Industrial Capital Market Update, Q4 2018

Industrial Market: National Cap Rate Trends

Here we look at cap rate trends in the Industrial sector, which has garnered significant investor interest over the last year given the expansion of e-commerce and warehouse/distribution space. The chart shows how industrial cap rates had been volatile from 2013 through 2016, but have trended downward in the last two years (as shown in the teal line representing the 12-month rolling average). In the fourth quarter, the average industrial cap rate fell to 7.0% from 7.2%. The 12-month rolling average fell to 7.2% from 7.3% last quarter. This steady cap rate decline, like the one for the apartment market, defies the conventional wisdom that cap rates increase with interest rates. It is, however, indicative of the general investor interest in industrial properties, given the fundamentals we saw in this asset class in recent quarters.

Warehouse/distribution and flex/R&D performed stronger in the second half of 2018 than they did in the first half, but, overall, 2018 was a bit disappointing given the robust year for this sector in 2017. The average effective rent grew 0.8% in the quarter, down from 1.0% in the third quarter, but stronger than the 0.5% average rent growth in the first two quarters. Tenants may have hesitated a bit in the first half to lease space given the uncertainty in global trade talks. Recent news on this topic, however, has been more reassuring, indicating that the trade wars will not be as bad as many had feared at the end of 2018.


National Industrial Market: Cap Rate Trends, 2013 Q4 – 2018 Q4

Source: REIS, Real Estate Solutions by Moody’s Analytics



Analysis by Barbara Byrne Denham. Denham is a Senior Economist in the research and economics department at REIS, the team responsible for the firm’s market forecasting, valuation, and portfolio analytics services. Throughout her 20-year career, Barbara has written a number of white papers on the commercial real estate market.


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