Low Cap Rates Place NJ Among Top Ten Global Logistics Hubs

Brian Fiumara, executive vice president, CBRE, Saddle Brook, NJ

SADDLE BROOK, NJ—North American markets accounted for six of the top 10 global logistics hubs in 2018, with New Jersey ranked seventh for the lowest cap rates—indicating high property values—according to the latest research from CBRE.

CBRE’s Global Industrial & Logistics Prime Yields report reveals that rapid e-commerce growth and the modernization of logistics assets is attracting an abundance of institutional capital to industrial real estate, pushing investment yields across the globe close to record lows—47 of the 63 markets tracked by CBRE recorded lower yields in 2018 when compared to the previous year.

Yield, also known as capitalization rate, measures the rate of income a property produces for a buyer relative to the price paid, by dividing the asset’s net operating income by the purchase price. Thus, a lower yield indicates a higher purchase price. A market’s prime yield or cap rate represents the highest quality properties in the best locations in that market.

According to the report, New Jersey continued to see a tightening of cap rates for stabilized assets. The market recorded a cap rate of 4.0% and a rise in industrial rental rates. For North America as a whole, industrial rental rates are growing at a record pace—increasing by 7.4% last year alone.

“Given its proximity to a range of transportation options and the major ports, New Jersey is one of the hottest markets for industrial space catering to the e-commerce and logistics industries in North America,” says Brian Fiumara, executive vice president, Capital Markets, CBRE. “In addition to record high average asking rents and absorption rates, the market continues to attract capital investment, further boosting property values.”

“The logistics sector continues to benefit from structural changes, such as online retailing and evolving consumer behaviors, transforming global supply chains. E-commerce operators require 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 accessible.,” says Jack Fraker, global head of industrial and logistics, Capital Markets, CBRE. “Global investors have caught on and are keen on adding industrial assets to their portfolios.”

For 2019, global prime logistics yields are expected to hold steady as the appetite for core industrial assets continues.

“The logistics sector overall continues to show signs of growth amid rapid e-commerce expansion and positive fundamentals across most top-tier and secondary markets. This will continue to drive global demand and investment in industrial real estate,” says David Egan, head of industrial and logistics research, Americas and Global, CBRE.