The ongoing outperformance of US industrial real estate

CONTRIBUTORS

Indraneel Karlekar, Ph.D

Global Head of Research and Strategy, Clarion Partners

Pedro Nino

Head of Industrial Research and Strategy
Clarion Partners

Preview

Investor interest in U.S. industrial real estate has reached a record high amidst historically strong property-level fundamentals. The sector has continued to be the best-performing property type tracked by the private real estate return benchmark over the past two decades (Exhibit 1). Although industrial property values have been impacted by the interest-rate driven correction that began in 2H 2022, as have all property types, Clarion Partners is optimistic that values will stabilize in the year ahead as debt rates improve.

Exhibit 1: NCREIF Property Index (NPI) Vs. Industrial Total Return History

Source: NCREIF, Clarion Partners Investment Research, Q2 2024. Based on Expanded NPI data, which includes all NPI properties and all qualified alternative assets. Note: Based on the Expanded NPI.

As explained in this paper, Clarion Partners anticipates industrial will continue to be a top-performing commercial real estate (CRE) sector due to powerful and durable long-term demand catalysts. It has had an extraordinary decade-long boom with most markets reporting double-digit annualized returns.

Furthermore, the PREA Consensus Survey forecasts that industrial may continue to outperform the major sector average from 2024 to 2028. The enduring strength of omni-channel consumption in an increasingly interconnected global economy will continue to drive steady demand at new and existing warehouse and distribution properties across the United States.

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