Cap Rate Compression: A Strong Signal of Investor Confidence
One of the clearest indicators of industrial real estate’s popularity is the significant compression of cap rates in the sector. Since 2010, industrial cap rates have compressed by almost 300 basis points, outpacing other asset classes like multifamily (30 basis points) and retail (50 basis points)(wp3). Cap rate compression signals that investors are willing to accept lower returns in exchange for the perceived stability and growth potential of these assets.
The trend is even more pronounced in high-demand infill markets such as New York City, Northern New Jersey, and Miami, where cap rates have compressed by over 370 basis points and are trading at an average of 4.6%, lower than the 4.8% baseline across major metro areas. This compression indicates strong investor demand and the growing competitiveness of the sector, especially in markets with high consumer density and proximity to major logistics hubs.
Cap Rate Compression by Asset Class
| Dec-10 | Dec-23 | Compression | |
| DHPH Industrial Infill Markets | 8.3% | 4.6% | 3.6% |
| Industrial Overall | 7.7% | 4.8% | 2.9% |
| Multifamily Infill Markets | 6.3% | 5.7% | 0.7% |
| Multifamily Overall | 5.8% | 5.5% | 0.3% |
| Office | 7.1% | 9.9% | -2.8% |
| Self Storage | 8.5% | 5.4% | 3.1% |
| Strip Center | 7.4% | 6.9% | 0.5% |
Historical Cap Rate by Asset Class
Source: Green Street (Top 50 Market avg.), S&P 500 PE Ratio
Note: DHPH Infill markets include: NYC, Central & Northern NJ, Boston, Baltimore, D.C Metro, Miami, Fort Lauderdale, Palm Beach, Philadelphia, Richmond VA
What This Means for the Future of Industrial Real Estate
With a significant portion of foreign capital targeting U.S. industrial real estate, the sector is poised for continued growth. As more foreign and domestic capital flows into the market, competition for high-quality assets will intensify, likely driving further cap rate compression and property value appreciation. This increased investment also indicates that industrial real estate will play a central role in shaping the future of global logistics and e-commerce infrastructure.
Looking ahead, the expansion of industrial real estate is expected to create more opportunities for innovative asset management and sustainable development. Investors will likely focus on building energy-efficient, technologically advanced facilities to meet tenant needs while adhering to evolving environmental regulations.
