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Industrial Real Estate Being Added to Global Investors’ Portfolios

According to global property advisor CBRE, strong international investor appetite for logistics real estate fueled by e-commerce growth ... Los Angeles/Orange County, New Jersey and Inland Empire, each of which recorded cap rates of between 4.00 and ...

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Structural Changes Transform Supply Chains According to global property advisor CBRE, strong international investor appetite for logistics real estate fueled by e-commerce growth and demand for last-mile logistics, combined with an abundance of institutional capital in the global market, is driving increased investment in the sector that is expected to continue in 2018. Global Property Investment Trends Include: * Global Investment in Industrial Real Estate Reaches $85.8 Billion YTD * Abundance of Institutional Capital and E-Commerce Growth to Drive Investment in 2018 * Growing Trend of Cross-Border Investment, Especially from Asia Strong interest in prime logistics assets continues in most industrial hubs around the world, with $85.8 billion in total investment volume in the first three quarters of 2017–an increase of 12% year-over-yearThis has led to widespread yield compression, with 46 of the 64 global markets tracked by CBRE recording a decrease in prime yields since Q3 2016The logistics sector is poised for continued growth amid rapid e-commerce expansion and positive market fundamentals across all regionsThis will continue to drive global demand and investment in the sector in 2018. Overall, the prime logistics sector is performing well in the Americas, EMEA and Asia Pacific, supporting a healthy capital investment environment with steady yield compression in most industrial hubsThe logistics sector continues to be impacted by structural changes, such as online retailing, that have transformed global supply chainsE-commerce operators require an estimated average of 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 accessibleThis has piqued the interest of global investors who continue to add industrial assets to their portfolios at lower cap rates, with the reasonable expectation that they will achieve immediate rent growth. There is a growing trend of cross-border investment into industrial real estate, especially from AsiaDespite Chinese government restrictions on overseas investments as of late 2016, Chinese investors have acquired more than $773 million in U.Sindustrial real estate to date this year–equating to 89% of their U.Sinvestment total for all 2016Asian capital has also been targeting EuropeIn June 2017, sovereign wealth fund China Investment Corporation agreed to purchase Logicor, a pan-European logistics company, from Blackstone for $12.25 billionThe 147 million-sq.-ftportfolio of high-quality logistics assets spans 17 countries, with 70% of it concentrated in the U.K., Germany, France and Southern Europe. “Industrial demand and strong property fundamentals, particularly in this cycle, have piqued the interest of global investors, especially from ChinaDomestic wealth has grown significantly in China in recent years, and investors are seeking to diversify their portfolios with global acquisitions in the U.Sand EuropeCompetition for prime industrial properties is strong, and the volume of capital that is under-allocated in the industrial asset class has become increasingly aggressive,” said Jack Fraker, managing director, Global Industrial & Logistics, CBRE. “Prime logistics is an attractive asset class for investors that provides a high return and stable cash flow due to the strong user fundamentals, which is largely fuelled by e-commerce growth and demand for last-mile logisticsGiven the amount of institutional capital in the global market, and the robust appetite for logistics real estate, strong investment activity should continue in 2018 with some markets experiencing further yield compression,” added MrFraker. EMEA had the largest decline in yields year-over-yearPrime yields decreased by an average of 35 basis points (bps) over the 12-month period (Q3 2016 – Q3 2017), with most European markets seeing a declineYields tightened the most in Paris/Lyon (-75 bps to 5.00%) and Munich (-60 bps to 4.50%). Nearly half of the Americas markets experienced yield compression year-over-yearThe U.Sindustrial market continues to experience tightening fundamentals, with limited new supply and rising rents, driving capital flight to high-performing markets such as Seattle, Oakland, Los Angeles/Orange County, New Jersey and Inland Empire, each of which recorded cap rates of between 4.00 and 4.25%. Increased turnover and yield compression is driven by demand for logistics facilities in APACInvestment turnover in the sector increased 51% year-over-year in Q3 2017, while yields tightened by 29 bps year-over-year to 6.68%Demand from e-commerce has been strong in China, South Korea and India, with many investors taking advantage of this structural change in consumer behavior. Share this:Click to share on Twitter (Opens in new window)Click to share on Facebook (Opens in new window)Click to share on Google+ (Opens in new window)Like this:Like Loading... 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