Commercial real estate investment has bounced back from its Covid-19 low, and the industrial segment is leading the way as demand remains strong for warehousing and logistics properties, according to a recent report from commercial real estate giant CBRE.
The company’s U.S. Cap Rate Survey H2 2021 (CRS) predicts a 10% year-over-year increase in real estate investment this year, following strong demand last year that led to falling capitalization rates (cap rates), especially in the industrial segment of the market. Cap rates measure a property’s value by dividing its annual income by its sales price; a lower cap rate generally indicates a higher value, according to CBRE.
“As the U.S. heals from the pandemic, investors' demand for real estate has grown to new heights,” Tom Edwards, global president of valuation and advisory services for CBRE, said in a statement announcing the report’s release. “Low cap rates for industrial and multifamily properties reflect solid fundamentals and rent growth prospects that characterize these sectors. Conversely, lingering uncertainty in the office sector suggests there is upward pressure for yields in this asset type.”
Looking at the industrial segment in particular, CBRE said e-commerce growth has elevated property values in logistics hubs, and that properties are still viewed by investors as “efficiently priced.” Strong demand for space is expected to continue, especially in markets with very low cap rate levels, including Riverside, Calif.; Phoenix; and Dallas. Supply-constrained port markets, such as Los Angeles, Oakland, and Northern New Jersey, have some of the lowest cap rates in the U.S., according to the survey.
Geopolitical crises, including the Russian invasion of Ukraine, are not expected to have a major effect on the market outlook, the researchers said.
“Strong property market fundamentals, fueled by a robust economic recovery, will help maintain cap rates at current levels. While the crisis in Ukraine and associated sanctions bring some near-term uncertainty into play, we do not currently believe that will be too disruptive to the U.S. economic outlook,” according to Richard Barkham, global chief economist and Americas head of research for CBRE.
The news follows other recent reports of strength in the industrial real estate sector. In February, logistics real estate firm Prologis reported record rent growth for logistics facilities in the United States and globally in 2021.