CBRE Report Finds Seven of World’s 10 Lowest Yields Are In North America, Including New Jersey, Inland Empire, Los Angeles, Oakland
Low Yields Indicate High Property Values
Los Angeles CA— 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.
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.
Among the 10 individual markets with the lowest prime yields in the world are seven North American markets: New Jersey, California’s Inland Empire, Los Angeles/Orange County 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.
Two Asian markets had the lowest yields of all: 4 percent for Hong Kong and 4.1 percent for Tokyo due to high property values, high rents and minimal new development in those markets. The lone European market among the lowest 10, London, posted a yield of 4.5 percent.
“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.”
Fraker added, “Given the very strong fundamentals with record leasing activity and net absorption considerably in excess of new construction, investors can easily forecast near-term rental rate growth to counter the relatively low going in yields.”
As a region, Europe, the Middle East and Africa (EMEA) posted the largest compression of its prime yield, down 48 bps to 6.01 percent. The negative impact of Britain’s pending exit from the European Union hasn’t been as significant as was feared.
Prime yields in Asia and the Pacific (APAC) declined by 29 bps to 6.68 percent. APAC yields are influenced by the region’s relative dearth of prime logistics properties and its constrained land supply in top markets.
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.
To download the full report, click here.