

The Americas had the lowest prime logistics yield as a region at 5.84 percent, down 18 basis points (bps) from the previous 12 months, as e-commerce has stoked robust tenant demand for warehouse and distribution properties in the world’s largest consumer market.

“Prime logistics yields across the world have greatly compressed in recent years as investors worldwide have sought to buy into the burgeoning U.S. industrial-property market,” said Jack Fraker, Vice Chairman and Managing Director of CBRE’s Capital Markets Industrial Practice. “As they do so, many are gravitating to the stability of prime assets in the world’s leading logistics hubs, which has put prime yields in those markets at nearly unprecedented levels for industrial-and-logistics assets.”

In the greater Los Angeles and Orange County region, soaring demand from e-commerce and third-party logistics companies for warehouse and distribution facilities is likely to push demand above available space, causing asking lease rates and investor interest to climb in 2017, according to CBRE’s latest research report.

“The fact that demand is likely going to exceed the available space will cause asking lease rates to go up,” said senior industrial analyst for the LA region, Jamil Harkness. “Warehouse and distribution space throughout the region will continue to fill up quickly especially due to demand from retail and retail-related companies.”

For 2017, CBRE expects prime logistics yields to hold steady, as the logistics sector appears poised for more growth as e-commerce continues to expand rapidly.

“Leading logistics hubs across all regions have room to run in this cycle, which will continue to drive liquidity in prime assets,” said David Egan, CBRE’s Head of Industrial & Logistics Research, the Americas.

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