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What is a good cap rate for a Class A industrial property?

We have significant experience investing in asset classes such as office and multi-family, but for the first time are taking a look at purchasing a couple of industrial properties. We are looking at major port cities such as Los Angeles, San Francisco and Seattle. We do not want to overvalue the properties and pay too much for the assets. Generally speaking, what is a good cap rate at the moment for Class A industrial properties? What other factors should we consider?

Answers
  • Korosh Farazad
    Farazad Investments
    March 28, 2018

    Based on our database and previous assessments, below, is the figures we have. Class A (stabilized properties): Seattle 3.75 percent to 4.25 percent; in Southern California, Orange County: 3.75 to 4.25; Los Angeles: 3.75 - 4.25; S. CA: Inland Empire 3.75 - 4.25; N. CA: San Jose 4.00 - 4.25; N. CA: San Francisco 4.00 - 4.25. Class B (stabilized properties): Seattle 4.50 - 5.25; S. CA: Orange County: 4.50 - 5.25; S. CA: Los Angeles 4.50 - 5.25; S. CA: Inland Empire 4.50 - 5.25; N. CA: San Jose 4.50 - 5.25; N. CA: San Francisco 4.50 - 5.25. CLASS C (Stabilized properties): Seattle: 5.50 - 6.25; S. CA: Orange County: 6.00 - 7.25; S. CA: Los Angeles 6.00 - 7.25; S. CA: Inland Empire 6.00 - 7.25; N. CA: San Jose 6.50 - 7.00; N. CA: San Francisco 6.25 - 7.00.

  • Mark Drumm
    Managing Director, Regent Park Advisors
    March 28, 2018

    Depends upon the market, the submarket, the building configuration and age.

  • Alejandro Hinostroza
    SVN (Sperry Van Ness) - Rich Investment Real Estate Partners
    March 28, 2018

    Los Angeles, without having too many specifics, 5.0%-5.5%

  • Robert J. Ivanhoe
    Greenberg Traurig, LLP
    April 01, 2018

    Like any category of real estate assets, industrial properties have different return expectation based upon quality, location and suitability characteristics. Having been in the industry for nearly 40 years, it is interesting to see how industrial has gone from a little respected and downtrodden category to one that has become the darling of the industry and very high performing. This is believed to be the result of the explosion of on line retailing and the much greater need for well located, high tech distribution and "last mile" facilities to most efficiently deliver goods directly from the seller to the ultimate consumer. Old, functionally obsolete and poorly located distribution or industrial properties seem to have cap rates in the 7-9% range, but newer facilities near major highways or rail lines with high floor loads, high ceiling heights and in good condition have cap rates in the 5-6% range. What also seems to be the case is that institutional investors often seek to purchase large portfolios, which trade at lower cap rates than individual facilities or smaller portfolios trade, so there is a premium in larger portfolios that create synergies and a major market presence.

  • Kitty Liu
    JLL
    April 02, 2018

    I think a good cap rate for Class A industrial properties would be between 5-6% and for major port cities as you mentioned it might be a low 5%.

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